On 1st December 2011, in the case Danske Bank A/S vs MV Thor Spirit, the Maltese Civil Court has approved the first private sale. This after the introduction of such right in the law back in 2006 This breakthrough case has afforded all the more proof of the high standard and advantages offered by the Malta flag.
Prior to the introduction of the court-approved private sale, Maltese law offered other plausible solutions to a mortgagee wishing to enforce his rights over a mortgaged vessel in cases where the respective owner has defaulted in any of his obligations, in particular mortgage payments. The first remedy involves the mortgagee taking possession of the vessel and thereafter proceed with its private sale. This procedure offers the mortgagee the possibility to negotiate the best price with the right buyer, however the vessel is not sold as free and unencumbered. Hence, potential buyers tend to thread rather cautiously in such instances. Alternatively, a mortgagee could opt to go for a judicial sale by auction of the ship given that a mortgage is deemed to be an executive title under Maltese law. In contrast to the private sale, a judicial sale offers security to potential buyers since the vessel is sold as free and unencumbered, albeit in judicial sales, vessels are sold for a price considerably lower than the actual market value of the boat.
In 2006, the Maltese legislator sought to provide a solution for the problems presented by these remedies through the introduction of the court-approved private sale. In brief, the mortgagee shall agree with a potential private buyer on the price with which the mortgaged vessel shall be sold. It is necessary that such price is equal to or greater than two evaluations of the vessel acquired beforehand. Once the price is finalised, the mortgagee shall file a court application calling for the endorsement of the private sale and appointment of a person responsible for the transfer of the vessel. Following the court’s approval, the mortgagee can proceed with the sale of the vessel to its new owner by means of a bill of sale. In practice, the procedure has proven to be very efficient taking approximately two weeks from the filing of the application until the final judgement delivered by the Maltese Court.
Undoubtedly, such system is a very effective tool to the mortgagee wishing to enforce his rights under Maltese law. It has provided the best alternative so far, in that it allows a mortgagee to negotiate the best price (the disadvantage that is encountered in a judicial sale by auction) and also offers potential buyers the guarantee of a free and unencumbered sale (the disadvantage that is encountered in a private sale). Such judgement is evidence of how Maltese law took a hands-on approach and moulded legislation to accommodate the exigencies of mortgagees, thus granting a real solution in an efficient manner.
This is ultimately what the mortgagee, quite often a bank, expects when financing the purchase of a vessel: a jurisdiction that not only asserts his legal right over the vessel but, furthermore, provides him with practical ways of how to secure his investment with little room for vulnerabilities.
