The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:
This Practice Note considers the principal types of security that a lender may look to take in a ship finance transaction. The main type of security is a first priority mortgage over the ship but, depending on the position in the particular transaction, the lender may also demand all or some of the following types of security:
assignment of insurances, earnings and requisition compensation
parent company guarantee
charge over shares, and
charge over a bank account
This Practice Note is relevant for all vessels that may be included in a typical ship finance transaction. For further detail in relation to superyachts in particular, see Practice Note: Superyacht finance—taking security over superyachts.
The lender’s primary source of security will be over the vessel itself and a legal mortgage will allow the lender, in the case of default, to exercise its powers of possession and sale. The mortgage will be governed by the law of the country or jurisdiction where the vessel is registered.
In the UK, a legal mortgage over a ship registered in Part I or Part II (with full registration) of the ship register is created by the execution by the owner of a form of statutory mortgage which is then registered with the Registrar. An English statutory mortgage under the Merchant Shipping Act 1995 expressly grants the power
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