Warren de Waegh, PhD researcher at the Commercial Law Department of Erasmus School of Law, has written an article for the Oxford Business Law Blog in which he explains certain legal problems that arise during the insolvency of a shipping company.
When a shipping company goes bankrupt, some legal problems arise originating from conflicts between maritime law and cross-border insolvency law. In recent years, these conflicts have occurred several times in some notorious bankruptcies, such as Hanjin and OW Bunker.
Maritime law provides for so-called maritime liens to protect claims that are crucial for maritime commerce, e.g. seafarers' wages. However, when a shipping company goes bankrupt, these maritime liens seem to be neglected and disappear in cross-border insolvency frameworks, including the European Insolvency Regulation.
In principle, maritime law confers a triple protection mechanism to maritime liens. First, the lienholder obtains a preferential claim against the debtor. In addition, the claim is directly enforceable and has droit de suite. In this way, lienholders are protected and the operation of the ship is guaranteed at all times, regardless of the transfer of ownership of the ship or concurrence with other creditors.
Protection of maritime liens during insolvency
Although the European Insolvency Regulation seems to ignore maritime liens, a lifeline exists to protect maritime liens during a European cross-border insolvency: article 8 of the Insolvency Regulation which protects rights in rem. De Waegh argues for unequivocal protection of maritime liens under this article to avoid the uncertainty and chaos of previous bankruptcies in future instances.
Unfortunately, under the current state of law, this is not yet the case because article 8 of the Insolvency Regulation leaves it mainly to the member states to decide which rights deserve protection. As a result, for example, German maritime liens are now unconditionally protected under article 8, whereas Dutch maritime liens are not protected at all. However, according to De Waegh, it would be desirable if all maritime liens enjoy the unconditional protection of article 8, regardless of differing views in the different member states.
Read the entire blog here.