Other than those that work in the field of maritime law, there are few who are aware of the fact that where property has been arrested or attached in respect of a maritime claim and liquidation, sequestration or judicial management proceedings have subsequently commenced in respect of the owner thereof, such property does not vest in the insolvent estate but is subject to sale and the distribution of its proceeds in terms of the Admiralty Jurisdiction Regulation Act, No 105 of 1983 (“the Admiralty Act”). Examples of these claims are certain claims against carriers, shippers, ship repairers, pilots, port authorities, ships agents and clearing and forwarding agents.

A South African High Court may in the exercise of its Admiralty Jurisdiction at any time order that property arrested or attached be sold and a fund created, even prior to a judgement being awarded. In this respect, it follows the attitude of the English courts in considering the length of time under arrest and costs of maintaining that property as being decisive of sale before judgment.

A relatively well developed procedure has emerged to deal with the sale of arrested or attached property, consideration of the validity of claims in respect of that property, the ranking thereof and payment to claimants. To illustrate the procedure and time periods involved, we use the example of a vessel sold recently at the instance of her mortgagee bank.

In that respect, she entered Durban harbour to berth in the early morning of 28 October 2010 and was immediately arrested by the sheriff at the instance of her mortgagee bank for claims in the region of US$12 million, and soon thereafter by various other creditors. Insolvency proceedings were commenced against the vessel’s owners the same day abroad and when the owners failed to defend the various arrests, her mortgagee bank, on 1 November 2010, filed an application with the KwaZulu Natal High Court, Durban for her sale and the appointment of a referee to consider the validity and ranking of claims. It pointed out that the value of the vessel was in the region of US$12.5 million and that with the claim of the second mortgagee and various other claimants, the value of claims well exceeded the value of the vessel and that her ongoing arrest would mean that ongoing maintenance and port costs would further erode her value. The application was heard by the Court on 3 November 2010 and it ordered all interested parties show cause before it on 19 November 2010 as to why the vessel should not be sold by judicial auction with a reserve price and a referee appointed and ordered appropriate methods of publication of its order. That order was granted on 19 November 2010.

The vessel was duly advertised for sale and sold on 9 December 2010 with her bunkers for just over US$12.6 million by the broker appointed by the Court in the sale order. That sum then formed the fund consisting of the proceeds of the sale of the vessel.

In terms of the sale order, claims were to be lodged with the referee on affidavit within ten court days of the date of the sale of the vessel but the referee had the power to grant a five court day extension, which he did, until 31 December 2010. Objection or representations in respect of claims were to be lodged by 28 January 2011 and replies to those by 11 February 2011.

Section 11 of the Admiralty Act sets out the ranking of claims in the event of the property that was sold being : a ship, with or without its equipment, furniture, stores or bunkers; the whole or any part of the equipment, furniture, stores or bunkers; the whole or any part of the cargo; the freight; or any container, if the claim arises out of or relates to the use of that container in or on a ship or the carriage of goods by sea or by water otherwise in that container. Consequently, the referee considered the validity of claims against the fund and ranked such claims in accordance with those provisions. Had the property attached being property other than that listed, he would have ranked them in the ordinary manner on insolvency.

The referee rendered a report to the Court on the validity and ranking of claims on 22 March 2011 and filed a supplementary report on 27 March 2011. The mortgagee bank then filed an application with the Court on 31 March 2011 for payment out of the fund in terms of the referees report, which application was heard and order granted on 20 April 2011. Capital and interest of all claims that ranked sufficiently highly to participate were paid on 29 April 2011 with sufficient being retained in the fund to cover the payment of legal costs and one claim that was not approved by the referee and which has to be either settled with the mortgagee bank or brought before the Court.  

The example used is illustrative of the time generally taken for a sale and distribution of a fund in the admiralty jurisdiction: sale usually being about a month and a half to two months after the property has been arrested or attached and the distribution of the main portion of the fund being roughly six months after the property has been arrested or attached. This is generally favourably compared with other admiralty jurisdictions around the world.  

Thys Scheepers in ENS’ Insolvency, Business Rescue and Debt Recovery department, confirms that this compares very favourably with the time taken for a non-maritime creditor to be paid out. In addition, in circumstances where the debtor is insolvent, payment could at best be expected within approximately eight months but it would more likely be in a year or longer.