Malta Flag Archives

A critical benefit of the Maltese Maritime Flag: Court-approved private sales

January 22, 2021 Leave a Comment

The continued success of the Maltese Maritime Flag can be greatly attributed to the protection given to financiers and creditors of vessels registered under the Maltese Flag.

A ‘judicial sale’, as defined by Lief Bleyen, is the “sale of a ship by a competent authority by way of public auction or private treaty…by which Clean Title to the Ship is acquired by the Purchaser and the proceeds of sale are made available to the creditors.” Act XIV of 2006 amended Article 358 of the Code of Organisation and Civil Procedure (‘COCP’), introducing a novel procedure of Court-approved private sales for aircraft and vessels in addition to the traditional judicial sale by auction. Therefore, under Maltese law, there are two types of judicial sales:

1. Traditional judicial sale by auction; and

2. Court-approved private sales.

In a judicial sale by auction, the vessel is sold to the highest bidder in Court, with no reserved price mechanism in the case of vessels exceeding 10 metres in length. This creates a certain ambiguity surrounding the creditors, as they would not be aware whether the sum agreed to by a buyer as the highest bidder in Court would cover, or even come close to what such creditor or creditors, are owed. This type of judicial sale of a vessel is a rather risky one, as it may eventually lead to a situation where a creditor/s remains unpaid once the vessel is sold.

Prior to the introduction of Court-approved private sales in 2006, creditors had the option of negotiating private sales. However, such sales were largely disregarded by buyers since the imperative “executive title” would not be guaranteed. This inevitably led to a situation where the buyer would not purchase an aircraft or vessel free and unencumbered from any liabilities connected to the vessel. This highlights the importance of the amendment to the COCP which brought about an overhaul of the already-existing private sale.

In Court-approved private sales, commonly referred to as ‘hybrid sales’, the mortgagee agrees on a price with the buyer, obtains valuations of the vessel through physical inspections, and if the sale price exceeds the highest valuation, the mortgagee will apply to the Court for the sale to be approved. In this type of sale, the creditors will then seek settlement from the sale price. Court-approved private sales amalgamate the advantageous characteristics of a private sale, i.e. the possibility of negotiating the price, as well as providing the prospective purchaser with an executive title; a modification which seeks to bridge the gap between both types of sales. This introduction is a powerful tool for creditors and financiers where, in the event of default, the vessel can be arrested and sold in a judicial sale without the need of commencing an action on the merits.

Despite being introduced around 15 years ago, the first time that this amendment was used was in the ‘Thor Spirit’ case in 2011. The entire procedure was concluded in around two weeks, proving to be expeditious and highly cost-efficient.

Since the ‘Thor Spirit’ case, the Maltese Courts have continued to approve private sales of vessels in numerous judgments. Examples of such cases include the 2013 Blankenese case and the 2014 MV Ladybug case. Further cases such as the HHL Rio de Janeiro case decided in 2019, also dealt with Court-approved private sales. In the latter case, the sale was finalised within 20 days, once again highlighting the transparent and efficient nature of Court-approved private sales.

The role of the Court in this type of sale is not one which is solely limited to rubber-stamping but pursues a somewhat proactive role, ensuring that the application of this procedure is carried out in a consistent manner, in line with the appropriate administration of justice, as well as the bona fide principle being respected by all affected parties.

THE CMI BEIJING DRAFT

Despite there not being international consensus regarding the judicial sale of vessels, it appears that the Comité Maritime International (‘CMI’) is definitely paving the way for results. The CMI is recognised as the oldest organisation worldwide which is exclusively concerned with the unification of Maritime law and related commercial practices. Back in 2008, the Executive Council of the CMI launched an International Working Group on the Judicial Sale of Ships, with the aim of studying the challenges associated with the failure of the recognition of such judicial sales. Eventually, in 2012 the CMI issued the Beijing draft, which was subsequently approved in 2014.

The Beijing Draft deals solely with the recognition of judicial sales, providing that notices must be given to persons indicated in the clause (including owners, mortgagees, holders of registered titles and lien holders) within 30 days prior to the judicial sale. The Draft reaffirmed that ships must be sold free and unencumbered, where the purchaser shall acquire clean title over the vessel. It also provides for the issuance of a Certificate by the authority ordering the sale, certifying that the vessel is free and unencumbered, and that all rights previously existing against the ship are extinguished.

In 2017, the CMI submitted its proposal to the United Nations Commission on International Trade Law (‘UNCITRAL’). Following this, a joint Colloquium was held in February 2018 in Malta between the CMI, the Malta Maritime Law Association and the Maltese Government. Various attendees, including ship owners, ship repairers, banks, and financiers encouraged the creation of an international instrument which would finally regulate this area to improve the organisation, stability and certainty of international trade.

The UNCITRAL Working Group V1 met in December 2020 to discuss the Beijing Draft. The final result remains an international Convention where the free and unencumbered title in a vessel purchased in a judicial sale is recognised by State parties, guaranteeing that such vessel fetches the maximum price in a judicial sale for the benefit of the creditors, guaranteeing at the same time, the peaceful possession and use of the newly purchased vessel by the bona fide purchaser.

By Katrina Abela, Aleandro Mifsud and Nina Fauser, GVZH Advocates

Source: Lexology

Commercial Yacht Code 2020

December 1, 2020 Leave a Comment

We are pleased to announce that the Merchant Shipping Directorate within the Authority of Transport in Malta has rolled out its 4th edition of the Malta Commercial Yacht Code 2020 (Code) which updates and replaces the Commercial Yacht Code 2015 (CYC 2015).

The substantial increase in the number of superyachts which the Malta flag has continued to lure to its Register has seen the Merchant Shipping Directorate being sensitive to the fast-changing technological developments which this particular industry attracts. Drawing on its own experience of an already well established yachting industry and heeding the technical and commercial advice of yacht builders, repair yards, Classification Societies and industry stakeholders at large, the Merchant Shipping Directorate has come up with an improved Code that mirrors the yachting industry’s realities and ensures a greener and safer commercial yacht fleet for the Malta flag.

The Code comes into effect as of the 1st January 2021 however for existing yachts certificated in accordance with the CYC 2015, compliance with the new Code shall be by not later than the yacht’s first periodical survey carried out after the 1st June 2021.

The amendments and additions introduced by the Code are several and varied and largely seek to enhance the safety aspects of commercial yachting as well as to cater for the particular technological market demands of the industry – all this in conformity with safety and international regulations and standards.

The revisions, all of which are conveniently listed in Annex 1 of the Code, provide, inter alia, for improvements on the safety of passengers at sea, the well-being of the seafarers engaged onboard, the enhancement of the structural aspects of yachts, the provision for innovative designs and requirements covering electrically powered and/or hybrid engines and plants. The Code further provides for the improvement of the protection of the marine environment by introducing the requirements of the Ballast Water Management Convention and furthermore dedicates a section of the Code to the design, construction and safety of Helicopter Landing Areas.

More specifically, amendments made relate to the following sections:

• Definitions (Section 2), • Application and Interpretation (Section 3), • Structural Strength and Watertight Integrity (Section 4), • Rigging on Sailing Yachts (Section 5) • Machinery (Section 6), • Electrical Installation (Section 7), • Intact and Damage Stability (Section 8), • Life Saving Appliances (Section 10), • Fire protection (Section 11), • Equipment (Section 12), • Maritime Labour Convention 2006 (Section 13), • Protection of Personnel (Section 14), • Navigation and Communication (Section 15), • Marine Pollution Prevention section (Section 16), • Manning and Crew Certification (Section 17), • Medical Stores (Section 19), • Survey and Certification (Section 20), • Tenders and Ancillary Craft (Section 22), • Static Chartering (Section 23), • Helicopter Landing Areas (Section 24).

By Rowena Grima and Stephanie Farrugia, Fenech & Fenech Advocates

Source: Lexology

Refinancing Malta-flagged cruise liners

November 5, 2020 Leave a Comment

At the start of 2020, the new decade was forecast to herald a boom for the global cruise liner industry. However, COVID-19 lockdown measures imposed across the globe have significantly disrupted cruise ship operations and the financing arrangements between financiers and cruise liner companies, as borrowers, under traditional facility agreements.

COVID-19’s impact on shipping industry

The ongoing COVID-19 pandemic has had a major effect on global shipping, affecting all sectors – from passenger ships to container ships and oil tankers. Unlike general commercial shipping activities which have continued to function at reduced levels, cruise line operators were faced with an unprecedented total shutdown of operations almost overnight. In addition to the loss of income-generating capacity, operators have been confronted with the additional burden of liability claims for the return of deposits for cancelled holidays.

The industry reacted to this extraordinary situation by seeking ways to weather the storm until operations could return to normal in order to avoid defaults under loan facilities and deferred or even cancelled orders in the case of new-build vessels. In either case, this would have been detrimental to the parties concerned and the economies of many cruise shipbuilding nations (eg, Germany, Italy, France, Norway and Finland).

Actions taken to mitigate losses

Anxious to avoid such a situation and maintain the good standing of cruise liner companies during the suspension of operations, financiers have been quick to offer debt restructuring solutions to borrowers to fill the liquidity void. At the local level, the most common refinancing exercise involving Malta-flagged vessels is the renegotiation of debt holidays. By virtue of such debt holidays or debt repayment extensions, cruise liner companies have been granted the opportunity to defer payment obligations, thereby giving them the means to better manage their cash flow during periods of no or limited revenue without giving rise to debt forgiveness.

As they operate in the most heavily affected sector of the shipping industry, cruise line operators were among the first to look towards negotiating such payment holidays. As such, these have been consistently negotiated since March 2020 as the deliveries of 2020 new-build vessels have been rolled out. However, these payment holidays are not available across the board as certain facility agreements include as an event of default instances where the borrower commences negotiations with one or more of its creditors with a view to rescheduling its indebtedness. This is frequently the case where cross-guarantees are in place or a company has multiple facilities.

With respect to borrowers which do not have such restrictions in their facility agreements, Malta-flagged vessels have witnessed increased activity in this area as debt holidays have given rise to refinancing scenarios that require the execution of fresh security over the secured vessels. While debt holidays may vary in the way in which they are provided, a common example has been the provision of additional finance from the same lender to repay the borrower’s commitments up to a period of one year, with the corresponding obligation of the borrower to repay a premium over and above the outstanding loan. This scenario would necessitate the registration of an amendment mortgage or second priority mortgages to secure the new amounts advanced or obligations that are being created.

With the cut-off period for moratoriums approaching, there is growing concern within the cruise liner industry about the ramifications of a continued depressed environment in the fourth quarter of 2020. Major cruise liners operating in the United States have agreed to continue the suspension of their cruise operations until at least 31 October 2020. Meanwhile, Malta cruise liner companies have resumed limited operations in a concerted attempt to restart economic motors. However, the safety measures imposed and lack of consumer trust with respect to safety have led cruise ships to operate at a lower capacity than needed to stem the continued haemorrhaging. The international climate has led stakeholders to suggest that cruise liner companies will almost certainly require extended debt holidays come Spring 2021 and that such extended debt holidays may even be voluntarily offered by financiers.

The extension of payment holidays will likely depend on several factors, including longstanding relationships between financiers and cruise liner companies and their proven reliability in times of crisis – which may be ascertained from the borrower’s proactive approach during the current and previous downturns. As with most industries, COVID-19’s continued impact on the cruise liner industry in the fourth quarter of 2020 will be fluid.

Comment

As a natural reaction to the debilitating effects of the pandemic, the new-build cruise liner market for deliveries post-2022 has all but ceased. Yet, the shipping industry is clearly better positioned to withstand the current market slowdown than it was during previous market meltdowns. Financiers are motivated to help the industry through the financial consequences of travel restrictions and health issues and there is reason to believe that the availability of deferred payment obligations until Spring 2021 will be extended further. These extensions will almost certainly be essential to carry the industry through what is forecast to be another difficult year and will go a long way in instilling renewed optimism in an industry facing its most severe downturn in history.

by Peter Grima, Fenech & Fenech Advocates

Source: Lexology

Update on yachting procedures

September 2, 2020 Leave a Comment

Malta has always been at the forefront of offering solid, reliable solutions to yacht owners depending on their individual requirements and the intended use of their yacht. The first half of 2020 has seen the introduction of updated rules affecting operating leases and streamlined importation procedures, offering owners the possibility of availing themselves of a number of solutions and procedures catering to their individual requirements. Given the delay in the season due to the COVID-19 pandemic, this article highlights these developments for owners that are taking delivery of or importing their yachts over the coming months.

Improved importation procedures

For many years Malta has offered an efficient and attractive procedure for the importation of commercial yachts that are intended to be brought into free circulation within the European Union so as to enable them to carry out their chartering season in the Mediterranean. The introduction of the following measures earlier in 2020 was intended to further strengthen the procedure governing the importation of commercial yachts in Malta:

Deferment of value added tax (VAT) on the importation of commercial yachts by Maltese owning entities with a Maltese VAT registration without the requirement of the importing entity setting up a bank guarantee as required in the past.
Deferment of VAT on the importation of commercial yachts by EU owning entities with a Maltese VAT registration provided that the company appoints a VAT representative in Malta in terms of Article 66(2)(b) of the VAT Act without the requirement of the importing entity setting up a bank guarantee as required in the past.
Deferent of VAT on the importation of commercial yachts by non-EU owning entities on provision by the importing entity of a bank guarantee in an amount equivalent to VAT on 0.75% of the value of the yacht which would in all cases be subject to a cap of €1 million.

Updated guidelines relating to use and enjoyment by yacht lessees

On 12 March 2020, the commissioner for inland revenue published revised guidelines regarding the place of supply of the hiring of pleasure yachts. The guidelines establish the manner in which the use and enjoyment of such pleasure yachts is to be treated for VAT purposes.

While the general principle is that full taxation in Malta applies where the place of supply of the service is determined to be Malta, the guidelines provide for a method of adjustment based on the actual effective use and enjoyment of a pleasure yacht in and outside EU waters. The revised guidelines establish that this is to be calculated by reference to the period of time when the pleasure yacht is used and enjoyed outside EU territorial waters.

For the purpose of applying the guidelines, the lessee must provide the lessor with documentary or technological data to determine the actual effective use and enjoyment by the lessee of the pleasure yacht in and outside EU territorial waters during the lease period.

The guidelines may be used within the context of operating leases that are set up under Maltese law.

Updated practices in application of operating leases

Malta has built a formidable reputation in catering to owners’ needs while constantly taking into account industry practice and legal developments. This has led to Malta being a go-to jurisdiction for the setting up of operating leases. Such operating leases are formulated in accordance with best practices to ensure compliance with EU interpretations and European Court of Justice judgments and would generally comprise the following principles:

A Maltese shipping organisation would be set up as the owner of the yacht (the lessor), which would lease the yacht to another entity (the lessee).
The place of supply of the yacht would be Malta.
The yacht would be available to a lessee for consideration for a specified period.
General principles relating to intra-community supplies and importations at the time of acquisition of the yacht by the lessor and place of supply rules at the time of the supply of the yacht to the lessee will apply.
The lease period and the consideration paid to the lessor by the lessee for the use of the yacht are commercial decisions that are established contractually between the parties.
Such decisions would be based on an assessment of the type of yacht involved, its specifications and value, together with the prevailing market conditions.
The lessee would pay VAT on a quarterly basis on the monthly lease instalments to the lessor.
Subject to a number of conditions being satisfied, the VAT department would, on a request to that effect, issue a letter confirming that the lessor has declared and is accounting for VAT on the lease of such yacht in Malta.

By Alison Vassallo at Fenech & Fenech Advocates www.fenechlaw.com.

Source: ILO

Port notice 7/20 – Dispute Resolution and Procedures under S.L 545.30

May 22, 2020 Leave a Comment

The Ports and Yachting Directorate within Transport Malta has issued Port Notice Number 07/20 entitled ‘Dispute resolution and procedures in connection with bunkering operations’ in order to remind its recipients about the provisions of the Dispute Resolution (Procedures) Regulation under subsidiary legislation 545.30 of the laws of Malta.

The port notice highlighted the availability of an authorised provider and a customer to bring forth a complaint to the Regulator in order to settle a dispute between them. This comes as a timely reminder in a period where local Courts have been closed due to Covid-19 measures.

In accordance with the Port Notice, the regulation is applicable to bunkering operations where a dispute has arisen between the bunkering fuel operator and provider and the receiving vessel. The procedure provides for an alternative dispute resolution mechanism (ADR) that is intended to be swift, economical, transparent and simple. Much of its attraction lies in the fact that disputes between authorised providers are to be settled within 4 months while disputes between an authorised provider and a consumer must be settled within 90 days, with extensions are only allowed in exceptional circumstances. Complaints and supporting documentation may be filed with the Regulator online and subject to certain conditions, the decisions taken by the Regulator are binding on the parties to the dispute, with administrative fines imposed for non-compliance. This procedure is however entirely voluntary and is an alternative dispute resolution mechanism which does not affect the parties’ rights to proceed to arbitration or to court should they prefer.

More details are available below.

SUBSIDIARY LEGISLATION 545.30 – DISPUTE RESOLUTION (PROCEDURES) REGULATION

THE INVOLVED PARTIES:

Taking a closer look at the Regulation, the involved parties are as follows:

The Authorised Provider:

The Dispute Resolution (Procedures) Regulation is not limited to bunkering operations and defines an authorised provider as any natural or legal person whether privately or publicly owned, who has a valid authorisation to operate, provide or carry out any activity or operation or to provide any service relating to energy and energy and water services.

The Consumer:

The consumer means any person who uses or requests a service or product the provision of which is regulated by the Act who is acting for purposes which are outside his trade, business, craft or profession. This definition raises questions as to who can qualify as a consumer, however the Port Notice explains that this shall be applicable ‘for bunker operations where a dispute arises between the bunkering fuel operator and provider and the receiving vessel’.

The Regulator:

The Regulator, established under the Regulator For Energy and Water Services Act, is composed of a Chairman and not less than four and not more than six members. Members are appointed by the Minister for a term of 5-7 years and may be re-appointed only once.

PROCEEDINGS BEFORE THE REGULATOR

The Regulation provides for two scenarios, dispute resolution where the parties are both authorised providers and dispute resolution where the parties are an authorised provider and a customer. The Regulation seeks to provide authorised providers and consumers with an alternative dispute resolution mechanism that is intended to be simple and transparent, offering binding decisions delivered in a swift and economical manner.

Where a dispute arises between authorised providers, The Regulator must initiate an investigation into the dispute as soon as possible and must seek to resolve the dispute within 4 months from the date when the dispute was notified to it. This time frame may be extended by a further two months where additional information is sought and the parties agree to such an extension.

Under the Regulation, the Regulator has the power to initiate an investigation of its own initiative. The jurisdiction of the Regulator is however, not automatic, and the Regulator may refuse to initiate an investigation where it is satisfied that other means of resolving the dispute in a timely manner are available to the parties. It may also refuse to initiate an investigation where the dispute is already subject to legal proceedings. Where a decision has been taken to refuse to initiate an investigation the Regulator must inform the parties as soon as possible. However, if within 4 months from such a decision, the dispute has not been resolved or the party seeking redress has not initiated legal proceedings, the Regulator may, at the request of a party, initiate an investigation.

Subject to possible appeal, the Regulator’s decision shall be binding on the parties and failure to abide by the decision shall be considered an infringement of the Regulation, subject to an administrative fine.

Under the Regulation, the Regulator shall also have jurisdiction in cases where a consumer alleges that an authorised provider has made an infringement of the Regulator for Energy and Water Services Act or subsidiary legislation made thereunder. When referring a dispute, a consumer must show on a prima facie basis that it has been affected by an act or omission of the authorised provider. In resolving the dispute, the Regulator may amongst other directives, order the authorised provider to effect reimbursement of payments received or to make compensation payments. Such payments may include the whole or part of the costs relating to the engagement of a lawyer or technical adviser engaged in submitting the dispute. Should a party fail to abide by an order given, the Regulator may impose an administrative fine of not more than €600 for each day of non-compliance.

Interestingly, the Regulator is not a compulsory dispute settlement mechanism for disputes arising between authorised providers and consumers. In fact the provisions of the Regulation make clear that ‘the provisions of this Regulation shall be without prejudice to the right of a consumer to have recourse to any other body in resolving any such dispute’.

As many other alternative dispute resolution mechanisms, the Regulator aims to be expeditious in its investigations, with the Regulation setting out a 90 day period within which disputes must be resolved. This time frame may only be extended in exceptional circumstances. The Regulator aims to increase efficiency by allowing complaints and supporting documentation to be submitted online. Official communication may also be made by electronic means or if applicable, by post.

When faced with a consumer complaint against an authorised provider, the Regulator may refuse to deal with complaint in the following circumstances:

Where consumer did not first attempt to contact the authorised provider in order to discuss his complaint and seek to resolve the matter with the authorised provider directly.
Where the dispute is frivolous or vexatious.
Where the dispute is being or has been considered by another dispute resolution entity or by a Court.
Where the Consumer did not submit the complaint to the Regulator within one year from the date upon which the consumer submitted the complaint to the authorised provider
Where dealing with the dispute would serious impair the effective operation of the Regulator.
Where the consumer has not submitted the complaint to the Regulator within 2 years from the date upon which the facts constituting the substance of the complaint have first arisen.

According to the Regulation, decisions are binding on the parties to the dispute. However, where the dispute is between an authorised provider and a consumer, it is only binding on consumer if has been informed of binding nature in advance and has specifically accepted this.

It is to be noted that though decisions are binding, they are not final and decisions taken by the Regulator are subject to appeal before the Administrative Review Tribunal within 20 days of the decision. Appeals may be filed on the following grounds:

(a) that a material error as to the facts has been made;

(b) that there was a material procedural error;

(d) that there was some material illegality, including unreasonableness or lack of proportionality

CONCLUSION:

The Regulation aims to provide for an alternative dispute resolution mechanism that seeks to increase consumer protection, in a timely and cost effective manner. In times where Courts are closed due to COVID-19 containment measures, authorised providers and/or consumers looking for quick settlement of a dispute may consider this mechanism as a valid alternative. Nonetheless, it is advised that disputes involving complex legal issues should continue to be referred before a Court so that one may make full use of all the legal mechanisms available therein.

The full port notice can be accessed here.

By Dr Martina Farrugia, Fenech & Fenech Advocates

Source: Lexology

Member of the Comité Maritime International

A critical benefit of the Maltese Maritime Flag: Court-approved private sales

Commercial Yacht Code 2020

Refinancing Malta-flagged cruise liners

Update on yachting procedures

Port notice 7/20 – Dispute Resolution and Procedures under S.L 545.30

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