Samsun Logix files Chapter 15

Back on Feb. 9 I blogged about Sansun Logix in financial trouble.


Now they have filed Chapter 15 in New York.

Chapter 15 is a new chapter added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Generally, a chapter 15 case is ancillary to a primary proceeding brought in another country, typically the debtor's home country. As an alternative, the debtor or a creditor may commence a full chapter 7 or chapter 11 case in the United States if the assets in the United States are sufficiently complex to merit a full-blown domestic bankruptcy case. 11 U.S.C. § 1520(c). In addition, under chapter 15 a U.S. court may authorize a trustee or other entity (including an examiner) to act in a foreign country on behalf of a U.S. bankruptcy estate. 11 U.S.C. § 1505.

Chapter 15 is something new.

It is for foreign companies (outside of the U.S.), so they have some protection when monies are transferred through U.S. This is particularly important because of the rule B attachments which were being filed.

Understanding "Rule B attachments"

Back in January, I blogged about Armada filing for Chapter 15

Armada, a Singapore based carrier filed for Chapter 15. I had never heard of Chapter 15 until recently. Apparently it allows foreign companies to reorganize outside of the U.S., and protects them from U.S. creditors.

Recently I have been reading about "Rule B attachments", and the surprise some shipping companies got when suddenly monies were taken because of these.

Rule B Attachments are popular because they are effective. In Winter Storm Shipping, Ltd. v. TPI, the Court of Appeals for the Second Circuit held a Rule B Attachment can intercept and attach an electronic funds transfer (EFT) in the hands of an intermediary bank, including the New York Clearing House banks in Manhattan that process virtually all transfers of U.S. currency (or USD transfers) made worldwide. Because shipping industry transactions are generally in U.S. currency and usually pass through one of the New York Clearing House banks, Rule B Attachment proceedings have become exceptionally popular in the Southern District of New York (which includes Manhattan) where they now comprise approximately 30% of all new cases filed.

And, one way to avoid this is to file Chapter 15

Foreign companies can protect themselves through Chapter 15 of the Bankruptcy Code. Although Chapter 15 does not commence a full-blown bankruptcy case within the United States, it can provide a foreign debtor in an insolvency proceeding outside of the United States with certain protections, including the automatic stay, to protect assets in the United States. Specifically, a foreign shipping company that has commenced an insolvency proceeding abroad, may be able to stay all actions against it, including pending Rule B Attachments, by filing a Chapter 15 case soon after the commencement of its foreign proceedings. The Board of Directors of Armada (Singapore) Pte. Ltd. recently filed a chapter 15 petition in the Bankruptcy Court for the Southern District of New York for recognition of the company's insolvency proceeding in Singapore, for exactly that reason – to protect its assets against potential Rule B Attachments.

Armada files Chapter 15

Another bulk carrier has been hit by the downturn in the market. International shipping companies are really taking a beating. The bulk carriers are the first to be hit, but before long we will see other types of carriers in the same situation.

Armada, a Singapore based carrier filed for Chapter 15. I had never heard of Chapter 15 until recently. Apparently it allows foreign companies to reorganize outside of the U.S., and protects them from U.S. creditors.

Anyway, what is really interesting about this Armada problem, is they made money in 2008, but hit financial problems due to freight futures (FFA's).

The filing said the carrier's losses from derivatives would hit $375 million this year due to the bottoming out of charter rates. The company is the latest to be impacted by the drop in freight and charter rates for bulk cargo transportation. The benchmark index for the sector, the Baltic Dry Index, plummeted 92 percent from a record high in the summer to a record low in December as demand for raw materials dwindled in North America, Europe and Asia.
Armada actually turned a net profit of $130 million in 2008, according to the filing, but admitted losses on future freight contracts will be steep if rates continue to stay low, as analysts predict they will through at least the first half of 2009.

click here for complete article in American Shipper