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Shareholders can purchase their arrested vessel

In a court decree, Mr Justice Mark Chetcuti authorised the private sale of an arrested vessel, although it emerged that the purchaser had included the shareholder of the debtor ship-owning company.

9 September 2013, 12:00am
This was decided on 22 August 2013 in the names of Joint Stock Company Rietumu Banka, a Latvian registered bank represented by Dr Paul Micallef Grimaud v MV Blankenese.

The Latvian bank presented an application before the First Hall of the Civil Court, where it stated that it was owed €1,128,077.67 by the vessel MV Blankenese. The loan was covered by a mortgage registered in Malta on 23 June 2006, however, the ship-owning company Blankenese Shipping Limited failed to make all the payments, as it was bound to do. A notice of default was issued on 10 January 2013, and the owners were duly notified that they were in default and were given a time in which payment of the balance of the loan was to be settled.

The payment was not made until on 15 July 2013, and by then the vessel itself had been arrested.

Before the arrest on 8 July 2013, the bank filed a judicial letter calling upon the vessel to effect the payment of €1,128,077.67. This judicial letter converted the bank's claim into an executive title in accordance with section 42(2) of the Merchant Shipping Act. The bank stated that it had an interest in the sale of the vessel. The bank asked the court to authorise a private sale of MV Blanckenese in accordance with section 358 of the Code of Organisation and Civil Procedure and in fact presented two valuations of the vessel, one by engineer Paul Cardona, who valued it at 500,000 US dollars. ICAP Shipping Limited valued it at $475,000. The bank stated that it had an offer of €550,000 for the vessel, in accordance with a memorandum of agreement of 23 July 2013, exceeding the valuations presented.

The court pointed out that the bank request was based on section 358 of the Code of Organisation and Civil Procedure, which allows the court to authorise the private sale of a vessel after the creditor files an application and identifies the potential buyer and the sale price. The first element that has to be proven is that the claim is an executive title. In this particular case, the loan agreement was presented with the deed of covenants, which had been registered in the Ship Register. The ship-owning company did not pay this loan and therefore was in default.

It was also proved that a judicial letter was served on the vessel for the amount of €1,128,077.67, which was liquid, certain and due. This translated the claim into an actionable executive title. Therefore, what was being asked was a private sale instead of a judicial sale.

Two surveyors had submitted two separate valuations, while the bank had an offer of a sale price of €550,000, which exceeded the valuations presented. The court therefore, said that it had no reason not to authorise this private sale.

There was an objection from two companies, FTO Bunkering Limited and OU Travelcom, which were also owed money from the vessel. These two companies pointed out that the buyer of the vessel was in fact the shareholder of the defaulting ship-owning company, and a new company had been set up merely to purchase its own vessel

The court held that the law does not prohibit a shareholder from purchasing an asset of the given company. Technically, the purchasing company was another company, not the shareholder personally, and was a minority shareholder in the new company. The companies objecting to this private sale claimed that this shareholder was in bad faith, but bad faith has to be proved by the party alleging it. The court pointed out that there was no contestation that the bank was a creditor of the vessel and was applying the law to satisfy its claim. Given the fact that the price offered exceeded the valuations presented, the court discarded the objections raised by the two companies.

The court decreed in favour of the applicant bank and authorised the private sale according to the Code of Organisation and Civil Procedure.

Malcolm Mifsud is a partner at Mifsud & Mifsud Advocates

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