How Convenient: Vessel Registration and Mortgages in the Republics of the Marshall Islands and Liberia

by Cozen O'Connor
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Two registries of significant interest to shipowners are the registries of the Republics of the Marshall Islands and Liberia. Significantly, insofar as it does not conflict with the statutory laws, each country has adopted the non-statutory general maritime laws of the United States. This gives added certainty to shipowners, particularly those familiar with U.S. maritime laws.

Any seagoing vessel engaged in the foreign trade (including mobile offshore drilling rigs) under 20 years of age, wherever built, is eligible to be documented or redocumented in these registries. Waivers generally can be obtained for vessels over 20 years of age, if they otherwise meet the requirements for registration.

There are several provisions in the statutory laws of these two countries that make registration attractive. First, unlike the United States, the vessel owner is not required to be a citizen of the Marshall Islands or Liberia. Instead a company incorporated outside the Marshall Islands and Liberia may own vessels under these flags by becoming a foreign maritime entity (FME). Generally, FME status can be obtained by filing an application with the formation documents and evidence of good standing from the country of origin.

Second, the Marshall Islands and Liberia allow vessels under construction to be registered with a construction certificate of registry or a certificate of intended registry. This facilitates sea trials and enables preferred mortgages to be placed on the vessel before delivery. This is obviously attractive to lenders for new construction as such preferred mortgages may, among other things, secure guarantee fees, debt, contingent obligations, future advances, revolving credit facilities, etc.

Finally, another attractive aspect of these two registries is the continuing mortgage concept. Both registries allow a preferred mortgage filed under its original flag to be “continued” when the vessel is reflagged, with a priority date relating back to the original filing date. To continue the preferred status of a previously recorded foreign mortgage, owners may submit the recorded foreign mortgage and a new mortgage that will be recorded when the vessel is registered in the Marshall Islands or Liberia. For example, a mortgage filed in the original registry on January 1, 2000 will have a priority from January 1, 2000 when the vessel is registered in 2014. This makes it easier to obtain lender consent when seeking to place a vessel fleet under one flag from multiple jurisdictions.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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