Current developmentsi Recent cases
Some recent, significant court decisions in the field of asset finance, are listed below.
The recent MY Indian Empress case surrounded the enforcement of creditor rights over a super yacht, including mortgagee rights. A first judicial sale by auction ordered at the request of a service provider had been rendered ineffective, after the successful bidder failed to deposit the funds representing the successful bid. A successful judicial auction was later requested by the mortgagee, with particular requests that the court impose a priori conditions of eligibility for bidders. These included the necessity of showing guarantees for a threshold value or other evidence as to the bidders' ability to complete the purchase in support of their offers, together with evidence as to the lawful source of the relevant funds and other similar requirements. The court upheld such demands, showing that it was willing to take a pro-active approach to further safeguard the integrity and reliability of a judicial auction process.
The MV Kay case is of particular interest, as it arguably affords creditors additional remedy possibilities. The plaintiff (creditor) had a first-ranking mortgage registered in St Vincent and the Grenadines, which the court considered equivalent to a mortgage under Maltese law as it satisfied the requisite conditions for recognition, and, therefore, also constituted an executive title. The plaintiff, therefore, arrested the vessel, and the court exercised its discretion to allow the plaintiff a short period to repay the debt. In the meantime, the plaintiff filed an application for court-approved private sale of the vessel, rather than following through with the procedure that would have resulted in judicial sale by auction. The unusual feature in this case, however, was that the creditor sought to have the court approve its own acquisition of the vessel by way of set-off for amounts it had claimed, rather than a private sale to a third-party buyer. The court considered that the law imposed no restriction on who can be the purchaser in a court-approved sale, and therefore upheld the claimant's request. This judgment therefore allows mortgagees to proceed with acquiring the relevant vessel themselves, without going through the entire (more complex and costly) procedure of bidding animo compensandi in a judicial sale by auction.
In the aviation context, a recent case wherein the court applied and interpreted the provisions regarding the precautionary warrant of arrest of aircraft is the Medilink International Air Ambulance Limited case. The court here once again removed doubt as to the nature of alternative security that would allow for release of the relevant aircraft to be put up by a party against whom the warrant of arrest is issued. The party requesting the revocation of the warrant had claimed that the alleged debtor had sufficient assets in the form of shares in a Maltese company that were shown to have a certain market value that would clearly cover the original demand that had led to the arrest. The court refused to accept this as sufficient security, highlighting that the relevant alternative security must be firm, clear and capable of being realised by the judgment creditor. The court also confirmed that security in the form of a bank guarantee would also be acceptable.
The approach adopted in cases such as the above highlights a judicial attitude that consistently favours clear certainty in the field of ship and aircraft finance, ensuring that principles enunciated in recognising security interests in mobile assets are developed consistently and predictably. This is yet another aspect of the Maltese asset-finance panorama that will continue to underscore the island's progressive development as a centre of expertise and excellence in the asset-finance field.ii Developments in policy and legislation
Minor amendments to the Banking Act were introduced by virtue of Act XXXI of 2017, which was enacted on 22 December 2017. The amendments relate mainly to the inclusion of proper definitions that are to be attributed to certain terms used throughout the Act, while further establishing that a credit institution may, where necessary for the proper carrying out of its activities or for the fulfilment of its obligations, communicate information in its possession and that is related to the affairs of a customer or connected person to: (1) other members of the group of companies of which the same institution forms part and that carry out licensable activities; (2) any auditor engaged by the institution to carry out a compliance assessment or similar review in relation to any of the activities or risk management processes of the same institution; or (3) an outsourcing service provider in whose favour a credit institution has outsourced any of its activities, subject to all proper controls and safeguards.
Act LII of 2016, which was enacted on 29 November 2016, amends various pieces of legislation, mainly to better provide for the financing of aircraft engines (including the specific extension of in rem jurisdiction thereon and the possibility of arrest thereof). The amendments also provide for simplified insolvency procedures for aircraft companies, thus further alleviating the position of preferred creditors. In both aviation and maritime law, the legal regime continues to develop mainly through court interpretation and application of existing rules and regulations.iii Trends and outlook for the future
A notable trend that has subsisted over the years, in both the aviation and maritime sectors, is the tendency towards an approach that favours creditors. This can be seen in legislation protecting and strengthening the position of creditors, as well as the stance adopted by the courts in enforcing creditors' rights, as explained in previous sections of this chapter. Meanwhile, the ship and aircraft registries remain attractive to numerous ship and aircraft owners for various reasons, as evidenced by the statistics regarding registry growth provided in Section I.i.
In light of this, there is a positive outlook for both aviation and maritime industries, with further growth expected in both registries, and continued refinement of the legal regime governing vessel and aircraft financing, through legislative and court action.