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18 March 2015
For years Maltese legal practitioners have highlighted the high standards and comfort that Maltese law offers mortgagees. However, the financial crisis tested whether the system is as robust as claimed.
In 2006 the Organisation and Civil Procedure Code was radically overhauled in relation to the provisions governing the courts' jurisdiction in rem, the arrest of ships and Maltese enforcement mechanisms. The changes to enforcement mechanisms included the introduction of court-approved private sales. This remedy enables mortgagees (which can proceed directly with enforcement under Maltese law) to:
This is a significant advantage for mortgagees because they can negotiate the best price for the benefit of creditors and owners, while giving the buyer peace of mind because it is purchasing the vessel free and unencumbered.
The first application to use the new remedy was in Danske Bank A/S v Thor Spirit (1135/2011). Since then, 11 applications for the approval of private sales have been made before the court, 10 of which were granted and one which was revoked after it had been granted.
Applicants must provide two valuations based on a physical inspection, and must show that a genuine effort was made to secure the best price for the vessel and that known creditors were made aware of the procedure.
The system has worked exceptionally well, with all applications being heard by the same judge, Justice Mark Chetcuti, who has been instrumental in developing a transparent process of the highest standard, which reflects the spirit of the law. These efforts have resulted in a quick, efficient and transparent remedy for mortgagees in the face of a defaulting owner. Some of the largest maritime lenders (eg, Danske Bank A/S, Commerzbank Aktiengesselschaft, Pireaus Bank AE, Rietumu Banka, Amsterdam Trade Bank NV, Hyundai Heavy Industries Co Ltd, Macquarie Bank Limited and Bank of America) have benefited from this remedy.
One series of sales that made international headlines were those relating to vessels in the beneficial ownership of Today Makes Tomorrow (TMT).
Three of the ships in the TMT-operated fleet – the A Ladybug, the B Ladybug and the D Ladybug – were abandoned in Maltese territorial waters. The crew was effectively abandoned and remained unpaid, with no provisions or fuel. This led to serious concerns on the part of the Maltese port authorities, as these state-of-the-art car carriers (72,400 gross tons each) were anchored 12 miles out, exposed to the elements. Applications were filed by Macquarie Bank Limited, Hyundai Heavy Industries and Bank of America, respectively; thanks to their financial strength, they were able to appoint managers who supported the crew and provided provisions and fuel. The managers also gave the port authorities peace of mind with regard to their own safety and that of other vessels at the same anchorage.
These cases highlight the results that can be achieved for owners, creditors, crew, International Transport Workers' Federation members and port authorities when matters are handled in an orderly and organised fashion, all of which is ultimately possible thanks to the introduction of court-approved private sales.
The cases also highlight another interesting element – that the US Bankruptcy Court can and will grant leave for court-approved private sales of vessels, even where the assets of the insolvent party are part and parcel of US Chapter 11 proceedings.
For further information on this topic please contact Ann Fenech at Fenech & Fenech Advocates by telephone (+356 2124 1232) or email (email@example.com). The Fenech & Fenech website can be accessed at www.fenechlaw.com.
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