Maritime Group 2011 Year in Review - Seward and Kissel

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To Our Friends and ClientsThe Maritime Industry saw many changes in 2011. The full impact ofthose changes may not be known for years to come, but one thing iscertain: the Maritime Industry as we know it will never be the same.through these tumultuous times. Our unique insight andcapabilities have been honed through decades of experience inboth good and bad markets. We have been involved in all facets ofthe U.S. Maritime Industry including ship finance, public offeringsSome of the changes raise questions that will only be answered withthe passage of time. For instance, will the decision of the BankruptcyCourt in Marco Polo o Seatrade ade B.V. open the floodgates for Unitedand private placements, private equity investments, purchasesand sales, and mergers and acquisitions, and have acted in variedcapacities in each of these types of transactions.States bankruptcy filings of foreign shipping companies with onlytenuous connections to the United States? Will the lending windowthat seemed to be opening in early 2011, and that was slammedshut again during the summer, reopen? If so, who will be lending toshipping companies and on what terms? What role will private equityplay in the Maritime Industry going forward? Will private equity be thesource of funding to keep shipping companies alive or will it be thereto pick up the pieces if the bottom truly falls out? How will the SEC’snew rules relating to foreign issuers impact shipping companies’access to the United States capital markets and will Dodd-Frank’ ’s “SaySeward & Kissel LLP is the industry leader among U.S. law firms inthe shipping arena. Our attorneys are experienced in handling thetransactions and the issues that arise when the shipping marketsexpand and when they contract. From the restructurings andbankruptcies of the 1980s, through the boom and bust of the highyield market in the late 1990s and early 2000s; from the flourishingloan and public offering markets in the mid-2000s, to the mostrecent foreclosures, restructurings and insolvencies, Seward &Kissel attorneys have been involved every step of the way.on Pay” and “Claw Back” provisions have a cooling effect on privateshipowners’ desire to go public in the United States?We are pleased to provide guidance to our clients in these difficulttimes and look forward to continuing to assist our clients as theThe questions are endless and the answers uncertain, but whateverthe outcome, Seward & Kissel will be there to help guide its clientsMaritime Industry finds its bearing and charts the course for 2012and beyond.Seward & Kissel LLP1SEWARD & KISSEL LLPwww.sewkis.comSEWARD & KISSEL LLPwww.sewkis.com
New York Bankrupcy Court setsLow Bar for Chapter 11 Eligibility forForeign Shipping CompaniesOn October 21, 2011, the U.S. Bankruptcy Court in New York rendereda key decision in the bankruptcy cases of Marco Polo Seatrade B.V.(“Marco Polo”) and its affiliated debtors (collectively the “Debtors”)determining that entities with few and minimal ties to the UnitedStates are eligible to be Chapter 11 debtors. In its bench decision,the Court found that a cash retainer paid to the Debtors’ New Yorklawyer which remained in escrow, and one Debtor’s interest in a U.S.shipping pool account, each constituted “property” of the Debtorsin the United States, satisfying the Chapter 11 debtor eligibilityrequirements. That the Debtors were all Dutch entities with no placeof business or employees in the United States did not alter the U.S.Bankruptcy Code’s “relatively low bar” for “property sufficient toestablish [Chapter 11] eligibility”.The decision in Marco Polo will be encouraging to other foreigndebtors with limited connections to the United States who wish toseek Chapter 11 relief and the protections available under the U.S.Bankruptcy Code, including the automatic stay. The automatic stay,which on its face has global reach, in theory, may be particularlybeneficial to foreign shipping companies who have an internationalbusiness with assets (and creditors that can reach those assets)located around the world. Indeed, foreign shipping companies withseparate vessel owning companies may find Chapter 11 especiallyuseful to thwart enforcement actions taken by lenders and certainother creditors against the vessels in several different forums.On the other hand, the effectiveness of the automatic stay inpreventing foreign creditors without a U.S. presence from seizingassets abroad remains questionable. In other words, a creditorwithout contacts (i.e., a residence or business assets) in the UnitedStates may choose to disregard the automatic stay and seize assetsabroad if it believes that there is no effective way to enforce theautomatic stay against it.All in all, the Court’s decision in Marco Polo will be seen as badnews for secured and unsecured creditors of international shippingcompanies that have few connections to the United States, assuch creditors may not have anticipated a bankruptcy filing in aU.S. Bankruptcy Court when extending credit and would preferto foreclose on their collateral immediately or resort to individualattachment remedies. Nonetheless, in a situation in which a foreigndebtor has few unencumbered assets available or has assets thatare underwater, but would have value as a going concern,reorganizing through Chapter 11 may be the better option forforeign debtors and creditors alike.2011 Corporate Governance DevelopmentsThe Dodd-Frank Wall Street Reform and Consumer Protection Act, or (the “Dodd-Frank Act”), was adopted in 2010 and included provisions affectingthe corporate governance practices of U.S. listed companies. Several of these provisions came into effect during 2011 with the implementation ofrules and regulations of U.S. regulatory agencies, such as the U.S. Securities and Exchange Commission (the “SEC”) and the securities exchanges,such as the New York Stock Exchange (“NYSE”) and NASDAQ, while others are expected to become effective during 2012. Key provisions of theDodd-Frank Act relating to public company corporate governance include the following:Proxy Statement Compensation DisclosureStock Exchange RulesBeginning with the 2011 proxy season, SEC rules governing The Dodd-Frank Act has also mandated that stock exchangesshareholder meeting proxy materials of domestic issuers required the adopt “Claw Back” rules that would require a listed company toinclusion of a non-binding “Say on Pay” shareholder vote on senior adopt and disclose a policy requiring it to recover incentive basedexecutive compensation. Under the new rules, shareholders may compensation paid to executive officers within the past three yearsdetermine how often the vote must be taken, but it must be at least in the event of a restatement of the company’s financial statements.once every three years. While the vote is not binding on the company, The amount recovered would be limited to the difference betweenthe results of the shareholder vote must be publicly disclosed.what was paid and what would have been paid under the restatedfinancial statements. Unlike similar requirements implementedProposed SEC proxy rule changes mandated by the Dodd-Frank under the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act appliesAct that are expected to be adopted during 2012 would require to all executive officers, not just the CEO and CFO, goes back threeadditional disclosure by domestic issuers about certain compensatory years rather than one year, and does not require a showing ofmatters including (i) any “golden parachute” arrangement relating to misconduct on the part of the affected officer.executive compensation based on or otherwise relating to a merger,acquisition or similar transaction by the company, which under certain Stock exchanges are also expected to adopt rules that will imposecircumstances may also be subject to a non-binding shareholder vote; stricter requirements on the independence of a listed company’s(ii) “pay vs. performance” disclosure about the relationship between a compensation committee members that will be similar to what iscompany’s financial performance and executive compensation; and (iii) currently required for audit committee members. Additionally,the ratio of the total annual compensation of a company’s chief executive professional advisors to a compensation committee, including legalofficer to the median annual compensation of all other employees.counsel and compensation consultants, will also be required to meetprescribed independence standards. Both the NYSE and NASDAQThe disclosure matters discussed above are required to be included are expected to adopt such rules during 2012, which will likely applyin shareholder proxy materials subject to applicable SEC proxy rules, to both domestic and foreign private issuers.which generally do not apply to foreign issuers that are listed in theUnited States.2SEWARD & KISSEL LLPwww.sewkis.com3SEWARD & KISSEL LLPwww.sewkis.com
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Maritime Group 2011 Year in Review - Seward and Kissel

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