Mortgage in Maltese Maritime
What is a Mortgage?
A mortgage is an instrument executed by the mortgagor (the debtor) in favour of the mortgagee (the debtor), by which a ship may be made security for a debt. The Instrument of Mortgage must be made in the prescribed form, in the presence of a witness. The Instrument of Mortgage is usually accompanied by a Deed of Covenants specifying the time and method of repayment of the debt, the interest rate, insurance requirements, restrictions on the operation of the ship and the rights of the mortgagee upon default.
Why Use a Mortgage?
Mortgage is considered to be an extremely secure form of security under Maltese Law due to (i) its extended reach, (ii) limitation rights available to the mortgagee, (iii) priority rights granted upon default and (iv) strong self-help remedies available upon default.
Extended Reach
Maltese law expressly provides that a ship shall include together with its hull, all equipment, machinery and other accessories belonging to the ship. Even equipment, machinery or accessories which have been temporarily removed from the ship are considered to constitute part of the ship for security purposes. Hence, a mortgage over a ship also extends to such equipment, machinery and accessories.
The mortgage continues to attach to the ship and accessories until it is discharged or extinguished. It can only be extinguished in three cases, being:
(i) If the asset is forfeited and the mortgagee has consented to or conspired in the act leading to the forfeiture.
(ii) If the asset is sold by court order (judicial sale), in which case the rights of the mortgagee shall pass on to the proceeds of the sale.
(iii) If the asset is sold by a mortgagee in possession free from encumbrances, in which case the rights of all prior ranking mortgagees shall pass on to the proceeds of the sale.
The mortgage also extends to any indemnity arising from collisions and other mishaps as well as any insurance proceeds.
A mortgage may cover future obligations provided a maximum sum is expressly stated in the Instrument of Mortgage. However, the application of this rule is limited to mortgages executed in favour of credit institutions in approved jurisdictions.
Limitation Rights
The Instrument of Mortgage can also be drafted in a manner to require the prior written consent of the mortgagee prior to any further mortgages being registered on the ship. However, this rule shall not apply where such further mortgage is executed in favour of an existing mortgagee.
Priority Rights
Under Maltese law, a ship constitutes a separate and distinct asset to the estate of its owner for the security of actions to which it is subject. This means that all claims to which the ship is subject will have preference over all other claims of the owner’s estate. This preference is also not affected by the bankruptcy or insolvency of the owner. Even in cases of bankruptcy or insolvency of the owner, the claims of mortgagee shall not be interrupted by any liquidators.
Self-Help Remedies
Upon default and due notice in writing to the mortgagor, the mortgagee shall be entitled to:
(a) Take possession of the ship;
(b) Sell the ship, provided there are no prior ranking mortgagees (in which case, the consent of all prior ranking mortgagees is required);
(c) Apply for any extensions, pay fees, receive certificates and generally do all such things in the name of the owner as may be required to maintain the status and validity of the registration of the ship.
A mortgage is also considered to be an executive title under Maltese law, meaning that the mortgagee may enforce his claim against the mortgagor without needing to go through lengthy and expensive court proceedings.
Registration of Mortgage
Importance of Registration
Mortgages rank amongst each other from the day and hour on which they are registered. Furthermore, many of the aforementioned rights (such as all self-help remedies) are only available to registered mortgages.