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bankruptcy Non-vessel operating common carriers (NVOCCs) are often vulnerable to importer/exporter debtors when they declare bankruptcy. As brick and mortar retailers continue to face dwindling market share due to the dramatic rise in online shopping – $1.25 billion per day in online consumer purchases in the U.S., and doubling every five years – risks to NVOCCs rise. Retail Dive’s running list of 2017 retail apocalypse victims is a comprehensive tally of retailers who have succumbed to financial pressures already this year. They also recently listed twelve additional prominent retailers possibly on the brink of bankruptcy.

Loss Risk

There are generally two kinds of loss risk to NVOCCs:

  1. Loss on unpaid A/R (which can be substantial);
  2. Preference recovery by the customer of all A/R payments made to NVOCC’s within 90 days of the customer’s bankruptcy filing.

If a NVOCC or related company is also a customs broker, or a freight forwarder, there could also be substantial losses for customs duties and freight advanced on behalf of the bankruptcy-filing customer.

Goods in Possession of NVOCC at Time of Filing

A maritime possessory lien is created by federal maritime common law in a NVOCC’s favor for amounts owed on goods being held by a NVOCC or its agent. These liens take priority over UCC security interests. These liens only accrue to a NVOCC as a carrier and not as a forwarder or customs broker.

The Bad News

  1. Amounts owed to a NVOCC in excess of the amount claimed for goods in its possession are considered general unsecured claims. Meaning, creditors with security interests trump the general unsecured claims of a NVOCC or other creditor. Unfortunately, simply having language on invoices or bills of lading terms in effect is not sufficient to establish a general lien for cargo already released; and
  2. As noted above, the customer in bankruptcy will seek to recover any payments made to the NVOCC within the aforementioned 90 day period.


To address the above two issues, Husch Blackwell’s bankruptcy and supply chain professionals recommend the following:

  1. Husch Blackwell can help NVOCCs to create a security interest in all customer goods, inventory, and equipment to be included in traditional industry documents such as credit agreements; thereby, securing all obligations of a customer. Security interests can be perfected by a NVOCC by selectively filing UCC-1s for customers with high A/Rs and/or those in high risk businesses; and
  2. Husch Blackwell’s bankruptcy team has decades of experience prosecuting and defending preference actions throughout the United States (including the successful resolution of many multimillion-dollar claims). Through the use of a sophisticated, proprietary program, our team can also help NVOCCs identify optimal defenses to preference actions taken against them by a debtor. This approach also includes a proprietary forecasting model for more accurately predicting the likely settlement amount of your case on this issue.

For more information contact Carlos Rodriguez, John Cruciani or Michael Fielding.