Ship Registration and Finance in Malta – Part 2
Financing Arrangements in Ship Registration
Another benefit of ship registration under the Maltese flag is the easy and efficient procedure for the registration of mortgages over vessels and the relative simplicity with which any mortgage security rights can be enforced.
The registration of a mortgage is a relatively simple procedure and is completed with the filing of an appropriate Mortgage Deed form with the Merchant Shipping Directorate (MSD) at Transport Malta (TM). Mortgages are recorded in the exact chronological order (time and date) in which they are registered by the Registrar. It is common for mortgage deeds to contain a specific clause prohibiting any further mortgages to be registered over the vessel and/ or any transfers of the vessel or any share therein to be made without the mortgagee’s prior written consent. Once a mortgage is registered, special privileges or liens not previously recorded on any part, appurtenance or accessory of the vessel do not affect the mortgagee’s position.
The mortgage deed need not have a specific monetary value, and this is typically capped at a maximum amount, allowing the mortgagor to secure its general financing arrangements granted by the mortgagee bank by means of the mortgage over the vessel. The deed would usually also provide that the amount of indebtedness due by the mortgagee to the mortgagor is to be determined by reference to the mortgagee’s own books of account.
Maltese law also recognizes and acknowledges the role of security trustees acting on behalf of a person or a syndicate to whom any debt or other obligation is due. This arrangement is widely used in the context of syndicated financing arrangements, particularly for the more substantial financial requirements involved in acquiring substantial fleets or certain classes of highly specialised vessels.
Insofar as the enforcement of mortgage rights is concerned, Maltese law provides a high degree of protection to mortgagees6. Thus, in the event of default on the part of the mortgagor, the mortgagee may simply give notice to the mortgagor, take possession of the ship in respect of which the mortgagee has a registered interest and proceed to sell the ship or any share/s therein, provided that there are no other registered mortgagees ranking prior to the enforcing creditor’s mortgage. Where there is more than one person registered as a mortgagee of a particular ship, a subsequent mortgagee shall only be entitled to sell the ship pursuant to a court order or with the consent of every prior mortgagee.
Any surplus from the proceeds of the sale of the vessel, after the secured debt is settled and the mortgage discharged, is required to be deposited under the Authority of the Maltese courts for the benefit of other creditors and the mortgagor. Apart from the mortgagee’s rights to take possession and sell the vessel secured by the mortgage when the debtor is in breach, the mortgagee is also empowered to maintain the status and validity of the registration of the ship.
Of particular interest is the fact that the procedure for the recovery of the debt secured by the mortgage is expedited since validly registered mortgages have conferred the status of “executive titles” meaning that there is no need for a prior court judgment in order to render them enforceable. The Act also provides that foreign mortgages are also recognised as mortgages for the purpose of Maltese law and thereby benefit from this status, subject to certain conditions.
The discharge of a mortgage registered over a Maltese registered vessel is also a relatively straightforward procedure which is finalized by completing the relative discharge declaration on the reverse side of the original mortgage deed form and filing the said deed form with the MSD. On the basis of such discharge declaration, the Registrar records the date and time of the discharge, rendering the vessel free from encumbrances and restrictions and enabling the owner to sell or delete the vessel from the Maltese register.
Besides these security-related attractions, it is important to emphasise that Maltese general public policy rules relating to the illegality of imposing an interest rate in excess of 8% per annum, the illegality of compounding interest and the prohibition of having the interest exceed the principal amount due are all rendered inapplicable by the provisions of the Civil Code in respect of “debts or other obligations secured by a mortgage registered or recognized under the Merchant Shipping Act”7. The exclusion of these rigid public policy rules is intended to allow complete commercial flexibility in respect of vessel financing transactions.