Kim v Daebo International Shipping Co Ltd

Federal Court of Australia|2015-05-08|Before: Rares J

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 382 of 2015

BETWEEN: CHANG-JUNG KIM, IN HIS CAPACITY AS FOREIGN REPRESENTATIVE OF DAEBO INTERNATIONAL SHIPPING CO LTD

JUDGE: RARES J DATE OF ORDER: 8 MAY 2015 WHERE MADE: SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 382 of 2015

BETWEEN: CHANG-JUNG KIM, IN HIS CAPACITY AS FOREIGN REPRESENTATIVE OF DAEBO INTERNATIONAL SHIPPING CO LTD

REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 The plaintiff, Chang-Jung Kim, is the chief executive officer of the defendant, Daebo International Shipping Co Limited, a Korean company. On 6 March 2015, the Seoul Central District Court, 21st Bankruptcy Division, (the Korean Court) made orders under Art 34(1) of the Debtor Rehabilitation and Bankruptcy Act of the Republic of Korea that rehabilitation proceedings should be commenced with respect to Daebo, as a debtor, and that Mr Kim as a representative director of Daebo, would be considered the custodian of Daebo for the purposes of that Act. 2 In his capacity as a foreign representative of Daebo for the purposes of the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law, being Sch 1 to the Cross-Border Insolvency Act 2008 (Cth), Mr Kim seeks orders that the Korean proceedings be recognised as a foreign proceeding within the meaning of Arts 2(a) and 17(1) of the Model Law, that he be recognised as a foreign representative within the meaning of Art 2(d), and that the Korean proceedings be recognised as a foreign main proceeding pursuant to Art 17(2).

The legislative scheme 3 The legislative scheme in the Model Law has been discussed in a number of decisions of this Court, including by me in Ackers v Saad Investments Company Limited (in official liquidation) (2010) 190 FCR 285 at 286-288 [3]-[9] by Allsop CJ, with whom Robertson and Griffiths JJ agreed, in related proceedings: Akers v Deputy Commissioner of Taxation (2014) 223 FCR 8 at 16-24 [27]-[69] and in another case involving a shipping company undergoing similar reconstruction proceedings in Korea: Yu v STX Pan Ocean Co Limited (2013) 223 FCR 189 by Buchanan J. 4 The purpose of recognition proceedings is to ensure, among other things, what the preamble to the Model Law stated in par (c), namely, the fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested persons, including the debtor. In essence, the Model Law seeks to ensure that a debtor's assets be administered in the jurisdiction in which the debtor company's or individual's centre of main interests lies, for the benefit of his, her or its creditors, wherever they may be found in the world, and that courts of States Party to the Model Law in other jurisdictions should recognise each other's supervision of an insolvent debtor's estate as taking place in the State where the debtor has that centre of main interests, as identified in Art 2(b). 5 Once the Court is satisfied of the (ordinarily) relatively straightforward requirements for the recognition of a foreign proceeding under Art 15, using the presumptions provided in Art 16, where necessary, it makes a decision under Art 17 as to whether, first, the foreign proceeding should be recognised (Art 17(1)), and secondly, whether it should be recognised as a foreign main proceeding (Art 17(2)), so that the purposes of the Model Law to which I have referred can be advanced. 6 Articles 19, 20 and 21 deal with the grant of relief by the Court of the State in which recognition proceedings are taken. The Court may order on an interlocutory hearing a stay of execution against the debtor's assets (Art 19(1)). After recognition of a foreign main proceeding, the Court may make orders prohibiting the commencement, or staying the continuation, of individual actions or proceedings concerning the debtor's assets, rights, obligations or liabilities (Art 21(1)(a)) and staying execution against the debtor's assets (Art 21(1)(b)). 7 The scope, and modification or termination, of the stay and suspension referred to in Art 21(1) is regulated under Art 20(2) by s 16 of the Act. That section somewhat beguilingly provides that, for the purpose of Art 20(2), the scope, and modification or termination, of the stay or suspension referred to in Art 20(1) are the same as those that would apply if the stay or suspension arose either under the Bankruptcy Act 1966 (Cth), in the case of an individual debtor, or Ch 5 (other than Pts 5.2 and 5.4A) of the Corporations Act 2001 (Cth), as the case requires. 8 A plaintiff may have a proprietary or secured claim that can be enforced by an action in rem under the Admiralty Act 1988 (Cth), which may be enforceable and not affected by any stay under Art 20(2) of the Model Law and s 16 of the Cross-Border Insolvency Act. For example, a plaintiff who commences a proceeding on a maritime claim against a ship as an action in rem under any of ss 17, 18 and 19 of the Admiralty Act before any stay came into effect under Arts 19 or 20(2) of the Model Law, will have a secured interest in respect of that claim simply because of the timing of the commencement of the proceeding in rem: In re Aro Co Ltd [1980] Ch 196; Programmed Total Marine Services Pty Ltd v Ships "Hako Endeavour" (2014) 315 ALR 66 at 71 [22] per Allsop CJ, with whom I agreed on this aspect at 74 [37]. 9 As I noted in Atlasnavios Navegacao LDA v The Ship Xin Tai Hai (No 2) (2012) 215 FCR 265 at 286 [90], the registrar's power to issue an arrest warrant, ordinarily, does not involve a judicial or quasi-judicial discretion. And this led Allsop J, writing extra-judicially in 2003, to observe that the right to arrest has become, in effect, a pre-emptive security device available virtually on demand, as I noted (215 FCR at 287-288 [95]-[96]). 10 It is not necessary in these reasons to explore what the exact nature of such a stay is, having regard to whatever may be the structure of the Korean proceedings under Art 34 of the Korean Act and their characterisation for the purposes of Art 20. That can occur if the occasion arises in the future. That is because these proceedings involve a debtor that operates 19 vessels in the international shipping market. It may also be helpful, in considering the appropriate relief to be granted in a case like this, to appreciate that ordinarily, under s 471C of the Corporations Act, a secured creditor retains his, her or its right to realise or otherwise deal with a security interest. That is so notwithstanding the stay imposed by s 471B, on proceedings in a Court against the company or in relation to its property and enforcement processes in relation to such property, that would otherwise apply were there to be a winding up in insolvency by the Court. 11 It was for this reason that Buchanan J made a special order in Yu 233 FCR at 201-203 [33]-[42], [48], to ensure that before an arrest warrant was issued in a proceeding in rem under the Admiralty Act, a judge considers whether the plaintiff's claim against the ship was based on an existing secured interest, such as would be given by a maritime lien recognised under s 15 of that Act. Ordinarily, under the Admiralty Rules 1988 (Cth), a registrar determines whether or not an arrest warrant should be issued. 12 Again, as Buchanan J explained in Yu 223 FCR at 202-203 [40]-[41], a proceeding on a maritime lien or other charge in respect of a ship or other property subject to the lien or charge may be commenced as an action in rem against the ship or property under s 15 of the Admiralty Act. Such a claim enforces a pre-existing security that, in the case of a maritime lien, was created at the time of the occurrence of the event from which the lien arose, unlike a proceeding in rem on a general maritime claim. Thus, in the case of a collision, the lien arises at the moment of damage and travels with the ship as a secured right of the injured party, regardless of changes in her ownership or the granting of subsequent mortgages or charges, until the lien is discharged by payment to the lienee in full or by a judicial sale of the ship: Johnson v Black (The Two Ellens) (1872) LR 4 PC 161 at 169; Harmer v Bell (The Bold Buccleugh) (1851) 7 Moo PC 267 at 284-285; 13 ER 884 at 890-891; Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 77-78 [111]-[115] per Allsop J with whom Finkelstein J agreed at 52 [9]. Similarly, the maritime lien for the wages of the master or members of the crew of a ship accrues to the seafarer and is enforceable against the ship wherever she may berth: Ship Hako Endeavour v Programmed Total Marine Services Pty Ltd (2013) 211 FCR 369 at 394-399 [89]-[108] per Rares J. 13 And, a proprietary maritime claim, as defined in s 4(2), against a ship or other property is enforceable under s 16 of the Admiralty Act. 14 The Admiralty Act reflects long established principles of international maritime law developed by sea trading nations over millennia, to protect the interests of those who trade or have encounters with a peripatetic ship and those interested in her which may never again call in a port of the creditor's own jurisdiction. International conventions now reflect some of those principles, such as the 1952 International Convention relating to the Arrest of Seagoing Ships and the 1999 International Convention on Arrest of Ships, as do domestic laws relating to the bringing of actions in rem or against ships. It may be thought unlikely that the Model Law was understood or intended by either its creators or by the Parliament when giving it the force of law in Australia under s 6 of the Cross-Border Insolvency Act, to supervene or impliedly repeal the domestic statutory remedies provided in States Parties, including those in Australia's Admiralty Act, in respect of maritime creditors' rights to proceed in rem on a secured or proprietary claim that pre-existed any interim or final orders recognising a foreign proceeding under Arts 19 or 20 of the Model Law. 15 This is why it is appropriate that, once a foreign proceeding has been recognised or an interim stay granted under Arts 19 or 20, and before an arrest warrant is issued, a judge (preferably one familiar with the principles of Admiralty and maritime law as well as insolvency law) consider the nature of the plaintiff's proceeding in rem, including where a general maritime claim is asserted when that proceeding was filed, to determine whether the arrest ought occur. That is in contrast to the usual position where the registrar will issue an arrest warrant as of course once the requirements of the Admiralty Rules 1988 (Cth) are satisfied: see the discussion in Atlasnavios 215 FCR at 278-282 [61]-[74] and my conclusion at 285-286 [87]-[88].

The factual background 16 Mr Kim's evidence explained that Daebo had been incorporated in Korea on 14 February 2008. Its business objectives included marine cargo transport and other related activities. The evidence at the time of the application in the Korean Court was that Daebo operated a total of 19 vessels and that it: owned one, held bareboat charters, or demises, in respect of three others, and operated two more under what was described as "the financing lease agreement entered into between the debtor company and Shinhan Capital Co Limited", the precise nature of which is not clear. In addition, Daebo operated five vessels under long-term time charters and a further eight under short-term charter parties of a kind not more precisely described. 17 In its decision ordering that rehabilitation proceedings be commenced, the Korean Court ordered that lists of rehabilitation creditors, secured creditors and shareholders be submitted by 23 March 2015; that the reporting period for the rehabilitation claims, rehabilitation security rights and shares would cease on 3 April 2015; that the investigation period for those rehabilitation claims and security rights would be between 3 April 2015 and 17 April 2015; and that the first meeting of persons concerned would be held in the Korean Court on 12 May 2015. 18 The Korean Court explained that Daebo's "economic collapse" could be traced to the fact that the shipping industry had been in recession since 2009. It found that Daebo had uncollectable book debts of about USD49.69 million, which the Court said were due to a chain reaction of insolvencies of global shipping companies. It found that Daebo's liquidity was deteriorating and the company had incurred USD61.77 million in damages by reason of its termination of charter parties. The Court said that Daebo also owed USD36.39 million in outstanding hire on charter parties. 19 There is no evidence before me as to the precise conversion rates of Korean won (KRW). However, the Korean Court found that, as at 31 December 2014, Daebo's current liabilities exceeded its current assets by nearly KRW100 billion, and that its total liabilities exceeded its total assets by about KRW20 billion. Accordingly, the Korean Court found that Daebo: is in a state where [it] would not be able to repay its debts that are due without creating a considerable hindrance to the continuation of its business and there is a possibility of occurrences leading [Daebo] to bankruptcy … 20 Accordingly, the Korean Court found that there was reason for commencing rehabilitation proceedings under Art 34(1) of the Korean Act.

The Australian position 21 There are no current proceedings against Daebo in any Australian court. Mr Kim's evidence identified six possible creditors who were located in Australia. When the proceedings first came before me on 20 April 2015, I made orders for service on Daebo by email in Korea and dispensed with any further service requirements, it being plain that Daebo was being administered by the Korean Court and that Mr Kim, as its chief executive, would not need any additional formality in service. 22 I also ordered that each of the six Australian potential creditors be served with notice of the proceedings. I am satisfied by the affidavit of Holly Elizabeth Roper, affirmed on 7 May 2015, that that occurred. Two of the potential Australian creditors of Daebo, Cocks Macnish, solicitors, and Monson Agencies Australia Pty Limited, informed Ms Roper that they had received the notice but had no record of Daebo currently owing them money. The other four local creditors who were served have not appeared today. 23 I ordered that Mr Kim cause to be published notices of today's application in the Shipping Daily of Korea, The Australian and Lloyd's List Australia. I am satisfied by Ms Roper's affidavit that a notice in the required form was published on 22 April 2015 in The Australian and in translation in the Shipping Daily of Korea and that it was published on 23 April 2015 in Lloyd's List Australia. 24 In bringing these proceedings, Mr Kim complied with par 6.1 of Practice Note Corporations 2 which required him to bring to the Court's specific attention the decision in Yu 223 FCR 189.

Consideration 25 The evidence before the Korean Court established that Daebo has one head office in Seoul and no branch offices, that it employs four registered officers and 31 full-time employees. I am satisfied on the evidence before me that the presumption in Art 16(3) of the Model Law, that Daebo's registered office is its centre of main interests, is the actual position. Accordingly, on the evidence before me I am satisfied that the Korean proceeding is a foreign proceeding, being a judicial proceeding in Korea pursuant to a law relating to insolvency in which the assets and affairs of Daebo are subject to control or supervision by the Korean Court for the purpose of reorganisation within the meaning of "foreign proceeding" in Arts 2(a) and 17(1)(a). 26 I am also satisfied that the Korean proceeding is a foreign main proceeding, because it is taking place in Korea, where Daebo has its centre of main interests. I am satisfied that Mr Kim is a foreign representative, being a person authorised in the Korean proceeding to administer the reorganisation of Daebo's assets and affairs or to act as its representative in the foreign proceeding within the meaning of Arts 2(d) and 17(1)(b). The Korean proceedings for reorganisation are similar in character to those considered by Buchanan J in Yu 223 FCR 189, and by Jacobson J in Hur v Samsun Logix Corporation [2009] FCA 372. 27 The requirements for recognition in Art 15 have been established by the certified copy of the Korean Court's decision and its orders of 6 March 2015, commencing the foreign proceedings and appointing Mr Kim as foreign representative. 28 Daebo applied for provisional relief under Art 19, relating to recognition of the Korean proceedings in three other jurisdictions, namely, in the United States of America on 19 March 2015, in Japan on 9 March 2015 and in the United Kingdom on 16 March 2015. In its application to the Korean Court, Daebo also identified a number of foreign proceedings, including arbitrations, in countries other than Korea to which it was party. 29 Accordingly, I am satisfied that the requirements of Art 15(3) and s 13 of the Cross-Border Insolvency Act have been met by the identification of all foreign proceedings in respect of the debtor known to the foreign representative as well as his evidence that there are not such proceedings in this country.

Conclusion 30 For these reasons, I am satisfied that the Korean proceeding should be recognised as a foreign, and foreign main, proceeding and that Mr Kim be recognised as a foreign representative. I will make directions that these orders be advertised in the Shipping Daily of Korea and The Australian and be notified to each of the four Australian creditors who have been served with notice of these proceedings and have not responded. 31 I will also make an order in terms of the order that Buchanan J made in Yu 223 FCR 189 that any application for the issue of a warrant of arrest in Australia of any vessel owned or chartered by the defendant be dealt with by a Judge of this Court, and that his and these Reasons for Judgment be drawn to the attention of the Court at the time any such application is made. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

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