In the British Virgin Islands, a ship mortgage is recognized as a charge or encumbrance attached to a vessel as security, guaranteeing the ship owner's obligations as mortgagor to repay a debt owed to a lender, the mortgagee. The mortgagee may be a natural person(s) or a body corporate such as banks and financiers.
The essential characteristic of a ship mortgage is that the transfer or interest in the vessel is made only by way of security. The mortgagor retains possession of the ship to operate and trade throughout the course of the loan. BVI law does not recognize the mortgagee as the ship or share owner by preference, unless the ship owner, the mortgagor, fails to satisfy the obligations of the mortgage agreement. If an event of default is triggered; the mortgagee then has the right to arrest and sell the ship to recover the outstanding debt.
What form of mortgage is used for registration?
Two statutory form mortgages exist to set out the ship's particulars and general terms of the obligation and provide for the ship mortgage by the mortgagor to the mortgagee. Additional protective clauses with more detailed provisions would be set out in a deed of covenants.
What is the process of registering a ship mortgage?
For the reason that the vessel is registered in the BVI the ship mortgage is governed by the laws of the BVI. In order,to secure and enforce security interests, an executed ship mortgage must be registered with the Virgin Islands Shipping Registry, using the statutory forms. Where the mortgagor is a company, the registered mortgage must also be filed with the BVI Register of Companies subsequent to endorsement of the mortgagee deed by Virgin Islands Shipping Registry.
What happens to the shares in the ship after registration?
A mortgage security may be over the whole ship or over a certain number of shares.
What if the ship is being built?
The BVI's legislative framework allows for the mortgagee to file a notice of intent ahead of the completion of the vessel's construction. Thus, a mortgage can be recorded against an unregistered ship or share. If the vessel is subsequently registered, the priority will have the same effect as if the mortgage itself had been registered.
Can an intent be withdrawn?
An intent to record a mortgage can be withdrawn at any time. The effect is that the first ranking security priority will be lost.
What if there is an existing mortgage attached to the ship?
The primary purpose of registering a mortgage is to give notice to third parties and to grant a priority of the mortgage. In the BVI, more than one mortgage can be attached to a ship but each mortgage will rank in order of the date and time it was registered. A registered mortgage will always have a priority over an unregistered mortgage, without regard to notice.
Can the mortgage be transferred?
A mortgage can be transferred at anytime to another individual or company. However, it is not possible to transfer part of a mortgage.
Can the vessel be sold when there is an existing mortgage?
BVI laws permits for all or some of mortgaged shares to be sold without effecting the validity of the mortgage. The sold shares will remain subject to the mortgagee as security.
What happens to the mortgage upon the death or bankruptcy of the mortgagor?
The mortgage continues against the ship or share in the same way as if the ship/share had been sold.
Likewise, a registered mortgage is not affected by a mortgagor's bankruptcy. In any event, the guidelines of BVI Insolvency Act are applicable.
When can a mortgage be discharged?
The transaction to remove the mortgage from the register is called the "discharge of mortgage." This occurs when the mortgage no longer needs to be secured by the ship. A mortgage can only be discharged in its entirety. Partial discharge of a mortgage is not possible.
In the BVI, the discharge must be registered with the Virgin Islands Shipping Registry. If it is not registered, the ship remains subject to the mortgage and will reflect on the transcript of registry. The ship only becomes free of all encumbrances when the ship's register has been discharged.
Under BVI laws, terminating a ship's registration, which is the same as closing a registry, does not discharge a mortgage. The register entry will remain open until all mortgages have been discharged, leading to a final closure of the registry.
What is the process to register a discharge?
To discharge a mortgage security from the registry, parties must submit the executed mortgage deed to the Registrar.
In the same manner, to discharge a company's shares, upon receipt of the endorsement of deed from the Registrar of Shipping, the executed deed must also be submitted to BVI Registrar of Companies.
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.
