We hereby summarize the procedure followed in the market practice in the event of sale of a vessel registered with the International Ships Registry between an Italian selling company and a foreign company wishing to remove the ship from the International Ships Registry in order to register it with a non-EU registry.
The peculiarity of such a procedure is due to the fact that the ship is usually mortgaged and financed by a bank and, at the time of sale, the buyer must obtain a loan from another bank. It is therefore necessary that the transfer of ownership, as well as the transition between financing banks, takes place simultaneously.
First of all, the seller, with or without the assistance of a ship broker, must identify a buyer. At that point the parties shall enter into a memorandum of agreement (MOA) pursuant to the BIMCO (The Baltic and International Maritime Council) Saleform 1993. The MOA defines the steps through which the ship shall be physically delivered.
Upon delivery of the ship, the mortgage over the ship in favor of the seller's bank shall have to be discharged and a new mortgage in favor of the buyer's bank shall be registered. Therefore, the loan obtained by the seller shall have to be repaid on the delivery date with the money deriving from the loan made available to the buyer. For such purpose, the seller and the buyer will make arrangements so that the transfer of money between the parties takes place on the delivery date, although funds must be already present on an escrow account.
It may be decided whether said account is the account of the seller's lending bank or a neutral account, such as the account of the lawyers of one of the parties. In the latter case, the operating procedures are established by means of an escrow agreement. In any case, 10% of the sale price is transferred to said account a few days before the delivery and is bound to the success of the transaction. The remaining 90% is transferred to the same account the day before or the day of delivery, along with a swift message (usually an MT103 message), which makes the release of funds conditional on the positive audit of all documentation by the lawyers. In addition to 90% of the sale price, a further amount is usually deposited in order to pay for remaining assets, i.e. fuel left on board, lubricating oils and all removable items of the ship, which are sold together with the ship but are subject to a daily price variation. If an escrow agreement is entered into, the terms and conditions for the release of funds are fully set out in the escrow agreement.
The procedure to be adopted on the day of delivery is agreed by means of a closing agenda. On such day, the ship is moored at the port of delivery, usually a port where there is an office of the Italian Consulate so that the Consul, or a person acting on his behalf, can go on board and collect the documents, while the buyer's new crew wait on shore.
The parties involved (buyer, seller, banks and lawyers) meet at an office that is usually a notary's office. Buyer and seller exchange the documents relating to the corporate powers to carry out the sale (duly certified and legalized if required), the safety navigation and anti-pollution certificates, as well as all the documents required by international regulations and finally the invoices for the price paid. In said office the final price is also agreed, which will include fuel, lubricating oils and all removable material on board. Once the final price has been agreed, the parties sign the bill of sale, which is subject to notarial certification. It may also happen that the bill of sale is signed before delivery.
Finally, the buyer and the seller sign the delivery and acceptance protocol, which, however, is not dated. This is due to the fact that the ship is still mortgaged in favor of the seller's bank and the relevant mortgage discharge is required for the buyer's bank to release the funds previously deposited.
The discharge of the mortgage is usually entrusted to a lawyer, appointed by the bank by means of a power of attorney issued prior to the delivery, who at that point signs the deed of discharge before the notary, goes to the Port Authority and files said deed of discharge with the relevant transcription notes.
The Port Authority, Naval Property Office, carries out a formal check on the deed of discharge and issues a so-called "clean" excerpt of the register showing the word "negative" under the heading "mortgages and other encumbrances". After obtaining such document, the lawyer returns to the office where the closing took place and starts all the procedures to release the funds: the delivery and acceptance protocol is dated and notice is given to the bank holding the funds in escrow that said funds can be released in accordance with what was previously agreed. At that point, the Port Authority informs also the Consulate of the port of delivery that the consul, or the person acting on his behalf, can go on board and collect the ship's documents and the buyer's crew can finally replace the seller's crew.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.