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Loan

Enforcement

3 March 2014

Last revised

minutes

3

Reading time

The loan agreement and/or the deed of covenant will provide that the ship mortgage will become enforceable following a defined default event. What constitutes default will be set out in the loan agreement – and will cover more than just a failure to make loan repayments. A breach of any term of the security documentation, in particular positive or negative covenants, can constitute a default.

minutes

3

Reading time

3 March 2014

Last revised

The loan agreement and/or the deed of covenant will provide that the ship mortgage will become enforceable following a defined default event. What constitutes default will be set out in the loan agreement – and will cover more than just a failure to make loan repayments. A breach of any term of the security documentation, in particular positive or negative covenants, can constitute a default.

  • When there is a default, the lender may choose to waive it or demand that it be corrected by the borrower.

  • The lender can enforce the mortgage through a deed of covenant that grants specific powers.

  • The deed of covenant allows the lender to order the yacht to a specific port, manage the yacht, take possession of it, and sell it.

  • The lender can use a power of attorney granted by the borrower to act on their behalf, including selling the yacht.

  • Lenders have pre-existing rights, such as taking possession of the yacht or selling it when loan repayments are outstanding.

  • Lenders can arrest the yacht through a court application, leading to a judicial sale that may attract higher prices.

  • The lender is responsible for immediate expenses incurred after the arrest, such as crew salaries and mooring fees.

  • The lender can apply for an order of sale before judgment, which involves appraisal, valuation, and advertising for sealed bids.

  • If a default occurs during a charter, the lender's rights may be restricted if it interferes with the charter, but certain conditions must be met.

  • The lender's claim as a mortgagee is prioritized over unpaid creditors with maritime liens and possessory liens. After a court sale, proceeds are distributed in a specific order.

  • Lenders can arrest the yacht through a court application, leading to a judicial sale that may attract higher prices.

  • The lender is responsible for immediate expenses incurred after the arrest, such as crew salaries and mooring fees.

  • The lender can apply for an order of sale before judgment, which involves appraisal, valuation, and advertising for sealed bids.

  • If a default occurs during a charter, the lender's rights may be restricted if it interferes with the charter, but certain conditions must be met.

  • The lender's claim as a mortgagee is prioritized over unpaid creditors with maritime liens and possessory liens. After a court sale, proceeds are distributed in a specific order.