Overview: Ship Mortgage Registration in the British Virgin Islands
The British Virgin Islands recognizes a ship mortgage as a charge or encumbrance attached to a vessel as a security, guaranteeing the shipowner’s obligations as a mortgagor to repay a debt owed to a lender, the mortgagee.
The essential characteristic of ship mortgages is that the mortgage creates a security interest in the ship, while the mortgagor retains possession of the ship to operate and trade throughout the loan. BVI law does not recognize the mortgagee as the ship or share owner. However, if a default is triggered, the mortgagee has the right to arrest and sell the ship to recover the outstanding debt.
Mortgages must be registered in the prescribed forms. Two statutory forms exist to record mortgages: one for where the parties are using the ship as security for an “account current” (such as a revolving loan); and the other where the parties are using the ship to secure “principal sum and interest” (such as a fixed loan amortized over a specified period.) The forms are standard and allow for limited information, so additional protective clauses and other detailed provisions must be set out in a deed of covenant that will accompany the relevant statutory form.
A national vessel is subject to all BVI laws governing mortgages of any type. However, an executed ship mortgage must be registered with the Virgin Islands Shipping Registry to secure and enforce security interests. Where the mortgagor is a company, it must also file the mortgage with the BVI Register of Companies.
Mortgage security may be taken in respect of an entire ship or a certain number of shares in a ship.
The BVI’s legislative framework allows a shipowner to record a “mortgage intent” while a vessel is under construction. Thus, a shipowner can record a mortgage against an unregistered ship or share. If the vessel is subsequently registered, the priority will have the same effect as a registered mortgage on an existing ship.
A shipowner can withdraw an intent to record a mortgage on an unfinished vessel at any time. However, the shipowner will lose first-ranking security priority.
The primary purpose of registering a mortgage is to give third parties notice of the existence of the security and grant priority to a creditor. In the BVI, more than one mortgage can be attached to a ship, but each mortgage will rank according to the date and time it was registered. A registered mortgage will always have priority over an unregistered mortgage without regard to notice.
A shipowner can transfer a mortgage to another individual or company at any time. However, the owner cannot transfer a part of a mortgage.
Selling a mortgaged vessel
BVI laws permit shipowners to sell all or some of the mortgaged shares without affecting the mortgage’s validity. The sold shares remain subject to the mortgage security.
Mortgage upon the death or bankruptcy
The mortgage continues against a ship or shares in the event of the ship or share owner’s death. Likewise, a registered mortgage is not affected by a mortgagor’s bankruptcy but falls to be considered under the BVI Insolvency Act.
The transaction to remove the mortgage from the register is called the “discharge of mortgage.” The discharge occurs when the ship is no longer required as security for the mortgage. In such a case, the shipowner will discharge the mortgage in the Virgin Islands Shipping Registry. A shipowner is not allowed to partially discharge a mortgage in the BVI.
When the Registry discharges a ship’s mortgage, the vessel becomes free of all encumbrances. However, the vessel remains subject to the mortgage if the shipowner fails to discharge the mortgage at the Registry.
Under BVI laws, terminating a ship’s registration, which is the same as closing a registry, does not discharge a mortgage. The register entry will remain open until all mortgages are satisfied, leading to the final closure of the Registry.
To discharge a mortgage security from the Registry, parties must submit the executed mortgage deed (with a receipt for the mortgage money endorsed on the deed) to the Registrar.
The above information is for educational purposes only and should not be considered legal advice. If you seek legal counsel, please get in touch with your attorney, or reach out to the author, A. Hermia Tench, an O’Neal Webster’s Shipping and Admiralty Department associate attorney, who welcomes your enquiries. firstname.lastname@example.org | +1 284-393-5800