MALTA Law and Practice Contributed by: Ann Fenech, Adrian Attard, Lara Saguna Axiaq and Martina Farrugia, Fenech & Fenech Advocates
Maintenance Expenses Generally, it is the ship-owner who remains responsible for the maintenance of its vessel while under arrest. Nonetheless, Article 857(4) of the COCP states that any expenses necessary for the preservation of an arrested ship should be borne by the party issuing the arrest warrant. In such cases, the law provides the arresting party with the right to recover any such expenses and costs, together with its claim against the owner. These expenses would enjoy a relatively high ranking. This provision in the law was originally enacted to ensure that the Maltese port authori - ties are not left exposed when a ship-owner has abandoned the vessel. However, a recent judg - ment has allowed the owners of an arrested ves- sel allegedly in dire financial difficulty to rely on this article. Ranking Following a judicial sale of a vessel, and the deposit of the purchase price, competing credi - tors must participate in distribution proceedings in order to be paid according to the established rankings of their respective claims. Article 54A of the MSA sets out the ranking of all maritime claims in a clear and hierarchal order. Under Maltese law, a mortgagee would enjoy a rela - tively high ranking. Only possessory liens and a limited number of special maritime privileges would pre-rank a mortgage claim. All ordinary maritime claims under Article 742B would rank after a mortgagee’s claim. 4.11 Insolvency Laws Applied by Maritime Courts Under Maltese general corporate law, a com - pany in financial distress may file for a company recovery procedure under Article 329B of the Companies Act, seeking judicial protection, for a specific period of time, in order to be able to attempt to revive the company’s business. Under
this protection, a creditor would not be permit - ted to seize any assets or enforce any judgment against the debtor company in Malta without first obtaining leave of the courts. That said, shipping companies are not regulated by the Companies Act and are governed by the provisions of the Merchant Shipping (Shipping Organisations – Private Companies) Regula - tions, Subsidiary Legislation 234.42, which do not have an equivalent company recovery pro - cedure. It is therefore questionable whether Mal - tese shipping companies are afforded protec - tions akin to those granted within the context of US Chapter 11 Bankruptcy proceedings, such as an automatic stay order. To the best of the authors’ knowledge, this question has never arisen before a Maltese court. Maltese entities may also apply for similar protec - tions under the provisions of the Pre-Insolvency Act. That said, the law provides that inter alia action in rem claims against ships as well as any warrants of arrest of a ship would be excluded from the stay order prohibiting the execution of other claims against the debtor. In this respect, it is prudent to note that a Maltese court will also not necessarily consider itself bound by any stay order issued by a foreign bankruptcy or insol - vency court. This issue was touched upon in the B Ladybug case. After the arrest of the vessel, proceedings were commenced to have her sold judicially. The owners tried to interrupt the judi - cial sale proceedings, arguing that the beneficial owners of the vessel were subject to ongoing US bankruptcy proceedings where a stay order had been given, and thus the Maltese courts were obliged to suspend the ongoing judicial sale pro - ceedings. The presiding judge disagreed, finding that Maltese courts should not be bound by the extraterritorial effects of such a stay.
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