A widely used tool for securing the repayment of a loan or any other financial obligation of shipping companies towards their creditors is the creation of a mortgage over a ship in favor of the said creditor.
The procedure for the registration of a mortgage on a Cyprus vessel, either for securing a principal amount and interest or for securing a current account, is governed by the Merchant Shipping (Registration of Ships, Sales and Mortgages) Laws of 1963, as amended, which allows for the creation of mortgages on all ships except the ones which are registered parallel-in in the Register of Cyprus Ships.
A mortgage may be registered at the time of the provisional registration of a vessel and any time thereafter. The instrument creating the mortgage must be accompanied by a deed of covenants covering the terms and provisions under which the mortgage is granted, which include the mode of payment, the insurance policies in place, the definition of default, the powers of the mortgagee, including the power to take possession of the vessel, assume management etc. The mortgage documents, once created, must be deposited with the Registrar of Cyprus Ships or with a consular officer on the instructions of the Registrar. The mortgage is recorded in the Register as from the date and time of its deposit and remains an encumbrance on the vessel until discharged. A mortgage may be created independently of whether the ship is provisionally or permanently registered.
Mortgages on vessels have priority over one another based on the date and time of their recording with the Registrar.
If the ship on which a mortgage is created belongs to a Cypriot company, the mortgage will also have to be registered with the Registrar of Companies. The mortgagee’s security is protected in the event of the liquidation of the shipowning company.
For the discharge of a Cyprus Ship Mortgage, a memorandum of discharge duly executed and attested by the mortgagee , must be delivered to the Registrar of Cyprus Ships or to a consular officer at the instruction of the Registrar.
Shipping finance constitutes a vital aspect of the Cyprus shipping industry, and the Cyprus law on ship mortgages is simple, clear and effective, allowing banking and financing institution to widely use ship mortgages to secure borrower obligations.
We highlight below some core advantages of the Cyprus Ship Mortgage system:
- In instances where the owner is in default, the mortgagee is bestowed with an absolute right to either dispose of the ship or any part thereof over which he has a mortgage or to institute an action for its enforcement. Upon proof of default, actions for the sale of vessels have been widely successful in foreign courts.
- The details of all registered mortgages are well and securely recorded.
- Simple and effective procedures are in place regarding the registration, transfer and discharge of mortgages.
- The registration of mortgages can be effected abroad without delays as the date of delivery of the mortgage to a Cyprus consul is considered to be the date of registration.
- The status of a mortgage on a provisionally registered vessel remains unaffected by its permanent registration.
- No payment of stamp duty is applicable in any mortgage document.
- Much protection is offered by the Cyprus admiralty law on the rights of mortgagees in a way that they enjoy priority in the distribution of the proceeds from a forced sale of vessel by private treaty or by public auction.