“When Owners default - The Indian Empress Tuesday ......Vijay Mallya • By 2017 - unable to pay numerous debts. • The yacht had been regularly visiting Malta - first arrested

11th AnnualSuperyacht Finance Forum

Tuesday, September 25, 2018Café de Paris Monte-Carlo, Monaco

“When Owners default - The Indian EmpressAnd other considerations”

Ann FenechManaging Partner

Fenech & Fenech AdvocatesMalta

Tuesday, September 25, 2018Café de Paris Monte-Carlo, Monaco

Facts

• 95 meter yacht• Built in 2000, substantially refitted in 2015• Originally built for the Qatari Royal Family• Today she is flying the Isle of Man Flag• Owned by Indian Empress Ltd of the Isle of Man

allegedly owned by Vijay Mallya

• By 2017 - unable to pay numerous debts.

• The yacht had been regularly visiting Malta - first arrested her in 2007 for moneys owed to a Spanish shipyard.

• In Malta since March 2017 owner still not paying creditorsarrested by at least 12 diverse creditors including yacht managers, crew, engine manufacturers, yacht agents, bunker suppliers and the bank.

All these debts were debts which gave theMaltese courts jurisdiction over the shipitself – so after the arrest a number of inrem proceedings were commenced andtoday quite a number of these creditorshave obtained judgements in their favourand all they need to do is now enforce theirjudgements against the yacht.

One of the first creditors to obtain judgement on the4th April 2018 was Melita Power Diesel Ltd with aclaim of Euro 651,399

Melita Power Diesel requested the Judicial Sale byAuction of the Indian Empress

The application came before the judge who was ultraefficient in the manner in which he dealt with theapplication and he ordered that the yacht be sold in ajudicial sale by auction on the 21st of May 2018

There was a general consensus amongst all thecreditors that this would not give sufficient time forthe proper advertising of the sale and the courtagreed to postpone the sale to the 28th of June.

Proceedings in a Judicial sale by auction in Malta:

i. The court decides on the dateii. The court appoints a lawyer so that he can sign

off the bill of sale on the day the transaction is finalised.

iii. The auction is held in the law courts building.iv. Prior to the sale bidders are expected to deliver

to the auctioneer evidence of their financial ability to pay up to their maximum bid

v. Vessels are sold to the highest bidder with no reserved price or a minimum price.

vi. The successful bidder is expected to pay the purchase price within 7 days.

vii. On the date of payment, there is the payment of the purchase price in exchange for the bill of sale signed off by the lawyer appointed by the court.

viii.The bill of sale states very clearly that the vessel is being sold free from encumbrances and all the debts of the vessel from that moment on attach to the purchase price of the vessel.

Back to The Indian Empress

Between the appointment of the new date for the auction and the actual date for the auction there was a great deal of court activity ranging from:• Application by Barclays Bank to ensure that

items belonging to the yacht were left on the yacht fuelled by the news that the owner was removing important pieces of art from on board. Barclays has a mortgage for some

25 million Euros

Application by the owners of the Indian Empress on the 27th of June 24 hours prior to the auction requesting a postponement of the sale by one month claiming that:

a. On the 10th of June they had entered into an MOA with a company called Crediyacht at a purchase price of 42 million Euro.b. The buyers had encountered difficulties in transferring the money and the sale was never finalised.c. The buyers had over come the payment difficulties and were ready to pay the purchase price and were thus asking for a postponement of the judicial sale by

auction so the private sale could take place.

WHAT WERE THEY THINKING OF?The application was a non starter:

• It is not possible for the owners of a vessel in default, which is under arrest, which is the subject of a minimum of 12 actions in rem to enter into any form of private MOA purporting to be able to sell the vessel

• When a vessel is under arrest she is effectively seized from the control of her owners, all certificates are seized by the court and she cannot be sold privately by her owners.

• This needs to be done to protect the creditors. Did they expect the creditors or the court to say “Oh do please carry on”.

• Court ruling - 3 hours prior to the sale -Court said “Forget it – auction will proceed” on the grounds that:

A. Postponement not agreed to by all the creditors.

B. Owners of a yacht in default cannot privately sell a vessel and it is only a creditor with an executive title as part of the court approved private sale procedure who can apply for the approval of a private sale

28th June 2018 – Date of sale

A number of bidders The highest bidder at Euro 43. 5 million was –Crediyacht – of course.

This meant that the purchase price had to be paid by the 4th of July.

No prizes for guessing what happens next….

On the 5th of July Crediyacht files an application for an extension of the 7 day time limit within which to deposit the purchase price claiming the lamest of excuses including:

• That there was a bank holiday during the 7 day period hence the delay

• That because the UBO was Iranian, banks were being extra cautious in approving the transaction

The judge threw it out and refused the extension

13th July Barclays bank not Melita Power Diesel requests the court to:

• Appoint another date for the judicial sale by auction of the vessel at Crediyacht’s expense

• Order bidders to present a guarantee for not less than 35 million Euros

• Prohibit Credityacht from participating in the auction

• Hold Crediyacht liable for the difference in the sale price if in the next auction the Indian Empress

sells for less than Euro 43.5 million

Court ordered that

• That the new auction date would be the 19th of September• That any bidder bidding at the auction had to deposit the

sum of Euro 1 million in cash 48 hours prior to the auction.

• That Crediyacht were prohibited from taking part in the auction

• That Crediyacht would have to make good the difference if the sale price was inferior to 43.5 million

Up until last week we were all geared up for the Judicial Sale by Auction to be held on the 19th September 2018

We had one client who had already sent off the Euro 1 million with a view to making a bid.

However on the 11th of September Barclays Bank filed two applications:

One seeking suspension of the judicial sale by auction on the 19th

The other seeking court approval for the private sale of the Indian Empress for the sum of Euro 35 million plus VAT as a creditor with an executive title under Maltese law.

Court immediately orders the suspension of the judicial sale by auction.

Court orders a sitting for the purposes of hearing application of Barclays bank for the 19th September.

So purpose of the date of 19th September changes

From one where there was going to be a judicial sale by auction ToOne where the court was going to hear the Bank’s application seeking the Court’s approval for a private

sale.

Last Wednesday 19th September 2018:

* Court heard the applicant - Barclays Bank.* Present were the lawyers acting for the buyer:

Sea Beauty Yachting Limited whose sole shareholder is a Saudi Arabian gentleman by the name of Mr. Albrahim Waleed Ibrahim –congratulations are in order

* Numerous lawyers representing a number of creditors.

* Non of the creditors objected* Entire discussion on what happens to the art work

on board * Court adjourned the decision to the 25th September

That’s today, so what happened today?

Indian Empress showcases situations that can go wrong -

So the question is: How can the financier take all the precautions necessary?

Choice of the right flag is a start.

Malta is not the largest flat in Europe with over 72 million tons by chance but because it has a robust law which offers mortgagees – financiers – a great deal of protection.

Rights of the Mortgagee under Maltese law

Section 42 of the Merchant Shipping Act gives a mortgagee a number of rights over and above those granted to him by contract.

In the event of a default of any term or condition of a registered mortgage once the mortgagee gives notice in writing to the mortgagor he may:

* Take possession of the ship

* Have absolute power to sell the ship privately

* Have power to manage the vessel and apply for any extensions, pay fees, receive certificates and generally do all such things in the name of the owner as may be required in order to maintain the status and validity of the registration of the ship.

* The mortgage is in itself an Executive title equivalent to a judgement.

What does an executive title mean?

* Equivalent to a judgement

* Capable of immediate enforcement

* Under Maltese law such an executive title can be enforced through

Warrants of ArrestJudicial Sales By AuctionCourt Approved Private sales

Procedure for obtaining an executive title is simple

* Step 1 - The letter of default.

* Step 2 - Judicial letter through the court system served on:

* The owners or* The master or* The Agent of the vessel or* A curator appointed to represent the owners or the

vessel.

* Step 3 - After the passage of 48 hours - proceed with enforcement through a Judicial Sale by Auction or a Court Approved Private Sale

• If the ship is in Malta - Enforcement of executive Title in Malta

* If the ship is anywhere in the EU - Enforcement of executive title via The European Enforcement Order

European Enforcement Order for uncontestedclaims - EC Regulation 805 / 2004

This is a facility whereby a plaintiff in possession of a an authentic instrument on an uncontested claim –mortgage - may go to the court of his state and obtain an enforcement order – a certificate stating that the mortgage can be enforced.That enforcement certificate is then sent to where the vessel lies in another member state and the courts of that member state will execute the enforcement

order granted in another member state.

Ocean Vita.

Ocean VitaVessel registered under Malta flagMortgage registered in MaltaOwner defaults on MortgageMortgage executive title under Maltese lawMortgagee goes to the Maltese court to obtain an Enforcement order of the Mortgage.That certificate obtained from the Maltese court is sent to Rotterdam where the vessel liesCourt of Rotterdam agrees to the judicial sale of the vessel on the strength of the European Enforcement

order obtained in Malta.

Enforcement in Malta

1. A precautionary warrant is arrest is issued within hours2. This immobilises the vessel until enforcement

proceedings are commenced and completed.3. Decision needs to be taken on whether

A. To sell privatelyB. To sell in a judicial sale by auctionC. To sell in a court approved private sale.

* Advantages and Disadvantages with Private Sale

* Advantages and Disadvantages with Judicial Sales by Auction

* Advantages of the Court Approved Private Sales created in 2006 by way of an amendment to our Code of Organisation and Civil Procedure - 2006

Section 358

The Court may on the application of any creditorwith an executive title, approve a private sale of a ship or vessel or aircraft, in favour of an identified buyer and in consideration of a determined price.

Section 359

The Applicant shall together with the application submit appraisements by two independent and reputable valuers confirming the value of the ship or vessel or aircraft; it shall also be incumbent on the applicant to adduce 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.

First one was the Thor SpiritCourt approved Sales so far

* How did it come about* On the statute book in 2006* First Court approved private Sale in 2011

Thor Spirit

List of Approved Private Sales(Public Information)

Vessel Execution CreditorMV THOR SPIRT(FF) DANSKE BANK A/SHC MARIE- JEANNE (G) COMMERZBANK AKTIENGESSELSCHAFTMV EMMA SOPHIE (FF) COMMERZBANK AKTIENGESSELSCHAFTMY LOUIS AND THE GIRLS(S) CHRISTEL H. KUHNE

MV TRIANTAFILLOS M(G) PIREAUS BANK A.E.MV BLANKANESE(G) JOINT STOCK COMPANY “RIETUMU BANKA”MT PACIFIC FUTURE(MTCV/FF) AMSTERDAM TRADE BANK N.V.MV B LADYBUG(FF) HYUNDAI HEAVY INDUSTRIES CO LTD

HYUNDAI SAMHO HEAVY INDUSTRIES CO LTD

MV A LADYBUG(FF) MACQUARIE BANK LIMITEDMV D LADYBUG(FF) BANK OF AMERICA N.A.MV DAXIA(FF) DEUTSCHE BANK AKTEINGESELLSCHAFTSANDY TWO(G/ FF) HSBC BANK MALTA PLCMV KAY(G) PACIFIC SEAWAYS SHIPBUILDING INC.

And now the Indian Empress on the Application of Barclays Bank.

Procedure

• Executing creditors need to inform the market that there is a vessel for sale.

• An MOA is entered into with the interested party offering the highest price “subject to court approval”

• Two valuations are obtained which need to show how the price obtained is in excess of the highest valuation

• Application filed in court requesting the approval of the Judicial Sale

• Attaching notice of default• Attaching mortgage documents• Attaching MOA• Attaching evidence on the sourcing of buyers• Attaching two valuations

Judge will order the service of the application on the vessel and will appoint a hearing date normally within 3 to 4 weeks – Indian Empress – one week

• At the hearing if the judge is satisfied that the saleis in the best interest of the creditors and there is no objection to the sale the judge will approve the sale at the price stipulated in the MOA.

• If there is objection as in fact there was in the notorious cases of the “A” Ladybug,“B” Ladybug and “D” Ladybug, belonging tothe infamous Nobu Su then the court will hear the objections and decide.

Withdrawal of Price by executing creditor

• Existence of other creditors during the application• Settlement of Pre ranking creditors in exchange for

a letter of subrogation

Crews wagesSupplies prior to the departure on her last voyageSupplies and necessaries after the arrival of the vessel in portHarbour dues









Closing

• Once the court approves the sale, a Bill of Sale is drawn up by a Court appointed Curator who will sign off the bill of sale in favour of the buyer as per the MOA.

• The purchase price is deposited in Court

• Purchase of the vessel free and unencumbered.

• Withdrawal of the Purchase price by the executing creditor

Withdrawal of funds by executing creditor




• Creditors will receive payment according to their ranking in terms of section 50 of our Merchant Shipping Act.

Indian Empress

Started off as a failed Judicial Sale by Auction – 43.5 million euro

Sale price at Court Approved Private sale - 35 million Euro

Court order of the 28th of June holding Crediyacht liable for the difference.

Body of creditors currently owed a total of around 28 million? Will any creditor fight for the difference?

Will the owners of the Indian Empress ?Next chapter…………………….

Thank you

Documents

“When Owners default - The Indian Empress Tuesday ......Vijay Mallya • By 2017 - unable to pay numerous debts. • The yacht had been regularly visiting Malta - first arrested