A novel, legal procedure providing for court-approved, privately arranged sales has been introduced into Maltese Law, under subtitle V of Title VII of Part I of Book Second of the Code of Organisation and Civil Procedure (hereinafter the “COCP”),1 allowing creditors forcefully to sell vessels2 belonging to their debtors through “privately arranged” sales.3

The novelty of this legal mechanism is the direct involvement of the Maltese courts in a privately arranged sale carried out by a creditor of the indebted vessel: in other words, the sale of the vessel, although negotiated and arranged directly by the creditor, is carried out with the prior approval of the court and under its authority. The court’s sanction serves primarily to free, in the hands of the buyer, the subject vessel from all privileges and other encumbrances that otherwise would have attached to her.4 The new legal mechanism will be welcomed by creditors, augmenting the existing legal remedies that Maltese law already offers to creditors seeking to enforce their claims over vessels belonging to their debtors.

The mechanism is straightforward and relatively easy to implement. It is triggered by means of an application filed by a creditor in the superior courts.5 The special procedure, however, can only be exercised on the request of creditors holding “executive titles”.6 In Malta, instances of creditors holding executive title would be mortgagees,7 judgment-creditors,8 holders of promissory notes9 and creditors who have entered into an agreement with their debtor that is received before a notary public in Malta when the debt is certain, liquid and due.10 Within 10 days from the filing of the said application, the court appoints a hearing.11

The only other instance when a privately arranged, forced sale of a vessel can take place as a matter of Maltese law relates to those mortgagees forcefully selling their mortgaged vessel following an event of default.12 This remedy is and remains available to mortgagee in a given set of circumstances set out in the Merchant Shipping Act (“MSA”). Such cases of forced sale are carried out without the necessity for court intervention. However, unlike the new mechanism under the COCP, the remedy under the MSA available to mortgagees, when adopted, does not free the vessel from privileges or encumbrances that may have attached to the vessel at the time of her sale by the enforcing mortgagee. The COCP procedure introduces a process whereby the private sale of the vessel in question, although remaining fully in the control of the creditor (who organises it), is “preapproved” by the court. The sale is transacted with the approval of the court, the proceeds of that sale are deposited in court by the court-appointed representative, who acts on behalf of the transferor in the sale, and the transferee acquires the vessel from the creditor free from privileges and encumbrances—it is this latter characteristic this is novel in the Maltese legal landscape—a feature of the law that, it is felt, renders the new law attractive to mortgagees and other creditors holding executive titles intending to enforce their rights on vessels in Maltese waters.13 This law, in very clear language, specifically provides that:

“The sale of the ship or vessel or aircraft … gives the purchaser a title which is free from all privileges and encumbrances, and after the sale all claims or demands against the ship or vessel or aircraft may be enforced only against the proceeds of the sale”.14

A further attraction of the new procedure is that it allows the holder of the executive title to negotiate the conditions of the sale, particularly the price, directly with the potential buyers. This is to the benefit of both the creditor and the debtor, since the best return on the asset will invariably be actively sought.

However, the new procedure does require the creditor to produce to the court, as a prerequisite for its approval of the private sale, two independent appraisements of the vessel.15 The reason for this is obvious—the court will want to ascertain that the price of the prospective sale realistically reflects the true market value of the vessel. The appraisements to be produced to the court must be issued by valuers who are well established in the market—the law speaks of “independent” and “reputable” valuers.16 The court will need to be convinced that the values realistically reflect the market value of the ship in question, failing which the court will not approve the private sale.17 It is also incumbent on the creditor making the request to the court to produce evidence to the court that the requested private sale will be in the interest of all known creditors and that the price offered by the proposed buyer is reasonable in the circumstances of the case. The vessel will need to be brought within the territorial waters of Malta and the proceeds of the sale deposited in Malta under the court’s control.18

The creditor making the request will, as part of the procedure, be required to notify his application to interested parties—described by the law as “such persons as the court, in the circumstances and upon information given by the applicant, deems it appropriate to call upon to make their submissions”.19

Through the introduction of this procedure, Malta has continued to augment its standing as an attractive jurisdiction for the enforcement of claims against vessels. This mechanism is a very powerful tool with which the industry should become familiar and which it should utilise, since it is bound to save on time and costs to the benefit of all the parties concerned: creditors, owners and other interested parties.

References:

1. Ch.12 of the Laws of Malta.
2. In this Comment, “vessels” also includes aircraft.
3. COCP, ss 358–364.
4. Mortgages and a select number of other encumbrances will follow the vessel (droit de suite) in cases where the vessel is sold privately by a   mortgagee in possession.
5. COCP, s.358.
6. Executive titles are listed ibid., s.253.
7. That is registered mortgages, in terms of s.42(2) of the Merchant Shipping Act, ch.234 of the Laws of Malta (hereafter “MSA”).
8. COCP, s.253(a).
9. Ibid., s.253(e).
10. And not consisting in the performance of an act: ibid., s.253(b).
11. Ibid., s.361.
12. MSA, s.42(1)(b).
13. Although not specifically stated in the new law, the new legal mechanism can be utilised by mortgagees and other creditors holding executive titles against vessels that are present in Maltese territorial waters and that are subject to a warrant of arrest issued by a Maltese court.
14. COCP, s.364.
15. Ibid., s.359.
16. Ibid.
17. Ibid., s.359.
18. Within seven days from the date of the completion of the sale, the funds must be deposited by the court-appointed representative of the owner who would have executed the bill of sale in favour of the buyer under authority of the court: ibid., 363.
19. Ibid., s.360.