Shipping Finance
"If someone was coming in from Mars or Singapore or somewhere and said:'I want to be established in Europe, tell me which tonnage tax regime to join', typically I would go for the Netherlands, the UK or Ireland"- Michael Everett( KPMG Transport Group) in Lloyd's List of 16 December 2011.
Financial institutions advance money to a shipowner to assist the owner in building a new ship, buying second-hand tonnage, undertaking a major conversion of an existing ship, or refinancing the existing indebtedness already secured on a ship. We can assist lenders and borrowers in respect of all parts of the deal.
Registering the Ship
The registration of the ship is the responsibility of the owner, or prospective owner of a newbuilding. The financing bank has a clear interest in the registration process since until the ship is properly registered it is not possible for the bank to put in place the appropriate marine mortgage. Depending on the jurisdiction, a vessel that is only provisionally registered may not be mortgaged until permanent registration takes place. However, in other jurisdictions mortgaging a provisionally registered vessel is possible, with the mortgage taking effect from the date of its registration, whether or not the vessel was then permanently registered. We can inform you about all aspects of registration of all sorts of vessels, whether under the Dutch or Netherlands Antillean flag, or in one of the open registries.
The Ship Mortgage
Almost invariably, it will be required that a ship mortgage be governed by the law of the flag if it is to be registered against the vessel. As a consequence, the form which the mortgage takes will be dictated by the legal system appropriate to the jurisdiction in which the vessel is registered. The mortgages in the principal ship registration jurisdictions fall into two types, which can be distinguished as the statutory mortgage and the preferred mortgage. Under English law and in those jurisdictions belonging to the former British Empire the system of the prescribed statutory form of mortgage will be applicable. In the principal ship registration jurisdictions that do not base their legal systems on English law (e.g. Panama, Liberia and the Marshall Islands) and also in the Netherlands the parties will be allowed, subject to certain mandatory requirements, to dictate their own form of mortgage. In the Netherlands the preferred form of mortgage will be executed and signed before a notary public.
We can advise you in respect of all aspects of drafting and executing a first preferred ship mortgage and the basic rights of a mortgagee, including all rights in respect of the mortgagee to take possession, foreclose, arrest or sell the vessel.
Market Outlook
The economic downturn has pushed many charterers to demand that charter rates be slahed by up to 80%.If charterers cannot pay the charter hire anymore this may also lead to owners no longer being able to keep up the mortgage payments. The global financial crisis has triggered a wave of newbuilding cancellations at established and greenfield shipyards in Asia. Already now yards are seeing owners walk away from newbuilding projects shortly before delivery. In 2007 delivery delays for newbuildings affected 2.6m dwt, or 41 vessels, representing 10% of the dry bulk orderbook. This was largely attributed to shortages of engines and crankshafts over the past few years because of a surge in ship demand, but delays have been exacerbated by skilled labour shortages. The capesize dry bulk market has almost come to a halt and for a short while no market rates were available. Vessel's are being laid up again.Altough banks in this climate remain reluctant to foreclose mortgages given the precipitous plunge in second hand vessel values, we have already received a number of instructions to start up proceedings leading to a judicial sale of the vessels involved.
Enforcement of Ship Mortgages
That brings us to one of the specialties our firm has gained a lot of experience in:the enforced sale by public auction in enforcement of a ships motgage. A mortgagee will require the right to take possession, principally to enable it to arrange for the vessel to be sailed to an amenable jurisdiction where the vessel can be conveniently arrested to provide for the mortgagee's claim. After the arrest, the mortgagee will want to have the vessel sold.
On a regular basis we are acting for banks and other financial institutions seeking to enforce their rights against a mortgagee in a default situation.
Provided there is an enfoceable title the time required between entering Dutch territorial waters and the day of the judicial sale by way of public auction can be between six and eight weeks. If a title enforceable is not yet available a mortgagee will usually be able to take advantage of summary judgment type of proceedings. The Dutch Conflict of Laws Act 1993 provides that questions as to which real rights attach to a ship and what is the substance of those rights, shall be governed by the law of the State where the ship was registered when the relevant right came into existence. Because of the relative swiftness of the proceedings and cost effectiveness the Netherlands is one of the most favoured jurisdictions for this type of action. One of the advantages of a judicial sale for the mortgagee is that a requirement for warranties to be given will be removed. It also avoids a potential by the owner for damages for breach of the mortgagee's obligations to obtain the best price reasonably obtainable. A sale through a public auction by the court will guarantee that the market value of a vessel will be realised. In the current market mortgagees may consider to make a bid themselves and acquire a vessel for a depressed market price to wait for better times that will lie ahead.
Please feel free to contact us for more information, or for a planning and budget for such a judicial sale.