The High Court of South Africa (the Court) recently granted an order, in favour of Overseas Shipholding Group, Inc. (OSG), recognising the statutory protections afforded by Chapter 11, Title 11 of the United States Code (the Bankruptcy Code) in the United States Bankruptcy Court for the District of Delaware.

The Bankruptcy Code includes the so-called Automatic Stay provisions in section 362, which effectively stay all proceedings against the debtor and/or any of their assets wherever located. The purpose of this stay is to afford the debtor an opportunity to investigate and effect a comprehensive reorganisation of its affairs and, in particular, its financial affairs, capital structure and funding.

The Automatic Stay is not a permanent stay but is subject to the reorganisation process being completed or the Chapter 11 Case being discharged or dismissed. This process is similar to the corresponding business restructuring provisions in section 133 of South Africa’s Companies Act².

OSG, which brought the application, is a large owner and operator of tankers which operates globally and, on the odd occasion, in South Africa’s arrest-friendly waters. OSG sought the order to prevent any arrest proceedings in terms of South Africa’s Admiralty Jurisdiction Regulation Act³ (AJRA), in particular an arrest in rem and an attachment in personam, and/or associated-ship arrest and/or a security arrest, against its vessels.

South Africa has given effect to the UNCITRAL Model law on Cross-Border Insolvency through the enactment of the Cross-Border Insolvency Act (CBIA)⁴. The CBIA will, however, only apply to countries which have been designated by the Minister of Justice and Constitutional Development⁵. The United States is not a designated country.

Despite this, on what appear to be considerations of South Africa’s international obligations of comity, and the objectives of the CBIA, the Court granted the order recognising the Automatic Stay.

Under South African law, once local insolvency or business rescue proceedings⁶ have commenced, the Court will not exercise its admiralty jurisdiction and permit the arrest of the insolvent company’s vessel. So the concept of barring the admiralty court from insolvency proceedings is not foreign to South Africa. However, if a summons (writ) to arrest the vessel was issued by the Court, prior to these rehabilitation proceedings being commenced, the AJRA would exclude the arrested property from the trustee’s, liquidator’s or judicial manager’s control⁷. One is really dealing with a “first in time, is first in line” scenario. This is not the first time, however, that the Court has recognised business rescue or rehabilitation proceedings of a foreign jurisdiction. Korea Line Corporation obtained an order⁸ from the Court recognising a rehabilitation order granted by the Seoul Central District Court, Bankruptcy (Forth Division) in terms of the Korean Debtor Rehabilitation and Bankruptcy Act⁹.

These orders granted by the South African High Court are provisional in that an aggrieved party can approach the High Court for the matter to be reconsidered. In reconsidering them, the Court will determine whether the underlying foreign order complies with certain conditions relating mainly to jurisdictional competence and public policy.

Written by Peter Lamb. Associate, Norton Rose Fulbright South Africa