We consider 6 key things to know about a ship mortgage below: -
1. The only form of fixed security over a vessel in the UK
In the UK, the only form of fixed charge recognised over a vessel is the ship mortgage. The ship mortgage is governed by the flag state of the vessel. Therefore, a vessel, with the relevant registration, which has a flag state of the UK can be secured using a UK ship mortgage. The vessel's flag state will be the UK if the port of registry is a UK port. The transcript of registry will identify a vessel's port of registry e.g. Aberdeen.
2. In a statutory form
The ship mortgage is in a prescribed statutory form. There are two statutory forms – the form for securing an account current or the form securing a principal sum. In practice, a ship mortgage is typically drafted on an account current (or all-sums) basis.
3. Registration requirements
In order for a ship mortgage to be perfected, the ship mortgage must be registered on the UK Ship Register (UKSR).
a. The UKSR - The UKSR regulates the priority of registered mortgages by reference to the date and time of registration. By ordering a transcript of registry from the UKSR, it is possible to check whether any existing mortgages have been granted over a vessel. If first ranking security is required by the lender, these previous mortgages must be discharged. As noted in our blog on transcripts of registry, the UKSR will not recognise a ranking agreement, so it is important mortgages are submitted to the UKSR in order of required registration.
b. Companies House: - Where the entity granting a ship mortgage is a company or LLP, the mortgage must be registered at Companies House in order to be effective. As per the Companies Act 2006, a charge granted by a company must be registered within 21 days of the date of creation. For the purposes of a ship mortgage (which makes no allowances for the concept of a date of delivery) executed under Scots law, the date of creation is the date of signing.
4. Signing in different jurisdictions
A ship mortgage should be executed in accordance with the laws of the country in which the port of the vessel is situated in the UK. Where the vessel's port is in Aberdeen, for example, the ship mortgage should be executed in accordance with the requirements of Scots law. As the ship mortgage is in a statutory form, the signing pages make provision for signing under the law of Scotland, Northern Ireland or England & Wales.
5. Signing by different entities
The statutory form of ship mortgage makes provision for signing in various capacities: by individuals, companies, LLPs and Limited Partnerships and the relevant signing page should be executed accordingly. Notably absent is a signing page for execution by general partnerships. This has implications for taking security over a vessel in Scotland, where a separate ship mortgage must be signed by each partner in the partnership corresponding to its respective shareholding in the vessel.
6. Discharge
In the same way that the statutory form of ship mortgage makes provision for signing by various entities, it does the same for discharge. Accordingly, when a ship mortgage is to be discharged, the form of discharge contained within the principal executed ship mortgage should be completed by the mortgagee and submitted to the UKSR for discharge.
