Times of Malta, Thursday, December 15, 2011, by Ann Fenech
The meteoric rise of the Malta flag from one million tons in 1986 to over 40 million tons today is due to a number of reasons. Included in the long list is the foresight of our legislators, the continuous updating of our law, sensible fiscal solutions to the ship owner, a regulator who is open for business 24/7, English as an official language, central European time zone and tireless service providers who assist in promoting the product and facilitating the service.
One primary reason behind the success of our maritime flag is the security which our law gives to the financier of these vessels.
One primary reason behind the success of our maritime flag equal only to the sensible fiscal solutions it offers the ship owner is the security which our law gives to the financier of these vessels. No financier is going to lend several millions of dollars for the purchase of a vessel only to have the vessel registered in a jurisdiction which does not adequately safeguard his investment in the eventuality that the ship owner defaults on the mortgage payment.
Of course it is one thing to talk about the security offered by Maltese law, and quite another to see whether all the talk translates into something tangible.
Since 2008 to date and sadly with the collapse of a number of ship owners resulting in their inability to satisfy their obligations under their mortgage deeds, Maltese law and the security it says it offers the mortgagee has delivered very successfully.
As a result of a number of several ship owners of Maltese registered vessels defaulting on their mortgage payments, financiers have been able to put their mind at rest because they have seen Maltese law delivering what it has promised to deliver and have been able to put into effect the rights given to them by our Merchant Shipping Act in such situations.
Up until 2006 Maltese law provided the mortgagee with a number of remedies in the face of a defaulting owner. In the event of a default by the mortgagor of any term or condition of a registered mortgage, the mortgagee can take possession of the vessel and can sell the vessel.
In addition a mortgage is an “executive title” which means that the mortgagee can proceed directly with enforcement without the need of commencing any form of action. This is very important because it means that a mortgagee can proceed directly with applying to the Maltese courts for the judicial sale of the vessel. These two remedies, the ability to sell the vessel privately and the ability to apply for a judicial sale have advantages, however each also has disadvantages.
The advantage with a private sale is that the mortgagee can negotiate with a private buyer the sale of the vessel at the right price. However in a private sale the vessel is not sold free and unencumbered and this in itself may put potential buyers off.
In a judicial sale on the other hand, the vessel is sold free and unencumbered attracting buyers, however the prices normally fetched at Judicial Sales by Auction are frequently well below the market value given especially that there is no minimum reserved price.
In 2006, a very important amendment to our Code of Organisation and Civil Procedure was enacted. The amendment saw the introduction into our law of the Court Approved Private Sale. This is intended to bridge the distance between the advantages and disadvantages of the Private Sale and the Judicial Sale by Auction.
For some reason however and notwithstanding that this very useful remedy has been available on our statute books since 2006, it was only made use of for the first time in the application filed by Danske Bank A/S against the vessel Thor Spirit. Legal history was made on December 1, 2011 when our Civil Courts per Mr Justice Mark Chetcuti approved the private sale of a vessel following an application in the name of Dr Ann Fenech for and on behalf of Danske Bank v. the M. V. Thor Spirit.
The way the court approved sale works is as follows: The mortgagee finds a private buyer of a vessel at an agreed price which should be equal to or superior to two previously obtained valuations attesting to the value of the vessel. The mortgagee then files an application in court exhibiting copies of the MOA and the valuations obtained requesting the court to approve the private sale and to appoint a person who can transfer the vessel by means of a bill of sale to the new buyer for the agreed price. Such sale is effected free and unencumbered.
In this way the mortgagee can negotiate the best price (dealing with the difficulty created normally by a Judicial Sale by auction) for the sale of the vessel which is effected free and unencumbered (thereby dealing with the difficulty of a private sale.) Notwithstanding the fact that this remedy has been on the statute book since 2006, the first time it was tried and tested was in fact in this case.
The procedure was extremely efficient and fast and the time it took from the date of the application seeking court approval of the private sale to the date of the order was approximately two weeks.Now that the procedure has been carried out successfully, it is more than likely that we will be seeing plenty more in the coming months.
(The first in a series of three articles.)
Dr Fenech is head of the Marine Litigation Department and managing partner at Fenech & Fenech Advocates