Danish rules on securities and other protective rights in the charterparty trade – An appraisal Ass. Prof. Dr. Kristina Siig University of Southern Denmark

Agenda… 1) Discuss the issue for a while … 2) Discuss something competely different and much more important for as long time as I have left… 14 September 2016

Agenda… 1) Trying to put together the jig-saw puzzle… 2) Discussing methodology 14 September 2016

The situation Financiers Owners (‘ estate) Long term charterers 14 September 2016

Policy ideas behind the study … Policy idea 1: Providing a comprehensive and clear regulation of securities will promote lending. Policy idea 2: Enabling the Owner to offer different assets and securities/protections towards Financiers and Charterers will enhance their willingness to enter into an contract with the Owners. Policy idea 3: A very restrictive regulation of ships’ mortgages/securities etc. may make a particular flag less interesting to Owners. 14 September 2016

Policy ideas behind the study … Lending is necessary to finance new initiatives and acquisitions. New initiatives and acquisitions are necessary in order to promote innovation. Innovation is a good thing. 14 September 2016

The situation Financiers Owners (‘ estate) Long term charterers Money Use of vessel Service 14 September 2016

Financiers (what do we know) Registered rights Register a ship’s mortgage on the vessel in the Ship’s Register (incl. appurtenances & fishing rights) Register a fleet mortgage on the vessel’s page in the Ships’ Register Have the Owner register a letter of indemnity in the Financiers’ favour in the Ship’s Register (Avail themselves of the Owners’ real property (pledge/letter of indemnity registered in the Land Register) Register a floating charge in general on the Owners’ free assets or on (some of) the Owners’ receivables Un-registered rights Assignment of claims (outright or as a security) 14 September 2016

Financiers (what are we unsure of) Is the prohibition of hardship-clauses (that the whole loan amount falls due in case of Owners’ bankruptcy) in the Land Register Act applicable? Relevance of court practice under the lex generalis (Land Register Act – may one consider the mortgage to include receivables)? May the charterers’ override the assignment of claim in case of Owners’ difficulties under the Code of Procedure sec. 511, sub-sec. 3? 14 September 2016

Charterers (what we do know) Registered rights May register the charterparty on the vessel in the Ships’ Register (quite singular feature of Danish law, I believe) Have the Owner register a letter of indemnity in the Charterers’ favour in the Ship’s Register Avail themselves of the Owners’ real property (pledge/letter of indemnity registered in the Land Register Register a floating charge in general on the Owners’ free assets or on (some of) the Owners’ (other) receivables (not interesting in one-ship companies) Un-registered rights: Assignment of claims… But… Charterers are not money-creditors, so… 14 September 2016

Charterers Regarding the registering of the charterparty on the vessel Will have priority according to the time of entry In voluntary sales: Must be respected (a registered quiet enjoyment clause) In forced sales: Must be respected if the priority is covered by the bid (so the buyer must either continue with the charterparty or pay the charterers the ”value” of the charter, which is decided by the court) (Rule of the Code of Procedure which distinctly does not apply to chattels, but which we seem to use anyway) Other issues: Charterers may get out of a long-term interminable charterparty with ”usual” notice 14 September 2016

Owners’ estate in bankruptcy May step into the charterparty – so change of control-provisions that are triggered by bankruptcy are invalid… The contract as it stands: Charterers may end the charterparty with the notice given in the charterparty or – if interminable throughout the charterer – with ”usual notice”. 14 September 2016

Conclusion… Contents: Pretty good… Accessibility: ?????? 14 September 2016

Challenges as regards methodology … 1) Trying to put together the jig-saw puzzle Multiple incomplete sources) Land Registration Act Code of Procedure Promissory Notes Act Bankruptcy Act General principles of laws of obligations Maritime Code Case law Unpublished practice from the Bailiffs’ Court 14 September 2016

Challenges as regards methodology … Two basic questions: 1) Lex generalis – lex specialis … 2) What is the background law – which regulations or principles do I gap-fill with – and when do I gap-fill with what? 14 September 2016

Challenges as regards methodology … How should we consider the facts? 1) Should the vessel’s earnings be seen as an intrisctic part of the vessel, and thus automatically be a part of the Ships’ Mortgage? 2) Vessels are not immoveables, but they carry characteristics of immoveables – they are the Owners’ main production facility. When is which feature relevant? 2) A charterparty has features of a lease and features of a service contract. Which are more characteristic? 14 September 2016