UK: Understanding Special Liens: Q&A With John Keough Of Clyde & Co
Last Updated: 19 May 2017

In this interview, Brown Brothers Harriman Sr. Vice President of Corporate Banking, Lewis Hart, speaks with John Keough, a Partner at Clyde & Co, to review how special liens can work to the benefit of certain trade participants and detriment of others.

As many Commodity Markets Update readers know, Brown Brothers Harriman (BBH) is a financier of energy, metal and agricultural commodities. Our clients help balance global supply and demand in these markets by purchasing commodities in areas where there is surplus production and transporting them to areas where they are consumed. They also provide storage, financing, insurance and price hedging services for producers and consumers of physical commodities. In the course of their businesses, these commodity merchants are increasingly filling the role of "bankers" to their suppliers and customers – either providing advanced payments to suppliers to help with working capital needs or extending payment terms to their customers.

Maritime liens often exist 'below the radar' until they are enforced by an arrest or attachment; however, when enforced, they may substantially disrupt commodities traders and charterers who face extensive delays due to the debts of a key counterparty or vessel operator in a transaction.

As commodity merchants take on the role of capital provider to the supply chain, the lines between financing and commercial activity become blurred. Many clients have sought advice on structuring financial transactions, trying to minimize the risks of nonpayment and nondelivery that can create significant economic loss. One key aspect of managing these risks involves understanding where commodity merchants – who are typically unsecured trade creditors – rank in the capital structure. Special statutory liens often come into play and must be understood by merchants prior to structuring transactions that involve credit risk with a commercial counterparty. Given the increasing importance of these matters to our clients, BBH sat down with John Keough, a Partner at the New York office of Clyde & Co, an international law firm headquartered in London and specializing in shipping and commodities. Mr. Keough co-heads the firm's maritime, trade and commodities practice in North America.

Brown Brothers Harriman: You have represented banks, shipping operators, insurance companies and commodity traders in various financial transactions. What are the key legal risks commodity merchants face when extending credit to their customers?

John Keough: The key legal risks facing commodity merchants often arise from a merchant's failure to conduct basic due diligence to know its customers and to consider details of executing the transaction. These risks generally include:

  • Solvency-related problems of the counterparty, such as cargo shipment delays caused by bankruptcy or financial nonperformance of the counterparty, a supplier or purchaser in the supply chain, a parent company guarantor or an intermediate charterer of an ocean vessel
  • Arrests or attachments of vessel or cargo, particularly in foreign ports, and the exercise of statutory maritime liens that may be unknown to the merchant or creditor
  • And more

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