Shipping finance—enforcement of security
Shipping finance—enforcement of security

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Shipping finance—enforcement of security
  • Right to take possession
  • Sale by the mortgagee
  • Arrest and sale by the court
  • Possessory liens
  • Maritime liens

This Practice Note looks at the enforcement of security by a mortgagee following an event of default under a ship finance transaction and in particular covers:

  1. the mortgagee's right to take possession of the vessel

  2. private sale of the vessel by the mortgagee

  3. arrest and sale of the vessel by the court (judicial sale), and

  4. maritime and possessory liens

If the owner of a vessel commits an event of default, amounts secured under the ship mortgage will usually become immediately due and payable. If the amounts due are not paid, the mortgagee may enforce its security and look to sell the ship and recover amounts due. In order for the mortgagee to obtain maximum protection in the UK, the ship mortgage should be registered against the vessel at the UK ship registry and, if the mortgagor is a body corporate under the Companies Act 2006, at Companies House under section 859A within 21 days of its creation. If the mortgage is not registered, although it may still be valid and enforceable, it will be subordinate to any mortgage that has been registered and may not provide in rem rights against the vessel, being rights that exist against the vessel itself rather than against the owner of the vessel. For more information on mortgage registration, see Practice Note: Shipping finance—security.