ITIC reminds agents to beware of bankruptcies

ITIC, the International Transport Intermediaries Club, is seeing an increasing number of ship agents becoming exposed to the fall-out from the bankruptcy of their principal.

In the normal course of business, the ship agent will settle a range of suppliers’ invoices on behalf of the principal and then recover these costs from the principal once the port call is complete. However, if the principal enters bankruptcy, trustees are increasingly demanding that agents re-pay these fees leaving the agent severely out-of-pocket.

ITIC doesn’t cover the amounts at stake but it does cover associated legal costs. Jurisdictions differ, but most say that payments made in the usual course of business and on usual terms cannot be recovered by the trustee in bankruptcy.

In one particular case, ITIC was asked to assist a global ship agency where a claim of $107,000 was being made against its African office and $70,000 against its Europe office. ITIC engaged a lawyer who successfully argued that the disbursements paid to the African office were in the normal course of business and so did not have to be returned. In Europe, however, there had been a considerable delay in the ship agent invoicing for its disbursements and the paperwork had only been submitted shortly before the bankruptcy proceedings. This led to considerable negotiation which concluded with the ship agent having to return just $12,000 to settle the matter. ITIC covered the cost of the lawyer.

ITIC urges ship agents to beware of the issues surrounding the possible bankruptcy of their principals and encourage invoices for disbursements to be submitted as soon as possible.