Winston Kwek
Partner
Rajah & Tann LLP

Joseph Tang
Senior Associate
Rajah & Tann LLP

When the Singapore Admiralty Court orders the judicial sale of an arrested ship, it may do so either by way of public auction or private treaty, although the latter mode of sale has rarely been used, if at all. In the last 15 years or so, a third mode of sale has arisen in the Courts, not just of Singapore, but also in other jurisdictions such as the United Kingdom, Malta and Gibraltar – this is the direct sale to a named party at a specified price.

The benefit of a direct sale is that an arrested vessel may be sold and delivered to the buyer swiftly, in two to three weeks, thereby avoiding the expenses of bunkering and maintaining both ship and crew over the eight to ten weeks that an auction sale and delivery typically takes (with such escalating expenses serving only to deplete the balance proceeds of sale for distribution to the general body of creditors); and at a price that is at or above the ship’s market value, which is of benefit to the general body of creditors, since more often than not, ships sold at auctions fetch only forced sale values as the mentality of bidders is that there is a ‘fire-sale’.

In most cases, it is the mortgagee bank that seeks judicial sale via this third mode, as mortgagee banks have a ready customer base of borrowers who are shipowners and operators. When a loan portfolio enters into default, it is not uncommon for a bank to approach its customer base to see if there is interest in the ship or ships that will be subject to enforcement and sale. Shipbrokers, who often assist shipowners and operators to obtain financing from banks, are always keen to market vessels that are up for sale, be it privately or via the judicial process, and do often approach mortgagee banks to express interest.

Although numerous ships have been arrested and sold by maritime courts via direct sale, only the Canadian and Hong Kong Courts have issued written decisions on the direct sale, with the latter disapproving direct sale altogether in 1997 in “The Margo L” (since then, there have been no direct sales in Hong Kong, although the Hong Kong lawyers report there has been a change of attitude of late in the Hong Kong Courts). In 2013, the direct sale was reviewed by both the Courts of England and Singapore.

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