Lessons Learned From an International Shipping Bankruptcy

18 March 2016 Publication

Texas Lawyer

The scenario is too frequent in the high capital cost, low margin and volatile world of international shipping: A foreign ship owner, caught in the wrong part of the economic cycle, is literally and figuratively having difficulty staying afloat and seeks U.S. bankruptcy protection.

Filing for protection in domestic bankruptcy courts is relatively easy for these foreign-based ship owners, as all that is needed is to have property in the jurisdiction. The only qualifications a “debtor” must meet under Section 109(a) of the Bankruptcy Code, is that the person “resides or has a domicile, a place of business or property in the United States or a municipality.” Courts have ruled that even something of relatively low value (such as a peppercorn) may satisfy the jurisdictional test.

“Therefore, the court concludes that in light of Congress’s use of the phrase ‘property ... that is of inconsequential value’ in 11 U.S.C. § 554(b), the language of § 109(a) is clear, and the court does not have discretion to look behind the language and declare that the quantity of property in the United States will be decisive of eligibility to be a debtor under the Code. Garcia v. U.S., 469 U.S. 70, 75, 105 S.Ct. 479, 482, 83 L.Ed.2d 472 (1984) (‘When we find the terms of a statute unambiguous, judicial inquiry is complete, except `in rare and exceptional circumstances.’”

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