Court blocks private sale of arrested vessel

The First Hall of the Civil Court did not allow a company to purchase a vessel held in Malta after it incurred a number of debts.

This was decided by Mr Justice Mark Chetcuti on 25 August, 2014 in the case Malta Towage Limited -v- mv Irmak.

Malta Towage Limited filed an application asking the court to authorise that mv Irmak be sold to Britannia Shipping Limited, which is registered in the UK. The applicant company explained it is owed €197,609 which represents the sum the ship was condemned to pay to the captain and the crew in a judgment dated 13 July, 2012. The company managed to find a purchaser for the vessel and is seeking the court’s approval for the sale. They also produced two valuations of the vessel, one for €55,000 and the other €60,000.

Cassar Ship Repair Limited and Mediterranean Trading Shipping Company Limited objected to this sale, since they are also owed money by the vessel. They also objected at not being notified of Malta Towage’s application for the sale of the vessel. 

Mr Justice Chetcuti held that the private sale of the vessel was permitted on 10 June, 2014, however this was attacked by Mediterranean Shipping Company Limited on the ground that the assignment of the debt of the crew’s wages to Malta Towage is not known since the sum was removed, however, the crew were owed €197,609.40. The assignment of the debt took place before Malta Towage had the valuations of the vessel. Furthermore, Mediterranean Shipping was not informed of the agreement of sale between Malta Towage and Britannia Shipping, which two companies share the same shareholder and director.

The procedure is similar to that existing in the UK. The difference is that in Malta a judicial sale or an authorised private sale extinguishes any debts. This is not so in the UK.

The court commented that in these proceedings the court is not a spectator and has to make sure that there are two valuations of the vessel and that the sale is in the interest of all creditors

The court commented that in these proceedings the court is not a spectator and has to make sure that there are two valuations of the vessel and that the sale is in the interest of all the creditors and that the price is reasonable. This requires that the applicant company act openly and transparently in such a manner that the court will not suspect that this procedure is being used to escape justice.

It is understandable that the applicant has to safeguard its own interest, but this must not be confused with doing away with its obligations to the court. This is what took place when the court had originally approved the private sale on 10 June, 2014. Malta Towage had failed to mention to the court then that its shareholder, Joseph O’Connor, was the same shareholder of the purchasing company, Britannia Shipping.

Therefore, Mr O’Connor was selling the vessel to himself. The court further commented that this put in doubt Malta Towage’s good faith, which allowed the same court to have reconsidered the other elements such as the valuations presented originally.

The court held that the applicant company was to transport the vessel to a foreign port and therefore, one can reassess the expenses included in the valuation. The court also took note of the Mediterranean Trading’s submission that the assignment of debt of the crew’s wages took place before a valuation was given.

The crew assigned the debt of €197,000 was assigned to Malta Towage for €50,000. The valuations before one deducts the towages expenses vary from €130,000 to €180,000.

The court took into consideration that the price offered was €57,000 and that Malta Towage was not a creditor of the vessel until it bought the debt from the crew. Therefore, the court is no longer convinced that the sale is in the interest of the creditors and that the sale is reasonable. 

The court then moved to revoke the company’s request for a private sale of the vessel.

Malcolm Mifsud, Partner, Mifsud & Mifsud Advocates

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