Judicial sale of ships: New convention designed ‘to bring stability’ to shipping industry

Ann Fenech, president of the International Maritime Committee

Last Updated on Thursday, 14 September, 2023 at 8:15 am by Andre Camilleri

A new convention on the International Effects of Judicial Sales of Ships has been signed in Beijing. The Convention is expected to provide legal protection for purchasers of ships sold by judicial sale, while safeguarding the interests of shipowners and creditors.

The UN Convention was signed in Beijing in a ceremony organised by the Chinese government and UNCITRAL at the Beijing National Convention Centre.

The convention will ensure that ships purchased in judicial sales free and unencumbered will not be subjected to re-arrest by the vessel’s previous creditors, that registrars of ships will delete the vessels sold, as will the previous mortgages and encumbrances and that they will in turn register the ships in the names of the new owners and register mortgages in the names of the new financiers.

The failure to give such effects has had a negative impact on potential purchasers who would be reluctant to pay the best price in judicial sales in the interest of all the creditors if they ran the risks of having the ships they purchased re-arrested by old creditors. Financiers are also reluctant to finance ships without such assurances.

Commenting on the signing with The Malta Business Weekly, Ann Fenech, president of the International Maritime Committee (Comite Maritime International), said that the convention will be of great benefit to Malta.

“Malta is internationally-recognised as an international maritime centre. Our position in the middle of the Mediterranean has provided us with the ability to develop every aspect of maritime activity ranging from transhipment, ship repair, pilotage, towage, yachting, cruise line operations, nautical training and bunkering, not to speak of a thriving shipping register which is currently the largest in Europe and sixth largest worldwide,” she said. 

In addition to all of this, our position on the rum line, equidistant from the Straits of Gibraltar and Suez with a shallow  bank – Hurds Bank on our 12-mile territorial limit – makes it a very good location for vessels to wait instructions for loading and discharge. 

All of this means that our courts are frequently involved in the judicial sales by auction or court approval of vessels which are arrested by creditors because the owners of these ships are unable to pay their debts, Fenech said.  

“Our courts have, over the years, built an excellent reputation overseas in the manner in which judicial sales are handled.  In Malta, a vessel in a judicial sale is sold free and unencumbered which means that when a purchaser in a judicial sale purchases a vessel, he buys the vessel clean from its previous debts.  This is very important because who is going to pay top dollar for a ship in a judicial sale if it comes encumbered with debts?  It is in turn important that a vessel in a judicial sale fetches the best price, because the higher the price the better the chances of the creditors getting paid. Thus, it is equally important that a free and unencumbered title is given proper effect in the countries to which the ship will subsequently go,” she added.

It is crucial for Malta that the free and unencumbered title, which our courts give to purchasers in judicial sales, is recognised all over the world.  This is what the convention establishes, she said.

“In addition, and vice versa, it is equally important that when Maltese ships are sold in judicial sales in various jurisdictions, in properly held sales and in accordance with the convention, that the Maltese Registry gives proper effect and deletes the old registration of the vessel or deletes the old mortgages and hypothecs as requested by the new purchaser. The convention provides that on the production of a Certificate of Judicial sales registrars of ships are obliged to delete old mortgages or registrations. This gives a great degree of clarity and certainty to registrars including the Maltese Registry,” Fenech added.

It was at the Malta Colloquium in 2018 that the international shipping industry concluded that such a convention was important and UNCITRAL agreed to take on the draft convention prepared by the Comite Maritime International (CMI) and started the deliberations on this draft. The draft was finally concluded in June 2022 and it was adopted by the General Assembly of the United Nations on 7 December 2022.

In April of this year a symposium was held in Malta, under the auspices of the Ministry of Foreign Affairs, UNCITRAL and the CMI and three Maltese Ministers of State, the Minister of Transport, Home Affairs and Foreign Affairs pledged their support for the convention.

The convention was signed by 15 countries namely China, Burkina Faso, Comoros, El Salvador, Grenada, Honduras, Kiribati, Liberia, Sao Tome and Principe, Saudi Arabia, Senegal, Sierra Leone, Singapore and Switzerland in the presence of numerous state representatives.

The convention will come into force when it is ratified by three state parties. The EU has pledged its support for the convention and the Commission has already approved a policy to be adopted by the EU Council which will clear the way for EU member states to sign and ratify the convention.

John Busuttil, Malta’s Ambassador to China, was also present at the signing ceremony.

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