Netherlands law firm AKD says that, while beleaguered shipowners may be looking increasingly to Chapter 11 filings in the United States to protect their financial interests, the fact is that Chapter 11 does not enjoy the force of law throughout the world, and certainly not in The Netherlands.
Haco van der Houven van Oordt, head of the shipping & offshore team at AKD’s headquarters in Rotterdam, says, “Nobody – and that includes the banks - wants to see shipping companies forced out of business. On the other hand, one cannot expect the banks to forgo the opportunity to ring-fence their losses in cases where they deem this to be the most propitious course of action.
“Some observers have predicted an increase by owners in the use of bankruptcy protection filings, and evidence from the banks suggests that a number of owners have indeed threatened to take such steps absent an agreement to restructure their debt.
“In this respect it is worth noting that Chapter 11 or similar protection does not enjoy worldwide currency. It works in those countries – including the US, the UK and in fact many others – which adopt a universal approach to cross-border insolvencies. But there are other countries, most notably The Netherlands, which adopt a territorial approach to bankruptcy.
“Banks can take action against the assets of a debtor in The Netherlands, even if the debtor is in liquidation or subject to similar proceedings. Under Dutch law, it is possible to act for banks and to auction vessels in The Netherlands, despite insolvency and/or liquidation proceedings being in place in other countries. Such proceedings do not prevent a bank from enforcing a mortgage in The Netherlands.”
The Netherlands is also a jurisdiction in which very few claims enjoy priority over mortgage claims. Moreover, it is widely recognised as a haven for those looking to attach ships and/or to arrange for their swift judicial auction, and counter-security is seldom required. There are very few legal hurdles to pass in order to obtain leave for attachment and, in addition, there is no obligation for the claimant to pursue its claim in the courts of The Netherlands following the attachment.
Haco van der Houven van Oordt adds, “While most mortgages are enforced in Rotterdam, a significant number are also dealt with in Amsterdam. All ships proceeding to Antwerp have to transit the River Scheldt, where they are also subject to Netherlands jurisdiction. And so it is that a number of mortgagees are known to have taken active steps in the past to direct vessels to ports in the Amsterdam – Rotterdam – Antwerp range for the specific purpose of bringing themselves within the jurisdiction of the Dutch courts.
“In the light of recent events, many observers are predicting a rush on the part of shipowners to seek Chapter 11 protection. But The Netherlands is a place where creditors can still pursue the attachment of assets despite a Chapter 11 filing.”