Ship Finance

Home / Shipping Services / Ship Finance
Ship Mortgages

Maltese law on ship mortgages is modelled closely on the U.K. Merchant Shipping Acts, and consequently practitioners in Anglo-Saxon jurisdictions find much common ground in our Act, especially as far as enforcement remedies are concerned. Recent amendments have given effect to certain changes, which the experience of a number of years has prompted, while others have further streamlined existing legislation. Practically all the leading international ship finance banks and credit institutions have utilised Maltese mortgage security at some time or another while a significant proportion does so on a regular and consistent basis.

Advantages to Financiers

The following are some of the advantages and benefits, which accrue to mortgagees taking out mortgages over Malta Flag vessels:

  • Mortgages constitute executive titles and may be enforced immediately upon default without the need for a prior court judgement or order to that effect;
  • Claims secured by a mortgage enjoy a relatively high ranking;
  • Vessels may not be deleted from the Register by the owner without the mortgagee’s prior written consent;
  • A vessel may not be struck off its Register by the competent authorities without at least one month’s notice being given to the mortgagee by the Registrar; in the event that the vessel is deleted in these circumstances, this is done save for any registered encumbrances and consequently the mortgage continues to attach to the vessel;
  • Independently from the mortgagee’s rights to take possession of and sell the vessel secured by the mortgage upon default, the mortgagee is also empowered to take over and complete the vessel’s registration formalities;
  • Further mortgages or transfers of vessels without the prior written consent of the mortgagee may be prohibited by a specific clause in the mortgage instrument;
  • The mortgage attaches to the insurance proceeds and to the proceeds from indemnities for mishaps;
  • Once a mortgage is registered, special privileges or liens not previously recorded on appurtenances or accessories of a vessel do not affect the mortgagee’s position;
  • A mortgage may be executed and registered in favour of a security trustee acting under a trust for the benefit of a person/s or a syndicate to whom a debt or other obligation is due; in such cases, the security trustee is recognised as the mortgagee of the particular mortgage and is entitled to exercise all the rights in relation to that mortgage as are accorded to a mortgagee by the Act or any other enactment; any such security trust is governed by the provisions of the Civil Code on security trustees when the applicable law is the law of Malta;
  • A registered mortgagee may register the assignment of part of a debt or other obligation secured by a registered mortgage.
Security over Vessels

A ship may constitute security for a debt or other obligation either by agreement or by operation of law:

  • by means of a mortgage which is a special charge over a vessel; or
  • by a general hypothec which attaches to all the assets of a debtor, including any vessel such debtor may own; or
  • by a special privilege upon the vessel; this arises ex lege and no debt or other obligations other than those specified by law can be secured by a special privilege.

There are several advantages in having a mortgage registered as security for a debt or other obligation of a ship owner. An analysis of applicable law relating to mortgage registration formalities follows hereunder.

Statutory Form of Mortgage

The Act provides for a statutory form of mortgage. There is only one form which must be used for all types of mortgages, whether principal and interest or account current mortgages. The mortgage must be drawn up in either English or Maltese.

When the mortgagor is a body corporate, the person signing therefor must have authority to do so by virtue of the body corporate’s constitutive documents or by virtue of resolutions of the board of directors or a power of attorney issued pursuant to the resolutions or the constitutive documents. The mortgagor must execute the mortgage in the presence of a named witness who must also sign the statutory form in that capacity.

Board resolutions and powers of attorney should be notarised and also legalised. Where this is not possible, the Registrar may accept lawyers as witnesses to signature, identity and authority and Malta Consuls for legalisation purposes, but one should verify in advance the position in each case.

Registration of Mortgages

Mortgages are only registered at the Registry in Malta. Only one original statutory mortgage form is delivered and registered. A copy is retained by the Registrar and certified copies are issued in any number. The original is returned to the mortgagee.

No other documents, apart from the corporate authorities and written consents, if applicable, need be filed at the time of the registration of the mortgage in the vessel’s Register. The Registry also requires a good-standing certificate issued by the Registry of Companies in Malta stating the names of the directors and shareholders and bearing the same date as the relevant corporate authorities. Fax copies of the corporate authorities are accepted as long as the originals are notarised and legalised. The Registry’s fee for a mortgage registration is currently €500 per mortgage, which fee includes the eventual discharge of the same mortgage.

A vessel currently under construction may be registered under the Malta Flag insofar as – when built or equipped — it would qualify as a ship registerable under the Act. In the case where a Declaration of Ownership has been completed in respect of the registration of a vessel under construction, and registration in the name and ownership of a particular party has occurred, a mortgage may be registered over such vessel while it is still under construction. The documents required in the case of the registration of a mortgage over a vessel under construction are substantially the same as those required for the registration of a mortgage on a Malta-Flagged vessel.

Registration of Amendment Mortgages

A mortgage may be amended for any purpose, but it must, at law, be effected for any one or more of the following purposes:

  • to increase the amount secured by such mortgage; or
  • to extend such mortgage to secure any other obligation of the mortgagor, whether as principal or as surety for any other person, in favour of the mortgagee.

In order to effect the amendment of an existing mortgage, a new amendment instrument of mortgage is executed containing the desired amendment/s, together with the written consent on the said mortgage amendment instrument, of the mortgagee whose mortgage will be amended. This mortgage amendment instrument is executed by the mortgagor and counter-signed by the mortgagee in the presence of named witnesses.

Where any mortgages other than the mortgage that it is intended to amend are entered in the vessel’s Register, an amendment mortgage cannot be registered unless the consent in writing of all the other mortgagees whose interests may be prejudiced by the registration of the amendment mortgage is produced to the Registrar. The documents required for the registration of an amendment mortgage are substantially the same as those required for a new mortgage with the addition of the above-mentioned consents, where applicable.

As with a ‘normal’ mortgage registration, the registration of an amendment mortgage may only occur at the Registry in Malta. One original form is delivered and registered. A copy is retained by the Registrar and certified copies are issued in any number. The original is returned to the mortgagee. No other documents, apart from the mortgage form, the required corporate authoritiesto execute the amendment mortgage and a good-standing certificate dated as of the same date as the corporate authorities are required. Fax copies of the corporate authorities are accepted as long as the originals are notarised and legalised. The Registry’s fee for registering an amendment mortgage is €250 per amendment mortgage.

Registration of Discharges of Mortgages

The discharge of a mortgage ends the obligations of the mortgagor (the ship owning company) to the mortgagee (usually, a bank or financial institution) as far as the security is concerned (but there may be other residual obligations under the loan or facility agreement). A discharged mortgage is substantially a receipt for monies paid.

Thus, the original statutory form of mortgage (which would be in the possession of the mortgagee) containing a receipt for mortgage moneys endorsed thereon and signed by the mortgagee and witnessed on the appropriate part of the back of the statutory mortgage form specifically reserved for the discharge of a mortgage is all that is required to discharge a mortgage. If the mortgagee is a body corporate, the mortgagee’s representative, duly authorised to bind the mortgagee bank with his signature, must sign the statutory mortgage form in the presence of a witness, usually a notary public or a lawyer, who will in turn certify the signature and authority of the mortgagee’s representative.

The mortgagee may wish to appoint local attorneys to sign the mortgage discharge, in which case, a power of attorney, duly notarised and legalised, will be required. The statutory form of mortgage, duly endorsed and signed, must then be presented to the Registrar for the registration of the discharge on the statutory mortgage form itself and on the vessel’s Register.

Certified true copies of the registered discharged mortgage form are issued by the Registry. Transcripts of Register with a free from encumbrances notation may be ordered for simultaneous issuance but advance arrangements must be made with the Registry if simultaneous issuance is a priority.

Mortgage as Executive Title

A registered mortgage is deemed at law to be an executive title where the obligation it secures is a debt certain, liquidated and due and not consisting in the performance of an act.

The rights of a mortgagee apply to all registered mortgages which secure debts resulting from any account current or overdraft or other credit facility.

Upon the registration of any mortgage in the Register, the rights of any mortgagee are not affected by:

  • the creation of any separate privilege or charge on any part, appurtenance or accessory of a ship which may attach in virtue of any law; or
  • the reservation of ownership rights by a seller of any part, appurtenance or accessory sold to a ship owner under a contract of sale, hire-purchase or any similar contract.

There is no statutory obligation to display a copy of the mortgage on board the vessel, but this usually forms the object of a specific contractual stipulation usually found (if entered into) in the Deed of Covenants collateral to the mortgage.

Mortgagee’s Rights

In the event of default of any term or condition of a registered mortgage or of any document or agreements referred to therein, the mortgagee, upon giving notice to the mortgagor:

  • is entitled to take possession of the ship or share therein in respect of which the mortgagee is registered; but except so far as may be necessary for making a mortgaged ship or share available as a security for the mortgage debt, the mortgagee is not by reason of the mortgage deemed to be the owner of the ship or share, nor is the mortgagor deemed to have ceased to be the owner thereof;
  • has power absolutely to sell the ship or share therein in respect of which he is registered; but where there are more persons than one registered as mortgagees of the same ship or share therein, a subsequent mortgagee cannot, except under the order of a court of competent jurisdiction, sell the ship or share therein without the concurrence of every prior mortgagee; and if the proceeds of sale, after discharging the mortgage debt show a surplus in his hands, the mortgagee must deposit the same for the benefit of other creditors and of the mortgagor;
  • has power to apply for any extensions, pay fees, receive certificates, and generally do all such things in the name of the owner as may be required in order to maintain the status and validity of the registration of the ship.

For the purposes of the proceedings above, the debtor is deemed to be lawfully served if the application or other act is served on the master of the vessel, or if he is absent from these Islands, on the local agent appointed for the vessel by the owners or their agent, or in the absence of such local agent or a curator appointed by the court to represent the debtor and the ship. Furthermore, in the case of Shipping Organisations, all judicial proceedings which are to be served thereon are deemed at law to be properly served if sent by registered mail or served by a court marshal at the registered office of the Shipping Organisation in Malta.

Dispute Resolution

The jurisdiction in which a dispute will be heard is usually dependant on the place where the vessel has been arrested.

The law governing the dispute will vary in accordance with the laws chosen under the applicable agreement/s. The Deed of Covenants and the Loan Agreement express their own choice of law and will be governed by the law chosen by the parties. As regards the mortgage deed itself, any dispute arising under the mortgage deed will be subject to the jurisdiction of the country where the ship is arrested but decided according to Maltese law.