Malta: Key Factors in the Choice of the Appropriate Jurisdiction for Registering a SuperYacht

The uncertain economic times recently faced by the industry together with the increasingly safety- and security-sensitive environment have had one undeniable effect on owners choosing a jurisdiction for registering their superyacht and this is the instilment of a greater awareness and sensitivity to the advantages that may be offered by a particular flag.

The following are the key factors which in our experience are playing a determining role in leading owners to opt for the Maltese flag when registering their superyacht.

In today's environment owners would first and foremost consider the reliability of a flag that would be flown by their yacht. The European fleet is indeed today associated with a high level of safety through the implementation of and compliance with international and EU standards relating to safety and anti pollution measures at sea by Flag States. In fact cruise liners that were predominantly flagged in the Caribbean and which traditionally have always been associated with a Caribbean flag have now shifted en masse to Europe. The Maltese Maritime flag is today the second largest in Europe after Greece and it is the 7^th largest world wide after Liberia, Panama and Greece. Furthermore as a result of the substantial benefits provided by Maltese law, the Maltese maritime flag has grown to a flag with over 40 million tons registered under it.

It is a known fact that while the owner would wish to ensure that the best choice is made as regards the flag, he does not want to be bogged down with unnecessary red tape and time consuming registration procedures. Therefore the efficiency and flexibility that are offered by a particular flag would win substantial points in any such considerations.

The advantages that were previously made available by Maltese Law to merchant vessels over 1,000 GT have since 2006 been extended to superyachts and this is a result of efforts made by the Maltese Government to emulate in the yachting sector the success experienced by the flag's substantial merchant fleet. This has led to Malta becoming the home port of some of the most breathtaking yachts in the world, including of course the Maltese Falcon of which we are extremely proud.

The main benefit extended by the Malta flag as far as commercial registration is concerned is essentially that owners, charterers and managers of commercial yachts registered in Malta do not pay tax on income but a standard annual tax that is calculated on the basis of the NRT of the vessel.

Making a flag attractive to the owner is not enough since a maritime flag is only successful if the financier is confident that the law of the flag will protect his financial interest. Should things take a turn for the worse the financier needs to be comfortable that the necessary action can be taken to safeguard his interest and that the procedures for taking such action are accessible, reliable and swift.

When a yacht is registered in Malta, the financier would register a mortgage in Malta against the vessel's entry in the register. Under Maltese law, the mortgage is equivalent to an executive title. This means that the mortgage is the equivalent of a judgement and in the eventuality that the owner defaults on his mortgage payments, the banks can proceed directly with the enforcement of that mortgage.

In real terms what happens if an owner defaults is that the mortgagee notifies the owner that he is in default and that he is going to make use of one of the rights granted to him at law.

1. The financier is fully entitled to take possession of the yacht and to trade her himself.
2. The financier mortgagee is entitled to enforce that mortgage as though it were a judgement and proceed immediately with a judicial sale by auction. This can be done in a matter of 5 weeks in Malta. The advantages of a judicial sale are that the vessel is sold free and unencumbered.
3. The mortgagee also has the right to sell the vessel privately and in that way have full control over the sale price. However in such a case since it is a private sale it is unlikely that any buyer would be interested in purchasing the vessel in a private sale because he would be concerned about the privileged debts which the vessel may be burdened with.
4. In January 2009 the possibility of a court approved private sale was introduced under Maltese law. In this case the mortgagee or the owner for that matter finds a buyer. Full negotiations over the price take place and therefore unlike the case of a judicial sale the parties know exactly what the vessel would be sold for. Once a private buyer is identified for the agreed price, the mortgagee then obtains two independent valuations and provided that the sale price is in the region indicated in the valuations then the court will approve the sale. The approval by the court turns the sale into a court approved sale and the vessel is sold free and unencumbered as though it were a judicial sale. The additional advantage here is that the owner can participate in finding a buyer and can benefit from the price obtained if the price is in excess of the mortgage whereas in a judicial sale by auction where the vessel is sold to the highest buyer, that highest price may very well be a fraction of the value of the yacht.

* The above is a synopsis of a presentation delivered during a round table discussion hosted by Fenech and Fenech Advocates at the 5^th Annual Conference on "The Future of Superyachts" held at Palma de Mallorca between the 21^st and the 22^nd of June 2010.

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.