Court Approved Private Sales of Vessels in Malta

As per Article 359 of the COCP, there are certain requisites for the approval of such sale. These are:

1.The applicant MUST submit to the court two appraisals which confirm the value of the vessel which are done by independent and reputable valuers.

2.The applicant MUST present to the court evidence that such private sale is in the interest of all known creditors and that the price offered by the proposed buyer is reasonable in the circumstances of the case.

Case Law

Maltese courts have often approved such sales thereby strengthening the court’s confidence in approving such sales as well as providing legal certainty for the usage of this remedy provided by law. The below cases show the Maltese courts’ position on the approval of private sales of vessels.

a) FENECH DR ANN NOMINE vs IL-BASTIMENT THOR SPIRIT (2011)

This was the first case which made use of Article 358 of the COCP. The whole procedure was concluded in around two weeks, proving that such procedure is quick and highly cost-efficient.

b) “RIETUMU BANKA” vs IL-BASTIMENT M.V. BLANKENESE, IMO (2013)

In this case, the mortgagee allegedly requested the court to sell the ship to a company of which the same mortgagee was in control. The courts noted that a shareholder is not prohibited from acquiring property of a company in which he is a shareholder.

The court distinguished between the physical individual shareholder and a duly incorporated company which is separate and distinct from its members. It noted that parties alleging bad faith on the part of the buyer must prove bad faith before the court.

The court affirmed that the price being paid by the buyer was to be considered as good as or superior to the valuations produced by the mortgagee. The court concluded that the valuations were reasonable and true.

c) FENECH ANN DR. NOE vs IL-BASTIMENT MV B LADYBUG (2014)

The court investigated the practical application of the process and delved into the process of opposition of the private sale of a vessel.

The court stated that any execution creditor who makes such application is not violating the law, irrespective of whether such creditor could have decided to have the vessel sold by virtue of a judicial auction.

The judgement is fundamental as the courts confirmed that the private sale of vessels is to be considered a legitimate remedy in Malta. Nevertheless the Court highlighted that applicants should not abuse such mechanism or use it frivolously to the detriment of other creditors or the debtor himself. The Court further stated that all parties must be given the opportunity to be heard and to make all relevant submissions.

The court emphasized on the two obligations of the applicant, which are crucial to safeguard the interests of all the parties:

• The applicant must present two valuations of the vessel which must be to the satisfaction of the Court;
• The applicant is required to prove that the determined price of the sale is reasonable and that the sale is in the interest and for the benefit of all known creditors.

The Court affirmed that the creditors must show that the private sale of the vessel is in the interest of all known creditors and the applicants are not obliged to prove that all known creditors will be paid from the proceeds of the private sale of the vessel.

The court scrutinized the procedure in detail and declared the below points:

1. The value of the sale should rest on the valuations presented and this would be proof in itself that the value is reasonable.
2. If the valuations presented by the execution creditor are credible, then the court does not need to nominate a court expert to verify such valuations.
3. In the cases where the debtors or other creditors are not satisfied with such value of the sale of the vessel, they may refute it by presenting tangible credible proof to the court to sustain their opposition to the private sale of the vessel.
4. The law does not oblige the execution creditor to offer the vessel for sale on the open market for determination of its value.
5. Therefore, the responsibility lies with the other creditors or the debtor himself to find a buyer willing to purchase the vessel at a higher price than the price valued.
6. This is based on the court’s presumption that the execution creditor has an interest to sell the vessel at the best price possible; and the assumption that a person acting in good faith should not be excluded in a court-approved private sale.

The court affirmed that physical surveys are the best proof for valuing vessels and that surveys provide the court comfort with the valuation given.

d) MALTA TOWAGE LTD V MV IRMAK (2014)

In this case, the court held that the creditor attempted to use the process as a means of obtaining court approval of a suspicious sale. It reprimanded the creditor which according to the Court failed to reveal all the facts surrounding the sale.

The Court referred to the ‘‘International Marine Banking Co v The Dora’’ case and held that the proposed sale was not reasonable and it did not serve the general interest of the creditors.

e) SCERRI DIACONO JOTHAM L-AVUKAT DOTTOR NOE vs IL-BASTIMENT ‘HHL RIO DE JANEIRO’ (2019)

The sale was finalised within twenty days which shows the efficiency and transparency of the process.

The stance of the Court in this type of sale is proactive by ensuring that the application of the procedure is carried out consistently, in line with the appropriate administration of justice, as well as the good faith principle being respected by all affected parties.