Malta Flag Archives

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

Malta – Recent Changes to Laws Regulating Shipping Companies

May 13, 2020 Leave a Comment

The Merchant Shipping (Shipping organisations – Private Companies) Regulations (Subsidiary Legislation 234.42 of the Laws of Malta, “the Regulations”) have recently been amended by Legal Notice 31 of 2020 published in the Government Gazette on the 21st of February 2020.

Originally promulgated in 2004, the Regulations address the establishment and corporate workings of what is typically referred to as the Maltese shipping company.

Well known by players in the international shipping industry, shipping companies incorporated under the Regulations are used for the ownership, operation, and management of merchant vessels (both Malta-flagged or flagged elsewhere) as well as other maritime-related activities.

Legal Notice 31 of 2020 has now further improved the legislative and regulatory position in the area.

Continuation of foreign companies in Malta and vice-versa

Continuation (sometimes referred to as re-domiciliation) entails the transfer of a corporate entity’s ‘seat of incorporation’ or registration from one jurisdiction to another, thus ensuring the continuing corporate existence of the migrating entity.

Continuation seeks to ensure the continued existence of the same legal person. Accordingly, the company retains all the assets, rights, liabilities and obligations previously held or due by it.

Re-domiciliation into Malta is a useful and advantageous route for those existing shipping companies or shipping groups wishing to move their corporate seat to Malta. Existing shipping companies incorporated elsewhere may retain their corporate existence, instead of incurring winding up costs or leaving them idle whilst incurring costs to keep them in good standing, combined with the cost of incorporating a new company in Malta.

The continuation of a foreign shipping company into Malta may also be considered in connection with the simultaneous flagging of new tonnage or the re-flagging of existing tonnage under the Malta flag. Indeed, the whole re-domiciliation exercise, combined with the registration of the underlying owned or operated vessels in Malta, may well serve as a point of entry into the Maltese tonnage tax system.

Whilst re-domiciliation laws for non-shipping companies have been enacted in Malta a number of years ago, Legal Notice 31 of 2020 has brought about a novel faculty for Maltese shipping companies. Prior to 21st February 2020, a foreign shipping company wishing to re-domicile to Malta would first need to do so as a non-shipping company and subsequently convert to a shipping company post re-domiciliation.

This time consuming and burdensome procedure has now been removed through the introduction of Legal Notice 31 of 2020.

The Regulations now govern both the continuation in Malta of a foreign corporate entity as well as the continuation of a Maltese company in a country or jurisdiction outside Malta.

Re-domiciliation is only possible if the laws of the concerned jurisdiction (other than Malta) allow so.

Additionally, re-domiciliation may only take place when the foreign jurisdiction is considered as an “approved country or jurisdiction”. In this regard, the Registry relies on the Financial Action Task Force (FATF) country evaluations and treats as an approved jurisdiction a country that is not on the FATF blacklist.

Reporting & filing obligations for shipping companies

Starting from financial year 2020, shipping companies are requested to keep accounting records in accordance with the Regulations and will be subject to the exemptions and disclosure requirements as detailed in the said Regulations. Shipping companies will, therefore, need to prepare financial statements in accordance with the Regulations and the relevant applicable financial reporting standards such as GAPSME or IFRS.

Shipping companies will now submit audited financial statements to the Registrar of Companies. Submission must be made within 42 days from the end of the period for the laying before and approval by the company in general meeting of the annual accounts, that is 10 months after the end of the applicable and relevant accounting reference period.

Simply put, the large majority of shipping companies having their respective year-end in December must make their first filing of their audited accounts for financial year 2020 towards early December 2021.

A “small” shipping company is exempt from the general requirement to prepare a directors’ report. A “small” shipping company is one which, in terms of Regulation 64 of the amended Regulations, does not exceed two of the below thresholds:

A balance sheet total of € 6,000,000
Turnover of € 12,000,000
Not more than fifty employees

At a parent company level, exemptions from the preparation of consolidated accounts are also present. A parent shipping company incorporated under the Regulations can qualify as a “small company” in terms of the foregoing only if the group of which it is parent qualifies as a small group, meaning that, on a consolidation basis, it does not exceed the limits of two of the following criteria:

An aggregate balance sheet total of € 6,000,000 net or € 7,200,000 gross
An aggregate turnover of € 12,000,000 net or € 14,400,000 gross
An aggregate number of fifty employees

The above-described size exemption applicable to the preparation of consolidated accounts does not seem to apply in the event that the parent shipping company, or any of its undertakings to be consolidated, have their securities listed on a regulated market and in the event that none of the group companies are public interest entities.

Other

An additional Schedule – the Tenth Schedule – has been added to the Regulations. This Schedule lists a number of administrative penalties which may be imposed by the Registrar of Companies in the event of a number of defaults concerning failure by a shipping company and its officers to abide by their notification and filing obligations with respect to annual accounts as well as other matters concerning corporate governance.

by Ganado Advocates

Source: Lexology

Member of the Comité Maritime International

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

Malta – Recent Changes to Laws Regulating Shipping Companies

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