In the December 2011 decision of Danske Bank A/S v the MV Thor Spirit, a Maltese civil court affirmed the right of a mortgagee to sell a vessel through a court-approved private sale (for further details please see "Court announces additional advantages for mortgagees of Maltese vessels"). This ruling is in line with Dutch case law on court-approved private sales.

The ability to ask the court to approve a private sale as a means for a mortgagee to enforce its mortgage in the Netherlands is laid down in Dutch legislation only with respect to the judicial sale of real estate. However, in 1995 the Hague Court of Appeal ruled in the All-Ways case that the legislation also applies to inland waterway vessels. In 2009 a Rotterdam court ruled in the Hannes C case that the rule also applies to sea-going ships. Therefore, any vessel – whether inland waterway or sea-going, Dutch-flagged or foreign-flagged – can be auctioned in the Netherlands through a private sale.

Since Hannes C, a number of sea-going vessels flying a variety of flags have been sold in court-approved private sales for mortgagees. A court-approved private sale has all the effects of an auction – in particular, the 'washing clean' of all mortgages, liens and encumbrances on the vessel. However, this also means that the formalities which the law requires for an auction must be fulfilled. These include the requirements that:

  • a regular auction be initiated;
  • certain publications be made; and
  • known creditors be informed.

After the fulfilment of these formalities, an application may be made to the court for a court-approved sale. Upon receipt of the application, the date for the regular auction will be postponed and a date will be set for the court-approved sale instead. If properly planned, this can be the date originally set for the regular auction.

Along with the application for a court-approved sale, a sales agreement signed by the mortgagee and the buyer must be presented to the court, as well as a valuation showing that the purchase price is a reasonable amount. This may be a desktop valuation. On the set date, a hearing will then be held, at which the application will be considered.

However, the sales agreement is not a guarantee for the buyer. Firstly, the court may consider the price too low. Secondly, other interested parties will have been informed of the conditions and price of the intended sale to the buyer and may place competing bids at the hearing. A higher offer is not necessarily a better offer; the conditions of the sale and the financial status of the parties presenting bids will also be of influence.

A court-approved private sale is a good alternative to a regular auction: the mortgagee knows what it will receive (with even a potential upside), and the buyer has reasonable certainty of buying the vessel. For the mortgagee, an auction in the Netherlands (either a regular auction or a court-approved private sale) is even more attractive, because of:

  • the short duration of the process (five to six weeks);
  • the nominal costs involved (no admiralty fees and minimal court fees); and
  • the fact that only the crew has a higher priority right than the mortgagee.

For further information on this topic please contact Carel JH Baron Van Lynden at AKD by telephone (+31 88 253 5000), fax (+31 88 253 5400) or email ([email protected]).