The First Hall of the Civil Court, presided over by Mr Justice Mark Chetcuti, on October 8, 2014, in the case ‘Dr Ann Fenech in representation of Bank of America N.A. v MV D Ladybug’, the court approved the private sale of the vessel as all elements were established: an executive title of the bank against the debtor; a sale agreement with the buyer for a specific price; two independent valuations of the vessel produced by the seller; and evidence by the claimant creditor that the proposed sale was in the interest of creditors and the price was reasonable.

Bank of America acquired all rights of Cathay United Bank and other lenders in relation to the vessel MV D LADYBUG Imo No. 9472206 under the facility agreement dated January 3, 2012, and related finance documents.

The relative documents were submitted as proof that it acquired the rights of Cathay United:

• deed of transfer certificate dated April 25, 2014;

• notice of assignment to owners dated May 5, 2014;

• deed of transfer relating to a first preferred Panama ship over the vessel dated April 25, 2014, whereby the assignors transferred all their rights in respect to the Panama mortgage dated February 29, 2012;

• transcript of register from Panama showing the mortgage in favour of the Bank of America;

• a legal opinion dated June 17, 2014, from Chinese lawyers to confirm the assignment to Bank of America and a legal opinion from Panama lawyers to confirm the transfer of the mortgage.

The claimant, Bank of America, submitted that the Panama mortgage was rendered executive by way of the judicial letter filed on February 21, 2014, and accepted by the master on February 25, 2014. Notification was done in terms of article 42 (5) of chapter 234.

A legal opinion given by Panama lawyers dated February 19, 2014, confirmed that the Panama mortgage satisfied the requisites of article 49 of the Merchant Shipping Act. Article 49 of chapter 234 provides:

A foreign mortgage shall be recognised as a mortgage with the status and all the rights and powers specified in this Act, notwithstanding the fact that it is not entered over a registered ship if:

“(a) such mortgage has been validly recorded in the registry of ships of the country under whose laws the ship is documented;

(b) such registry is a public registry;

(c) such mortgage appears upon a search of the registry; and

(d) such mortgage is granted a preferential and generally equivalent status as a mortgage under this Act under the laws of the country where the mortgage is registered.”

On July 22, 2014, Bank of America filed a judicial letter against the curators of D. Ladybug Corp. as owner of the vessel, to notify the owner of the transfer in terms of article 1471 of the Civil Code.

It was stated that the Bank of America was entitled to enforce its mortgage, which was an executive title, and rendered enforceable under article 253 et seq of chapter 12. Bank of America claimed that it was entitled to demand payment of €42,320,612, plus interests.

Faced with this situation, the bank applied for court approval of the private sale of the vessel, under articles 358-364 of chapter 12. The bank produced two independent valuations, one by Paul Cardona and Karl Briffa after inspecting the vessel and another by Bancoste (Oriente) PTE Ltd, who both valued the vessel at €40,650,406 on the basis of a report prepared by a third party, and on the presumption that the vessel was in a good condition and seaworthy.

It submitted that a memorandum of agreement (MoA) was signed on August 19, 2014, with White Tulip Shipping SA, whereby it agreed to purchase the vessel for €41,096,914.

The bank requested the court in terms of article 358 to approve the sale of the vessel to White Tulip Shipping for €41,096,914 and this according to the MoA dated August 19, 2014. It also asked the court to appoint Adrian Camilleri to effect the transfer as if he were the registered owner. The bank said that the bunker fuel should be excluded from the sale as this was their property.

The court considered that the bank applied in terms of article 358 of chapter 12 to approve the sale of the vessel. The elements to be proven were:

• An executive title of the Bank against the debtor;

• A sale agreement with the buyer for a specific price;

• Two independent valuations of the vessel produced by the seller;

• Evidence by the claimant creditor that the proposed sale was in the interest of creditors and that the price was reasonable.

The court noted that the bank had an executive title. A MoA was signed and two independent valuations were presented. In its affidavit dated September 12, 2014, the bank said that it had no connection with the buyer.

The court said that our law gave the creditor having an executive creditor the opportunity to request the sale of the vessel of its debtor by court-approved private sale, instead of by court auction. This option granted by law created no prejudice a priori.

The court had to ensure that this right was not abused nor used in a way that could prejudice other creditors of its debtor. It had to give the debtor the opportunity to hear and make submission for purposes of article 356 of chapter 12.

The claimant had to prove two elements in respect of which the court had to be satisfied: the price had to be reasonable in the circumstances; and the sale of the vessel had to be for the benefit of the other creditors. The law required that the sale would be for the benefit of all creditors without regard to their ranking. The fact that the price was not sufficient to cover all claims did not mean that the sale should be refused.

The law requires that the sale would be for the benefit of all creditors without regard to their ranking. The fact that the price was not sufficient to cover all claims did not mean that the sale should be refused

The price had to be reasonable. The claimant had to act transparently. It was obliged to show the court that the valuations were reasonable and that the sale was beneficial to all creditors.

There was no need for the court to verify the reports and valuations presented by claimant. It was up to the debtor or the other creditors to rebut these valuations, for the court not to approve the sale. The court did not agree that a sale by court auction was a better mode of sale as regards publicity and price. A court auction also had its drawbacks and no comparisons could be made.

The court maintained that it would prefer if all valuations were done after a survey of the vessel. In this case, it had no doubts that the valuations presented by claimants were reasonable.

It could not be stated that a higher price would have been fetched at a court auction. The law did not impose any requirement on a claimant to obtain other offers in order to be in a position to draw comparisons.

If at all, other creditors and/or the debtor had to bring such proof to show that a more favourable sale could be made. It had to be presumed that the claimant had an interest to obtain the best price in order to satisfy its claim.

Good faith was presumed. The court said that there was no proof that the sale was not beneficial.

The bank publicised the sale of the vessel. Only four companies showed an interest, out of which White Tulip Shipping made the highest offer. The court found no good reason why it should not accept the private sale of the vessel once all elements in the law were established.

For these reasons, on October 8, 2014, the First Hall of the Civil Court gave judgment by ordering the private sale of the vessel MV D Ladybug to White Tulip Shipping S.A. The bunker fuel on board the vessel was excluded, as this was the property of the bank.

The sale of the vessel to White Tulip Shipping was for the price of €41,096,914 according to the terms of the MoA dated August 17, 2014. The vessel was to be sold free of any privileges and encumbrances in terms of article 364 of chapter 12. The sale had to take place within three weeks from the date of this decision. This order had no effect if there was no sale within three weeks. Camilleri was appointed in terms of article 362 of chapter 12 to transfer the vessel according to the MoA as if he were the registered owner, with all effects as stipulated under articles 363 and 364 of chapter 12.

Dr Karl Grech Orr is a partner at Ganado Advocates.

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