MALTA Law and Practice Contributed by: Ann Fenech, Adrian Attard, Lara Saguna Axiaq and Martina Farrugia, Fenech & Fenech Advocates
recorded in the register of the relevant vessel. This registration determines the exact date and time that the mortgage becomes effective vis-à-vis third par - ties, and consequently also determines its ranking. The mortgage instrument is generally executed locally by a local representative of the mortgagor acting pur - suant to a power of attorney, which would also need to be presented to the Registrar of Ships together with the mortgage instrument. 1.7 Ship Ownership and Mortgages Registry The Maltese Ship Registry, which is responsible for the registration of ships and mortgages, is a public registry distinct from the Government Public Regis - try. It is accessible to the general public, who may physically attend the registry to carry out searches on Malta-flagged vessels. A transcript of the register of any registered vessel, which will reflect the publicly available information, may also be ordered from the Ship Registry. Typically, the Malta nexus in ship finance transactions arises where either the collateral vessel is registered under the Maltese flag or the borrower is a company incorporated in Malta. Perhaps the most common ship finance transaction involving a Malta-flagged vessel entails a loan facility being granted to the ship-owner for the purpose of, inter alia, financing or refinancing the acquisition of that vessel. The borrower in turn offers the vessel as collateral by registering a ship mortgage in favour of the lender. 2. Ship Finance and Leasing 2.1 Ship Loan Finance Financial institutions involved in bank-backed ship finance generally regard Malta as a favourable flag state jurisdiction owing to its robust, creditor-friendly legislative framework and, in particular, the preferen - tial status and protections afforded to holders of ship mortgages under Maltese law. A ship mortgage is executed to secure the rights of the mortgagee against the vessel owner, being the mort - gagor – namely, the payment of a principal sum and
interest, a current account, as well as the performance of any other obligation, including a future obligation due by the debtor to the creditor. A current account would capture any indebtedness of the mortgagor towards the mortgagee as arising and determinable in accordance with the underlying secured obligations. Although not mandatory for the validity of the mort - gage, it is common practice for the mortgage to be supplemented by a deed of covenants entered between the mortgagor and the mortgagee. This deed further regulates the parties’ relationship, particularly in relation to the day-to-day operation, maintenance and preservation of the vessel, as well as compliance with the terms of the mortgage. Apart from the mortgage, and in those financings where a borrower or a guarantor is a Maltese entity, financiers often also require a pledge of shares over all the shares in that Maltese company. A pledge of shares grants the financier a security interest over the company’s shares to secure the performance of the entity’s obligations. The pledge offers additional comfort in the event of default, as the agreement may regulate matters such as restrictions on voting, the power to remove and appoint directors, and the trans - fer of the company’s shares. As explained further in 2.2 Ship Leasing , the last dec - ade has seen a rise in alternative models of financing, including ship sale-and-leaseback transactions and other finance lease structures. Last year, a novel security package was introduced into Maltese law to protect the rights of a finance les - sor. The finance charter instrument (FCI) is a statutory charge registered over a Maltese vessel to preserve the lessor’s rights under a finance charter. The FCI ranks below the mortgage in the hierarchy of claims, thus ensuring that the mortgagee’s position remains fully safeguarded. This FCI addresses an identified gap in the range of pre-existing security measures available to lessors by conferring a ship-related secu - rity in the form of a recognised charge over the vessel, comparable to other maritime security interests.
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