In a judgment delivered on the 18th February 2016 in the case Pacific Seaways Shipbuilding Inc vs m.v. Kay, the Civil Court, First Hall, approved a private sale of a ship in favour of a mortgagee who had enforced its rights against the ship after the shipowner had defaulted on its obligations. This decision is novel and welcome as it enables a creditor who has an executive title in accordance with Maltese Law, in this case the mortgagee, to request the Court to approve the private sale of the ship in its favour and to order that the price determined for the sale of the ship be set off against the amounts of the claim due to the same execution creditor.

The procedure regulating Court Approved Private Sales of Ships was introduced in Maltese Law in 2006 and enables any creditor with an executive title to file an application in Court requesting approval of the sale in favour of an identified buyer and for a determined price. Such application must be accompanied by appraisements from two independent reputable valuers, ensuring that the price reflects the market value of the ship. The enforcing creditor needs to notify all interested parties, including other creditors, about the Court proceedings in order for them to be granted the opportunity to participate in the proceedings and thus ensure an open and transparent process involving all interested parties. Once the Court approves the sale, the proceeds of sale are normally deposited in Court by the court appointed representative, who acts on behalf of the transferor in the sale. The sale of the ship gives the purchaser a title which is free from all privileges and encumbrances and once the sale proceeds are deposited in Court, all claims against the ship may only be enforced against the proceeds of sale.

In this case the Court was asked, for the first time, to authorise the sale of the ship in favour of the enforcing mortgagee and to set off the price proposed for the sale of the ship against the outstanding debt due to the same mortgagee. In its decision, the Court held that the term "identified buyer" in the law is wide enough to cater for any request by an execution creditor seeking approval from the Court under the Court Approved Private Sale procedure in the Code of Organisation and Civil Procedure. Although in this case there were no other competing creditors involved, a Maltese Court would typically approve the sale of a ship by way of set off in favour of an enforcing creditor subject to the condition of giving sufficient security in respect of any other claims which could potentially rank prior to the claim of the enforcing creditor.

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