An extract from The Transport Finance Law Review, 7th Edition

Security and enforcement

i Financing of contractsShipping

A Maltese ship may constitute security for a debt or other obligation either by agreement or by operation of the law:

  1. by means of a mortgage that is a special charge over a vessel;
  2. by a general hypothec that attaches to all the assets of a debtor, including any vessel such debtor may own; or
  3. by a special privilege upon the vessel (these arise in virtue of law, and no debt or other obligations other than those specified at law shall be secured by a special privilege).9

Under Maltese law, ships form separate and distinct assets within the estate of the owners for the security of actions and claims to which the vessel is subject. In the case of bankruptcy of the owner, all actions and claims to which the ship may be subject shall have preference over all other debts of the estate. Thus, a creditor having security over a ship would rank ahead of other creditors of the estate.

The most common and certainly the strongest form of security available to ship financiers is the registered mortgage. The Maltese mortgage offers a number of advantages to financiers that makes it particularly attractive to financiers:

  1. a mortgage constitutes an executive title (where the secured obligation is a debt certain, liquid and due) and may be enforced immediately upon default without the need for a prior court judgment or order to that effect; thus the mortgagee can proceed directly with enforcement without applying to the Maltese courts;
  2. claims secured by a mortgage enjoy a relatively high ranking at law; the Maltese Merchant Shipping Act provides that registered mortgages will rank only after the following specified privileged claims:
    • tonnage dues;
    • wages and expenses for assistance, recover of salvage and for pilotage;
    • wages of watchmen and related expenses;
    • rent of warehouses;
    • expenses for preservation of the ship;
    • wages due to the master, the officers and the members of the vessel's complement;
    • damages due to seamen for death or personal injury;
    • moneys due to creditors for labour, work and repairs prior to the departure of the ship on her most recent voyage;
    • ship agency fees due for the ship after her most recent entry into port; and
    • debts due to the ship repairer or shipbuilder for building or repairs;10
  3. vessels subject to a registered mortgage may not be deleted from the vessel register by the owner without the mortgagee's prior written consent;
  4. a vessel may not be struck off its register by the competent authorities without at least one month's notice being given to the mortgagee by the Registrar-General of Shipping and Seamen; in the event that the vessel is deleted in these circumstances, this is done save for any registered encumbrances, and consequently the mortgage continues to attach to the vessel;
  5. further mortgages or transfers of vessels without the prior written consent of the mortgagee may be prohibited by a specific clause in the mortgage instrument;
  6. the mortgage attaches to the insurance proceeds and to the proceeds from indemnities for mishaps;
  7. once a mortgage is registered, special privileges or liens not previously recorded on appurtenances or accessories of a vessel do not affect the mortgagee's position;
  8. a mortgage may be registered in favour of a security trustee acting on behalf of a person or a syndicate to whom a debt or other obligation is due; and
  9. a registered mortgagee may register the assignment of part of a debt or other obligation secured by a registered mortgage.

The Maltese Merchant Shipping Act11 provides for a statutory form of mortgage. There is one statutory form that must be used for all types of mortgages, whether principal and interest or account current. The mortgage must be in English or in Maltese.

Mortgages are only registered at the Registry of Ships in Malta and rank among themselves from the date and time of their registration in the vessel register. Only one original form is delivered and registered. A copy is retained by the Registrar of Shipping and Seamen and certified copies are issued in any number. The original is returned to the mortgagee following registration. Once registered at the Registry of Ships, no further steps need to be taken to perfect the mortgage.

A vessel currently under construction may be registered under the Malta flag as long as, when built or equipped, it would qualify as a ship registrable under the Merchant Shipping Act.12 In the case where registration of a vessel under construction has occurred under the ownership of a particular party, a mortgage may be registered over such vessel while it is still under construction. The documents required are the same as those required for the registration of a mortgage on a Malta-flagged vessel. Maltese law imposes a possessory lien in the shipbuilder's favour over a vessel under construction. This entitles the shipbuilder to retain possession of the ship until the shipbuilder's dues have been settled: any debts secured by a Maltese mortgage would rank after the debt owed to a shipbuilder and secured by a possessory lien in favour of the shipbuilder.


Similar to the Merchant Shipping Act, the Aircraft Registration Act also treats aircraft as a particular class of movables whereby they form separate and distinct assets within the estate of their owners for the security of actions and claims to which the aircraft is subject. In the case of bankruptcy or insolvency of the owner of an aircraft, all actions and claims to which the aircraft may be subject shall have preference, on the said aircraft, over all other debts of the estate.

For such purposes, the term aircraft includes:

  1. all data, manuals and technical records; and
  2. the airframe, all equipment, machinery and other appurtenances as accessories belonging to the aircraft, which are on board or which have been temporarily removed therefrom, and any engines owned by the owner of the aircraft, whether attached to the aircraft or not, as well as any replacement engines that are designated for use on the aircraft and owned by the owner of the aircraft but are temporarily not attached to the aircraft.

The main form of security in a financing structure involving a Malta-registered aircraft would be the registration of a mortgage, which can also be registered as an international interest. However, one innovative concept that has been introduced as part of the implementation of the Cape Town Convention is the notion of having a lease registered as a security interest. Under Maltese law, a lease is not a security interest and does not give ranking to the lessor; however, if this is registered as an international interest then the lease will be given ranking under the Cape Town Convention. Any international interest registered in the international registry after the effective date will rank higher than any mortgage registered in the Malta Aircraft Register.

Another innovative concept was the introduction of irrevocable mandate. One such mandate takes the form of an 'irrevocable deregistration and export request authorisation'. Therefore, the creditor will be able to deregister and export the aircraft upon default without the consent of the debtor.

ii EnforcementShipping

In terms of Maltese law, creditors seeking to enforce their rights against a debtor will need to resort to the courts to obtain a judgment in their favour, whereupon creditors would then be able to resort to a number of warrants to enforce their rights, such as a warrant of arrest, a warrant of seizure or a garnishee order, and to recover the amounts due to them from the assets of their debtor.

The situation is somewhat different for creditors having a registered mortgage over a Maltese vessel. Because Maltese mortgages are executive titles and consequently provide that the amount due is certain, liquidated and due, the mortgagee would be able to enforce the mortgage without the need to obtain a prior court judgment.

Maltese law affords mortgagees several self-help remedies and, indeed, in the event of default of any term or condition of a registered mortgage or of any document or agreements referred to therein, the mortgagee shall, upon giving notice to the mortgagor:

  1. be entitled to take possession of the ship or share therein in respect of which he or she is registered; except insofar as may be necessary for making a mortgaged ship or share available as a security for the mortgage debt, the mortgagee shall not by reason of the mortgage be deemed to be the owner of the ship or share; nor shall the mortgagor be deemed to have ceased to be the owner thereof;
  2. have power absolutely to sell the ship or share in respect of which he or she is registered, but where there are more persons than one registered as mortgagees of the same ship or share, a subsequent mortgagee shall not, except under the order of a court of competent jurisdiction, sell the ship or share without the concurrence of every prior mortgagee; and if the proceeds of sale, after discharging the mortgage debt, show a surplus in his or her hands, the mortgagee shall deposit the same for the benefit of other creditors and of the mortgagor; and
  3. have power to apply for any extensions, pay fees, receive certificates and generally do all such things in the name of the owner as may be required to maintain the status and validity of the registration of the ship.13

In practice, most mortgagees seeking to enforce their claims would proceed to arrest the vessel and request a judicial sale by auction or a court-approved private sale of the vessel. The court-approved private sale of the vessel is a relatively recent development under Maltese law. Before its enactment, a mortgagee would only be able to resort to a private sale or judicial sale by auction of the vessel. Although these two remedies – private sale and an application for judicial sale – have advantages, they also have their disadvantages. While a private sale allows a mortgagee to negotiate the sale of the vessel with a private buyer at the right price, the vessel is not sold free and unencumbered, which may put off potential buyers. In a judicial sale, on the other hand, although the vessel is sold free and unencumbered, the prices fetched at judicial sales by auction are frequently below market value, especially since there can be no minimum reserve prices.

The court-approved private sale enables the creditor to seek court approval for the sale of the vessel at a determined price to a specific buyer. The price must be equal to or superior to two previously obtained valuations attesting to the value of the vessel. The mortgagee files an application in court, exhibiting copies of the memorandum of agreement and the valuations obtained, and requesting court approval for the private sale to proceed and requesting the appointment of a person who can transfer the vessel by means of a bill of sale to the new buyer for the agreed price. The vessel is then sold to the buyer free and unencumbered. The mortgagee can therefore negotiate the price for the vessel (thus avoiding the pitfall of the low prices typically obtained at judicial sales by auction) and the buyer obtains a free and unencumbered vessel (thus doing away with the disadvantages afforded by a private sale). Proceedings are swift and expedient, since the application is appointed for hearing within 10 days of its filing. Court intervention is usually minimal.


The holder of a registered mortgage, without prejudice to any remedies under the Cape Town Convention, shall in the event of default and upon giving notice in writing to the debtor:

  1. be entitled to take possession of the aircraft or share therein in respect of which he or she is registered;
  2. have power absolutely to sell the aircraft or share therein;
  3. have the power to apply for any extensions, pay fees, receive certificates and generally do all such things in the name of the owner or registrant as may be required to maintain the status and validity of the registration of the aircraft;
  4. have the power to lease the aircraft so as to generate income therefrom; and
  5. have the power to receive any payment of the price, lease payments and any other income that may be generated from the management of the aircraft.

Further remedies are also applicable under the Cape Town Convention, and these are available to the following persons: in favour of a chargee under a security agreement (such as a mortgage); in favour of a person who is a conditional seller under a title reservation agreement; or in favour of a person who is the lessor under a leasing agreement.

In relation to the chargee, should there be an event of default, such person may take possession or control of any aircraft object charged to it; sell or grant a lease of any such aircraft object; and collect or receive any income or profits arising from the management or used of any such aircraft object.

As regards the conditional seller or the lessor, such person may terminate the agreement and take possession or control of any aircraft object to which the agreement relates; or apply for a court order authorising or directing either of these acts. Additional remedies available to any creditor include the deregistration of the aircraft and the export and physical transfer of the aircraft object from the territory in which it is situated.

iii Arrest and judicial saleShipping

The law on ship arrest in Malta was, until 2006, governed by outdated and unclear rules and the Maltese admiralty jurisdiction was still being regulated by legislation that could be traced back to the mid-19th century position in England. These provided very limited heads of jurisdiction in rem on the basis of which a ship could be arrested and, in particular, did not regulate the substance of the action in rem. Problems arose in relatively more recent cases connected with bareboat charterers, for which no provision had been made. Furthermore, there was no right of sister ship or of associated ship arrest, or any provisions for court-approved private sales of ships.

All this changed with the statutory amendments introduced in 2006, as further amended in 2008. Although Malta is not a signatory to the Arrest Conventions of 1952 and 1999, the list of maritime claims that can be found under the current Maltese legislation reflects the lists found under these two Conventions and also closely adheres to the British Supreme Court Act of 1981.

Ships are arrested in Malta by a warrant of arrest issued on any one of the grounds listed in Article 742B of the COCP giving rise to the in rem jurisdiction of the Maltese courts. There are 25 maritime claims under Article 742B, which include, among others:

  1. claims to possession or ownership of a vessel;
  2. hypothecary or mortgage claims;
  3. claims for damage; and
  4. loss of life, salvage, pilotage, crew wages and registry fees.

Maltese law provides both for the arrest of the vessel in rem, that is, against the vessel for any of the 25 reasons listed under Article 742B of the COCP, as well as in personam, meaning that the vessel is arrested not because of a claim personally addressed against it, but is arrested because of a claim addressed against the vessel's owner. This latter option can only be exercised where the Maltese courts or a court of any other EU Member State would have jurisdiction to deal with the matter at hand in accordance with Article 31 of Council Regulation (EC) No. 44/2001.

Ships may also be arrested in Malta in security of arbitration proceedings commenced against the shipowner. Lastly, ships may also be arrested in Malta pursuant to the provisions of Article 31 of Council Regulation (EC) No. 44/2001, dealing with provisional, including protective, measures, in cases where the courts of another Member State have jurisdiction as to the substance of the matter.

The warrant is executed when notice is served on the executive officer of the authority that has the sea vessel in its hands or under its power or control, and a copy of the warrant of arrest is also served on the person whose ship or vessel is arrested, the master or other person in charge of such ship or vessel, or the agent of such ship or vessel. Furthermore, the authority that has in its hands or under its control the seagoing vessel against which such warrant of arrest has been issued shall take all necessary measures to display the court order for the general attention of third parties.

The claim against the vessel needs to exceed a minimum amount and has to be valid, since any claimant who maliciously arrests a vessel shall be held liable and exposed to penalties in accordance with the law. The claimant is usually requested to provide sufficient background relating to the facts of a case to establish whether there is a valid cause of action against the vessel, which could be substantiated by relevant documentation such as unpaid invoices or similar documentary evidence. However, such documentation is not strictly required at this stage, since the warrant of arrest is used for precautionary measures.

The owner of the arrested vessel has the right to request the court to order that the claimant provides a counter-security to be deposited in court in relation to the arrest. Since it is a means of safeguarding the owner's rights, such a request is usually accepted by Maltese courts. The claimant who successfully arrests a vessel has 20 days from the date of the issuance of the warrant to bring an action before a court.

Maltese law also caters for sister ship arrests. In fact, in the maritime claims listed in Article 742B(d) – (y) of the COCP, an action in rem may be brought against:

  1. that ship, where the person who would be liable on a claim for an action in personam (relevant person) was, when the cause of action arose, an owner or charterer of, or in possession or in control of, the ship if, at the time when the action in brought, the relevant person is either an owner or beneficial owner of that ship or the bareboat charterer of it; or
  2. any other ship for which, at the time when the action is brought, the relevant person is the owner or beneficial owner as respects all shares in it.

In these cases, thus, sister ship and associated ship arrest is possible.

Judicial sales by auction

Malta has long been an excellent jurisdiction to have vessels that are arrested in Maltese waters sold by public auction under court supervision as a means of enforcement by creditors of their executive titles.

The reputation that Malta enjoys in the sector has come about following the efficient manner of the court administration, the auctioneer and all involved parties in managing judicial sales by auction, and the relatively low costs to complete the procedure. Typically, ships are sold within a few months from their arrest and related costs are reasonable.

Judicial sales by auction are held in public, and any person may offer bids for the purchase of the vessel. The bids offered by participants are not sealed bids. The vessel is then sold to the highest bidder, free from encumbrances. There is no reserve price. The price is then either deposited in court or, if the bid is offered animo compensandi by a creditor of the ship, it is set off against the relative debt. The time-proven procedure works well, is fair and transparent and is typically concluded within a few months, with the ship then leaving Malta in the hands of her new owners.


The COCP also deals with the arrest and judicial sale of aircraft. It is possible to request a warrant of arrest as security for a debt or any other claim whatsoever subject to a number of limitations. In relation to aircraft, in all cases, the amount of the claim must not be for less than €7,000, while in the case of aircraft being used for public air transport of passengers or goods, for aircraft permitted to carry less than 10 passengers, the claim must not be for less than €250,000, and for aircraft permitted to carry more than 10 passengers, the claim must not be for less than €1 million.

In the case of engines, if the engine is not attached to the aircraft, the claim must be for not less than €7,000; if, however, the engine is attached to an aircraft that is used for public air transport of passengers or goods and the aircraft is permitted to carry less than 10 passengers, then the claim must not be for less than €50,000. If, on the other hand, the engine is attached to such an aircraft that carries more than 10 passengers and the engine is not owned by the owner of the aircraft, the claim must not be for less than €100,000. The €1 million requirement also applies in relation to an engine that is attached to an aircraft that carries more than 10 passengers and where the owner of the engine and the aircraft are the same.

The limitations on the amount of the claim stated do not apply to any claims made by holders of a mortgage or an international interest or a security interest when such mortgage or interest has been registered in the Aircraft Register or in the international registry.