www.TheSeaNation.gr

What is this restructuring all about? Well, to a large extent it is activity that is undertaken by shipping companies in order to cope with the crisis. It is selling off assets that are not performing, reducing number of people working, extending the duration of loans, having a moratorium of some payments, on an agreement basis with their counterparties. But this is not what I came to talk to you about today. As you will see, I am going to talk to you about the dark side, or a dark side of restructuring. And instead of trying to describe it to you in words, I will do it with a couple of quick pictures from my experience of what I have seen.

This is an original structure as we saw it when we got involved in a case, and you will see that it consists of a couple of Holding Companies, one owns a 60%, another one is holding 40% of the Asset Holding Company which operates very specialised ships and is highly profitable in the midst of a market and crisis.

Holding A had a bad child, the bad child was a subsidiary that owned Panama ships and it was the wrong time to have Panama ships, so these gentlemen what they did is they did serial redeliveries of long-term time charters, they were speculating in the market, instead of going up, it went way down, they redelivered them, they left a trail of debts and unexpired the time charters of duration of 2, 3 years.

So, owners with claims came to lawyers and the lawyers said ok, we are going to attach the 60% interest of Holding A in the vessels that are owned by the subsidiaries of the Asset Holding.

So, we started attaching vessel 1, vessel 2, they wanted to let them go, so they put their hand in the pocket, they gave letters of undertaking, letters of guarantee actually, settlements, but everybody saw this path and everybody started attaching the ships.

So, they needed to do something and they came up with a defense and they said we no longer have any interest in these ships, that is very curious whence to the country where the management was and we took discovery by court order in one of the cases.

And this is the very first time I heard it in my life, they told us that there had been a change in the ownership structure, a restructuring of ownership and I thought what does that mean?

It sounds like a Marxist kind of redistribution of property idea. It was not.

What they did is they collaborated with a lending bank, the bank held a pledge of all the shares of the Holding Company, Holding B paid a ridiculously small amount of money but all of the shares, the 60% holder, share-holder, apparently got nothing and his interest was approximately 240 million dollars, 250, a quarter of a billion dollars, and then the court actions were frustrated and you could not go after the new owners, you could not go after anyone, because it was a different ownership. This was not court sanctioned; it was a private arrangement, cut off the road for people to get paid.

So, this is the restructuring I wanted to talk to you about, it is restructuring of ownership, the Newco takes over all of Oldco’s assets, leaving unsecured creditors without any recourse and leaving the secure creditors with their security and loan repayments. Obviously it takes collaboration on the part of the financing bank.

Restructuring of ownership is not restructuring of debt. It is not about waiver of covenants, extending repayments that I mentioned earlier, or even selling of tonnage that is not profitable. It is a planned transfer, an insulation of assets and it is designed to leave unsecured creditors without any recourse while the equity holders of the restructured company keep the requity in their pocket and their financing bankers get paid.

Very, very quickly, the way this is accomplished is this. First they make a new Holding Company, a Newco and the Newco has Newco SPVs under it, they are completely virgin companies, they have never been in any kind of business.

Then, you have with the blessing of the banks that are behind schemes like this, a seemingly arm’s length transaction and the tonnage is sold to the Newcos.

There is financing by the same banks, all of the formalities of actual sales are followed, you have MOAs, you have new mortgages, you have new loans, agreement, and you even have transfers of money from bank to bank to pay for the purchase. What is wrong with that?

What is wrong with that of course is the owners who have had long-term time charters with entities like this, are left holding the bank, because there is nothing to attach, there is nothing to get. No recourse.

Another step is ring fencing of assets through a maze of corporate entities and nominee directors. If you reach the bottom, the bottom is a trust, and the trust is operated by someone who is not allowed by law to speak, and you never get to it. You can never prove anything this way in court. And then of course you have premature deliveries, unpaid suppliers, they get nothing, that is why I put there a canon, είναι το κανόνι, πέφτει το κανόνι and everybody is left unpaid.

You cannot go to court, you go to your London Arbitration and you have an award if you pursue it, if you are foolish enough to pursue this judgment you are going to get a judgment or an award for 3.5 million dollars, 4 million dollars.

What are you going to do with it? It is not worth the paper it is written on because you can go after the Newco, no connection, the English court is not going to pierce any corporate veils, and besides they are all in offshore jurisdictions. You can’t find them. The end result is the unsecured creditors get nothing.

Now, the value of the security is still in the assets, whether these are ships or they are anything else. If I was advising someone from my post in the United States and I ... their tonnage, the restructured tonnage was sailing around, I, and I had done my investigation properly, I would advise them to apply for a rule B attachment of the assets.

Rule B has the advantage of giving you a toehold on jurisdiction and you can get security to let the ship go. Conditions are that the debtor is not found in the district, you are not going to find them anywhere, and that there is an asset in the district which is the restructured owner vessel, or other property, tangible or intangible, be they shares, debts, they are all attachable.

American Admiralty Courts can, they have the power to look behind surface representations in order to preserve their jurisdiction. Because they are not in the business of making mood judgments, uncollectible judgments, so they can set aside fraudulent transfers and enter a judgment against a Newco and the Oldco and the asset that has been attached is how you satisfy it.

They also can pierce corporate veils, they can authorise very intrusive discovery, and they can show up, the lawyers of the opponent can show up, of the claimant, can show up in the opponents office wherever that may be. And take the positions, have documents produced, etc.

Another way is for the court to consider the Oldco and Newco to be the same under what they call successor corporation liability. They consider this sort of arrangements to be a de facto merger or they consider the Newco to be a continuation of the business of Oldco or they can rule that this is an arrangement that was created in order to defeat the claims of creditors. It is similar to Greek Civil Code Article 479, μεταβίβασης ομάδoς περιουσίας.

Thank you very much for listening.