The First Hall of the Civil Court, presided over by Mr Justice Mark Chetcuti, on April, 8, 2014, in the case ‘Dr Ann Fenech on behalf of Hyundai Heavy Industries Co. Ltd and Hyundai Samho Heavy Industries Co. Ltd v B Ladybug Corp.’ held, among other things, that the price of the ship had to be reasonable and the sale had to be beneficial to all creditors. It was up to the claimants to bring proof. KPI Bridge Oil Ltd intervened as co-defendant in the proceedings.

The facts in this case were as follows.

Hyundai Heavy Industries Co. Ltd and Hyundai Samho Heavy Industries Co. Ltd were secured creditors of the vessel MV B Ladybug, a Panama-registered vessel, for the global sum of €54,095,042 with legal interests.

The two companies had three mortgages over the vessel: a first priority mortgage in favour of Hyundai Samho Heavy Industries, covering $39 million; a second priority mortgage in favour of Hyundai Heavy Industries for $15 million; and a third priority mortgage in favour of Hyundai Samho Heavy Industries, securing $10 million.

A legal opinion from a Panama lawyer dated October 22, 2013, confirmed that these three mortgages satisfied the requisites of article 49 of the Merchant Shipping Act. The mortgages were validly registered in the Panama Shipping Registry, which was a public registry.

The mortgages appeared from a search at the Panama Registry and enjoyed priority ranking, equivalent in status to a mortgage registered under the Malta flag.

Under article 49, these Panama mortgages were equivalent to a Maltese mortgage and could be enforced just like other executive titles. These three mortgages satisfied the requisites under article 42 (2) of Chapter 234 and could be considered executive titles for the purposes of article 253 of Chapter 12.

As the sums due under these three mortgages were outstanding, there existed an event of default. By the letters dated October 18, 2013, and October 17, 2013, the owner of the vessel was formally notified by claimants that there was a default.

Despite these letters, the owner of the vessel still did not pay. The vessel was judicially notified on October 24, 2013.

Claimants requested the owner of the vessel to pay the amount due but, to date, nothing was repaid. Claimants arrested the vessel on October 4, 2013, and thereafter the arrest warrant became executive, after the presentation of a ‘note’ in terms of article 838B of Chapter 12 in the register of the courts on November 1, 2013, and accepted by the First Hall of the Civil Court on November 6, 2013. By way of the ‘note’ claimants’ credit was judicially ascertained to the value of €54,095,042.81.

In the meantime, claimants managed to find a buyer for the vessel and they wished to enforce their mortgages by selling the vessel privately, and approved by the court in terms of articles 358-364, Section 1, Title VII Sub-Title V of Chapter 12.

In terms of article 358, claimants filed two independent valuations on the vessel: one given by Paul Cardona for $54 million after inspecting the vessel and another for $50 million by Fearsale.

Claimants said they managed to find a buyer, agreeing to pay €40,855,037, €500,000 more than the vessel was valued. In this respect, claimants said that the price was reasonable.

On February 18, 2014, an agreement was signed with G. Poseidon Corp. for the sale of the vessel for €40,855,037, subject to the condition that the sale had to be approved by the Maltese courts in terms of article 358 of Chapter 12. Claimants requested the court to appoint Dr Kris Borg to sell the vessel as if he were the registered owner of the vessel and for him to deposit the price of the vessel within seven days from the sale of the vessel. The claimants notified all interested persons, the vessel, the Registrar and the bunker supplier.

Claimants asked the court:

• In terms of article 358, to approve the private sale of the vessel to G. Poseidon Corp. according to the preliminary dated February 18, 2014;

• In terms of article 362, to appoint Dr Kris Borg to sell the vessel according to the conditions approved by the court, as if he was the registered owner of the vessel.

The court considered that the elements in a court-approved private sale were:

1. Executive title in favour of the creditor;

2. An agreement with the buyer for an agreed price;

3. Two independent valuations by claimants; and

4. Proof by claimants that the sale was in the interest of the creditors and that the price was reasonable in the circumstances.

Executive title: Claimants had an exclusive title over the vessel and had produced two valuations.

Agreement: A preliminary agreement had been signed with G. Poseidon Corp. for the sale of the vessel.

The other creditors did not oppose the sale. The bunker supplier asked that the bunkers should be excluded from the sale. Its claim was later withdrawn, without prejudice.

Another creditor, Cronos Containers Ltd, requested that the 16 Roll trailers on board the vessel would be excluded from the sale.

KPI Bridge Oil Ltd declared that it had a credit against the vessel for marine bunker fuel. It said that the sale would be beneficial to all creditors.

The court noted that the debtor, the company B LadyBug Corp., the owner of the vessel, opposed the sale of the vessel. It submitted that:

• The sale was not in the best interest of creditors. Allegedly it was not enough that the price was slightly more than the valuations.

• In a private sale, there was no publication/advertisement to other potential buyers to offer a higher price.

• It had to be proven that the sale was in the interest of all other creditors.

The court said that Maltese law – as per articles 358 et seq of Chapter 12 – created a new way to enforce an executive title. The law gave claimants having an executive title the possibility to request the private sale of the vessel without a court auction. This did not mean that a creditor abused his rights when he referred to the private sale procedure.

This option was permitted by law and in itself did not create prejudice, a priori.

This right granted to a creditor should not be abused or exercised frivolously in a way which could prejudice other creditors. Nor should the debtor be denied of his property without having the opportunity of being heard and of presenting submissions for the purpose of article 356 of Chapter 12.

A creditor had to produce two independent valuations. The price had to be reasonable in the circumstances and the sale had to be beneficial to creditors. It was up to the claimants to bring proof in this respect.

This did not mean that if the price of the ship was not enough to satisfy all claims, the sale should not be approved. The law required that the sale had to be beneficial to the creditors, irrespective of the ranking of the creditors having maritime claims.

The law was worded generically: the sale had to be in the interest of creditors and the proceeds did not have to satisfy all debts. The price of the ship, as well as the proposed sale, had to be notified to the court in order to safeguard the interests of all creditors as the price had to be reasonable in the circumstances.

The debtor had to be given the opportunity of presenting submissions as well as all other creditors. The claimant creditors had an interest to provide surveyors and valuations. The claimant had an obligation to prove to the satisfaction of the courts that the valuations were reasonable and that sale was advantageous.

The court said that there was no good reason why it should not accept claimants’ requests for the private sale

The court had the discretion to accept the validity and reliability of the valuations. Once the claimant provided the valuations and reliable surveys, there was no need for the court to verify these documents. The law imposed the onus upon the claimant to bring proof and, unless for some serious doubt, the court should be satisfied with this proof. It was up to the defendant or another competing creditor to disprove the submissions of claimant to prevent the court from approving the sale.

The court did not agree with the defendant that a court auction gave more publicity and a more advan-tageous sale. A court auction also had certain disadvantages.

The court found the two valuations provided by claimants to be reasonable and reliable in view of its size and high rate of consumption. It chose to discard the valuation produced by the defendant for $75 million, which was not based on an inspection of the ship. The court said that it preferred valuations given after a proper inspection of the ship itself.

The price offered for the ship was more than €500,000 of the valuations produced by the claimants. There was no guarantee that a higher price would be fetched in an auction sale.

Maltese law did not oblige a claimant to first offer the vessel for sale on the open market. If at all, the defendant or other creditors could bring contrary proof. It had to be presumed that the claimant had an interest to seek the highest price in order to satisfy its claims, in particular in this case where the price was not high enough to cover the amounts due to them. Good faith had to be presumed.

The court said that it was not proven that the sale was not beneficial. It noted that claimants did try to advertise the sale of the vessel and the price offered by the buyer was the highest. The court said that there was no good reason why it should not accept claimants’ requests for the private sale, as the required elements had been proven in terms of article 358 of Chapter 12.

For these reasons, on April 8, 2014, the court gave judgment ordering the private sale of the vessel MV B LadyBug to G. Poseidon Corp. for the price of €40,855,037 according to the preliminary agreement dated February 18, 2014.

Not included in the sale were the 16 Roll trailers on board the vessel, which were the property of Cronos Containers Ltd.

The sale would transfer title of the vessel to buyers free from encumbrances and privileges in terms of article 364 of Chapter 12. This decision would cease to have any effect if the sale did not take place within three weeks.

The court appointed Dr Kris Borg in terms of article 362 of Chapter 12 to transfer the vessel according to the conditions of the agreement dated February 18, 2014, as if he were the registered owner of the vessel with all effect under articles 363 and 364 of Chapter 12.

Dr Karl Grech Orr is a partner at Ganado Advocates.