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From the Brig

Ships that go bust

in the night

ISSA’s legal expert Bruce Hailey discusses

the issues that matter to you

I

n the present market, there will Lenders will seek to

inevitably be cases where unpaid arrest vessels in places
suppliers face the prospect of where they can be sold

bad debts. This article explains why quickly by a court, and
sometimes there is little that can be where the lender’s claim to

done to collect money that is owed, the sale proceeds will have
and why early recognition of this fact priority over as many other

can save more wasted money and categories of creditors as
anguish.
possible.

Depressed freight rates have seen In most countries the lender will
many ship owners reach the point have a priority over unpaid suppliers.

where they cannot continue in business. There are a few exceptions, the most

Often the decision is taken out of the noteworthy being South Africa, where a
owner’s hands by a lender who decides whatever value
supplier who arrests the vessel supplied

to cut its losses, and enforce the security there is in the vessel is
within one year of the date of supply will
that they hold over the vessels in an available to the lender and is not lost to have a priority over a claim by a lender

owner’s fleet.
other creditors that the owner has under a mortgage.
When a lender elects to cut its losses accumulated.
In the USA suppliers of “necessaries”

this will usually be done with the benefit Typically a lender will have a have a maritime lien, and will take in
of professional advice, to ensure that mortgage over the vessels in its priority over foreign mortgage. Some

the financial return to the lender is customer’s fleet. When a loan is in countries recognise a foreign lien, so that
maximised. This is more important default the lender is entitled to foreclose for example in Canada a supplier whose

than ever, given that depressed ship on the loan, arrest the vessel and set the contact was subject to US law is able to

values mean that outstanding loans will sale proceeds against the unpaid loan. assert a US lien and make a claim against
usually exceed the value of the ship.
Where a loan or loans are secured sale proceeds in priority to a mortgage.

The lender must chose its moment against more than one vessel then Apart from the order of priorities to
carefully, and doing so in a place that is typically the lender will seek to the proceeds of sale, one of the key

most beneficial to the lender. The coordinate action against as many considerations for a lender will be the
primary objective for the lender is to vessels as possible, most likely seeking to speed and cost of process to have a vessel

maximise value in the vessel or vessels, position as many vessels as possible in a sold. In some cases lenders may reach
and ensure as far as possible that
favourable location.
settlements with creditors who have

24 The SHIP Supplier Issue 60 2014