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Ship Finance in Singapore

Due diligence

Demonstrating title or legal ownership

How does one demonstrate title to or legal ownership of a vessel registered under the laws of your jurisdiction?

Title or legal ownership of a vessel can be verified by a search of the records of the vessel at the Maritime and Port Authority of Singapore (MPA) and by examining the documentary evidence of delivery of the vessel to the owner, usually in the form of a protocol of delivery and acceptance executed between the builder or seller of the vessel and the owner.

Liens

How can one determine whether there are any liens recorded over a vessel?

One can determine whether mortgages are recorded over a vessel by conducting an ownership and encumbrance search of the vessel at the MPA. The transcript issued by the MPA will reveal the details of mortgages recorded against the vessel.

How does one determine whether there are any security agreements, liens, charges or other encumbrances granted by a vessel owner or affiliated party who might be a borrower, guarantor or other credit party in connection with a vessel finance transaction?

Where the vessel owner or affiliated party is a company and where the charges created by such documents are registrable under section 131 of the Companies Act, any liens and encumbrances can be discovered through a search of the Accounting and Corporate Regulatory Authority (ACRA) business profile printout on the company or the affiliated party.

Public registry searches

Can one determine whether an obligor registered in your jurisdiction is duly organised and in good standing from a search of a public registry?

This information can be determined from a business profile search of the ACRA’s records and by obtaining a certificate of good standing regarding the obligor from the ACRA.

Can the shareholders or other equity interest holders, directors and officers or other authorised signatories of an obligor organised in your jurisdiction be determined from a search of a public registry? If not, how are these parties customarily identified?

Where the company is a private limited company, the names of the shareholders, directors and company secretary can be determined from the ACRA business profile search of the company. Where the company is a public company, only the names of the directors and company secretary can be determined by such a search.

Debt obligation

What corporate or other entity action is necessary for an obligor to enter into or guarantee a debt obligation? When is action by the board of directors or other governing body required? Must shareholders approve a guarantee?

Provided that the company constitution of the obligor permits it to issue guarantees, the board of directors’ resolutions of the obligor authorising the issuance and execution of the guarantee are required. Shareholders need not approve the giving of a guarantee, although in a situation where the obligor has no relationship with the borrower, obtaining a shareholders’ resolution of the obligor, approving the issuance of the guarantee, may be prudent.

Obligations of foreign lenders

Must foreign lenders qualify to do business in your jurisdiction to extend credit to a borrower organised in your jurisdiction? Will foreign creditors be deemed resident as a consequence of making a loan or other extension of credit to an obligor within your jurisdiction?

No, foreign lenders do not have to qualify to do business in Singapore to extend credit to a borrower organised in Singapore. Foreign creditors will not be deemed resident in Singapore as a consequence of making a loan or other extension of credit to an obligor within Singapore.

Repayment

Central bank and regulatory approval

Is central bank or other regulatory approval required for repayment of a loan in foreign currency?

No, central bank or other regulatory approval is not required.

Usury laws

Do usury laws limit the interest payable to a lender in respect of a vessel financing?

No, there is no limit, but the courts will strike down interest rates that they consider unconscionable given the circumstances of the case. Practically, there is a general acceptance that any interest rate in excess of 24 per cent a year is unconscionable.

Withholding taxes

Are withholding taxes payable on principal or interest payments to non-resident lenders?

Owners of vessels registered with the MPA under the Block Transfer Scheme and owners who are registered as approved international shipping enterprises with the MPA are exempt from having to pay withholding tax on interest to non-resident lenders. In all other cases, withholding tax is payable on interest to non-resident lenders. The tax rate will depend on the terms of any double taxation treaties that Singapore may have with the country where such a non-resident lender is tax resident. However, it may be possible to obtain a waiver of the withholding tax from the MPA upon application through the prescribed form. Factors that the MPA will consider will include the quantum of the loan, the number of vessels that the owner is contemplating registering with the MPA in the near future and whether the interest rate offered by the non-resident lender is lower than that offered by financial institutions in Singapore.

Registration of vessels

Eligibility for registration

What vessels are eligible for registration under the flag of your country? Are offshore drilling rigs or mobile offshore drilling units considered vessels under the laws of your jurisdiction? What is the effect of registration?

Except for fishing vessels, hydrofoils and wooden vessels, all types of vessel are eligible for registration with the MPA. Offshore drilling rigs or mobile offshore drilling units are considered vessels under Singapore law. Registration provides a ship with Singaporean nationality when it goes on overseas voyages, protects a ship’s name for as long as it is registered, provides proof of ownership and makes it possible to register mortgages on the ships. Further, as a consequence of such registration, the owner of the vessel becomes subject to the terms of Singapore legislation, giving various international maritime conventions the force of law in Singapore in respect of the vessel.

Who may register a vessel in your jurisdiction?

Singapore citizens or Singapore-incorporated companies may register vessels with the MPA. Where the tonnage of the vessel to be registered is in excess of 1,600GT and the vessel is self-propelled, all of the shareholders in such companies may be non-Singaporean.

Registry for international shipping operations

Is there an alternate registry for international shipping operations?

No, there is no such alternate registry in Singapore.

Ship mortgages and other liens over vessels

Types of ship mortgage

What types of ship mortgages exist and what obligations may a ship mortgage secure? Can contingent obligations, including swap obligations, be secured? Are there standardised forms?

Mortgage instruments take a prescribed form and are short mortgage forms similar to the English model accompanied by a deed of covenants. The mortgages can secure principal, interest, default interest, commission fees and any other amounts due. Contingent obligations, including swap obligations, may be secured.

Required form

Give details of any required form for ship mortgages in your jurisdiction.

Ship mortgages follow a standard form as set out in the Merchant Shipping Act and the regulations passed thereunder. There are two types of forms – one to secure the principal sum and interest and one to secure accounts current etc. If more details need to be incorporated, these may be included in the deed of covenant.

Registration of mortgages

Who maintains the register of mortgages? What information does it contain and where are such filings to be made? What is the effect of registration?

The register of mortgages is maintained by the MPA. The register contains the name and address of the mortgagor, the name and address of the mortgagee, the date of the mortgage, date of registration of the mortgage and the ranking of the mortgage. Filings are made with the MPA. Such registration creates a legal mortgage of the vessel in favour of the mortgagee and is accorded the ranking as appears in the register.

Must the total amount of the mortgage be stated therein? Must the mortgage contain a maturity date? Must the underlying debt instrument be filed with or attached to the recorded mortgage?

No, the total amount of the mortgage need not be stated. The mortgage does not need to contain a maturity date, nor does the underlying debt instrument need to be filed, except that where the mortgage is registered to secure a debt due from a third party to the mortgagee, a certified true copy of the deed of covenant must be registered with the MPA.

Can a mortgage be registered in the name of an agent or trustee for the benefit of multiple lenders?

Yes, a mortgage can be registered in the name of an agent or trustee for the benefit of multiple lenders.

Filings on transfer

If the mortgagee is an agent or trustee for a lending syndicate, must any filings be made upon transfer of a portion of the underlying debt among existing lenders or to a new lender?

No, there is no filing to be done if the agent or trustee transfers a portion of the underlying debt among existing lenders or to a new lender.

If the mortgagee transfers its interest to a new lender, agent or trustee what filings are required? Is the mortgagor’s consent required?

The prospective new mortgagee must file the transmission of mortgage executed by the previous mortgagee in its favour, which appears on the reverse side of the mortgage instrument, with the MPA. The mortgagor’s consent is not required, unless the loan and security documents expressly require such consent to be given.

Maritime liens

What other maritime liens over vessels are recognised in your jurisdiction? Do these claims give rise to a right to arrest a vessel? In what circumstances may associated ships be arrested?

Singapore recognises crew claims, collision claims and salvage claims as maritime liens. These claims do give rise to a right to arrest the vessel. Associated ships may be arrested if the claim falls under section 4(4) of the High Court (Admiralty Jurisdiction) Act of Singapore (HCAJA).

What maritime liens rank higher than a mortgage lien?

Maritime liens for crew wages, collision claims and salvage claims rank higher than a mortgage lien.

Non-mortgage liens

May non-mortgage liens be recorded over a vessel?

No, non-mortgage liens cannot be recorded over a vessel at the MPA.

Foreign’ flag vessels

Will mortgages on ‘foreign’ flag vessels be recognised in your jurisdiction? If so, do they share the same priority as those on vessels registered under the laws of your jurisdiction?

Yes, mortgages on foreign flag vessels will be recognised in Singapore and they share the same priority as vessels registered under Singaporean law.

Enforcement of mortgages

What is the procedure for enforcing a mortgage in your jurisdiction by way of foreclosure? Are interlocutory sales permitted? How long does a judicial sale take? What are the associated court costs and how are they calculated?

To start with, the claim of the arresting party must fall within the permitted claims listed in the HCAJA. If it does, then the procedure for enforcing any mortgage in Singapore is by way of ship arrest, pursuant to a warrant of arrest issued by the Singapore High Court to be obtained by the arresting party upon application to the Court. Interlocutory sales are permitted. Judicial sales can be effected as quickly as three months from the date of arrest, provided there are bids during the first tender exercise that meet or exceed the reserve price set by the Singapore High Court. Associated costs will include sheriff’s guard charges and port charges (which are both based on a scale) and the sheriff’s expenses for appraisement and sale of the vessel, which will be the aggregate of 5 per cent of the first S$1,000 of the sale price of the vessel and 2.5 per cent of the balance sale price of the vessel.

Sale by mortgagee

May a vessel be sold privately by a mortgagee? Will the sale discharge liens over the vessel?

A vessel may be sold privately by the mortgagee. However, such sale does not discharge liens over the vessel.

Default under mortgage

Will the courts of your jurisdiction enforce mortgage provisions stipulating the appointment of a receiver on default under the mortgage?

Limitations on rights of self-help

What are the limitations on rights of self-help by a mortgagee?

The mortgagee may not sell the vessel to itself or its nominees (eg, solicitors acting for the mortgagee in the sale). However, the mortgagee may sell the vessel to a company that the mortgagee directly or indirectly controls, provided that the mortgagee has acted in good faith.

Duties to owner or third-party creditors

What duties does a mortgagee owe to an owner or third-party creditors?

The mortgagee’s duties require a reasonable balancing of the interests of the owner, the mortgagee and other third-party creditors. The mortgagee must make efforts to obtain a fair price for the vessel and may not act in an arbitrary manner. Further, where the security of the mortgagee is not impaired, the mortgagee has the liability to complete the existing charter or voyage that the vessel had undertaken.

Collateral

Finance leases

May finance leases or other charters be recorded over vessels flagged under the laws of your jurisdiction?

No, finance leases or other charters may not be recorded over Singapore-flagged vessels at the MPA.

May finance leases be recharacterised by a court as a financing contract? If so, is there any procedure for protecting the lessor’s interest against third-party creditors?

To date, the Singapore courts have not recharacterised a finance lease as a financing contract.

Security interests

How is a security interest created over earnings of a vessel, charter contracts, insurances, etc? How are these security interests perfected?

Security interests are created by way of an assignment. Where the assignor is a company, a security interest may be perfected by filing notification of the charge created by the assignment with the ACRA, within the period prescribed by the Companies Act; namely, within 30 days of the date of creation of the charge.

Must security interests against non-vessel collateral be registered to be enforceable? If so, where are such filings made?

A security interest on land or real property may be recorded at the Singapore Land Authority. Where any type of security interest is created by a company, the notification of the charge arising from such a security interest can be filed at the ACRA, within the period prescribed by the Companies Act (see question 31).

How is a security interest over a deposit account established? How is a security interest perfected?

The security interest is created by a memorandum of charge. Where the charge is a company, the security interest is perfected by filing a notification of the charge created by the memorandum of charge with ACRA within the period prescribed by the Companies Act (see question 31).

How are security interests in non-vessel collateral enforced?

Mortgages on land may be enforced by possession and sale. Charges on equipment may be foreclosed, pursuant to the court foreclosure order. As for other security interests, enforcement is by way of writ action.

Share pledges

How are share pledges for vessel financings established? Are share pledges or share charges common in your jurisdiction?

By way of a share pledge or share charge agreement. However, share pledges or share charges in connection with vessel financing are not common in Singapore.

Is there a risk that a pledgee, before or after exercise of the share pledge, may be exposed to debts or other liabilities of the pledged company?

No, there is no risk of the pledgee, before or after exercise of the share pledge, being exposed to debts or other liabilities of the pledged company.

Tax considerations for vessel owners

Domestic taxation

Is the income earned by the owners of vessels registered in your jurisdiction subject to domestic taxation? At what rate?

Pursuant to section 13(A) of the Income Tax Act, income earned by a Singapore-registered vessel from operating outside Singapore port limits is exempt from tax. Any other shipping income will become part of the general income of the company, and if the company makes a profit such profit will be taxed at the prevailing corporate tax rate applicable in Singapore, which at present is 17 per cent, subject to relevant tax exemptions given by the Inland Revenue Authority of Singapore.

Tonnage tax

Is there an optional tonnage tax exempting vessel owners from tax on income?

All Singapore-registered vessels must pay tonnage tax annually at the rate of S$0.20 per net ton. The fact that tonnage tax is payable has no correlation to the owner’s liability for income tax.

Tax incentives

What special tax incentives are available to shipowners registering vessels in your jurisdiction?

Special tax incentive schemes in Singapore include the Block Transfer Scheme and the Maritime Sector Incentive Scheme (the MSI Scheme). The MSI Scheme itself is divided into three sections, namely:

international shipping operations (including the approved international shipping enterprise scheme and the maritime finance incentive scheme);
maritime leasing arrangements; and
shipping support services.
Under the approved international shipping enterprise scheme, there is a 100 per cent tax exemption on qualifying income derived from operating foreign-flagged ships. Under the maritime finance incentive, a tax exemption or concessionary tax rate (5 or 10 per cent depending on the type of activities carried out) can be obtained on qualifying income derived from leasing ships or containers and managing an approved shipping or container investment enterprise.

Other tax provisions

Are there any other noteworthy tax provisions specifically applicable to shipping, shipping income or ship finance?

No, there are no noteworthy tax provisions other than those stated in questions 37 and 39.

Insolvency and restructuring

General scheme of reorganisation or insolvency administration

Is there a general scheme of reorganisation or insolvency administration in your jurisdiction?

Yes, it is known as judicial management. Once a company is placed on judicial management (which will be for a specific period of time, for example, one year) the creditors cannot enforce the debt obligation of the company. In such a situation, a ship mortgage created by the company cannot be enforced.

Foreign court rulings

Will the courts of your jurisdiction respect the rulings of a foreign court presiding over reorganisation or liquidation proceedings?

The general practice of the Singapore courts is that they respect the rulings of a foreign court presiding over reorganisation or liquidation proceedings, except where it is against public policy in Singapore or except where the foreign court proceedings were in violation of the principles of natural justice.

Model Law on Cross-Border Insolvency

Has your jurisdiction adopted the Model Law on Cross-Border Insolvency promulgated by the United Nations Commission on International Trade Law?

No, Singapore has not adopted the Model Law on Cross-Border Insolvency promulgated by the United Nations Commission on International Trade Law.

Order of priority

What is the order of priority among creditors? In what circumstances will creditors be required to disgorge payments from an insolvent company?

The order of priorities is contained in section 328 of the Companies Act. Preferred creditors include the petitioner who petitioned for the winding up in respect of its costs and expenses for the winding up, employees and secured creditors. Creditors will be required to disgorge payments from an insolvent company where the payment is deemed a fraudulent preference under section 329 of the Companies Act.

Security provision by vessel owner

May a vessel owner provide security on behalf of other related or unrelated companies? What are the requirements for it to be enforceable?

Yes, a vessel owner may provide security on behalf of other related or unrelated companies. There is no difference in enforcement requirements than if the vessel owner had granted the security directly.

Law of fraudulent transfer

Is there a law of fraudulent transfer that permits a third-party creditor to challenge, for example, the grant of a mortgage because of insolvency of the mortgagor or insufficient consideration received by the mortgagor in exchange for the grant of the mortgage?

Yes, a third-party creditor may challenge such a transaction. The law prohibiting undue preferences and undervalue transactions appears at section 329 of the Companies Act read with sections 98 and 99 of the Bankruptcy Act of Singapore.

Petitions by creditors

How may a creditor petition the courts of your jurisdiction to declare a debtor bankrupt or compel liquidation of an insolvent obligor?

The creditor must first issue a statutory notice to the debtor to pay the monies due within a prescribed period of time. If the debtor fails to pay, the creditor may petition the Singapore court to declare the debtor bankrupt, or to compel liquidation of an insolvent obligor. To file a petition to declare a person bankrupt or to wind up a company, the debt itself must exceed S$10,000.

Model Netting Act

Has your jurisdiction adopted the Model Netting Act of the International Swaps and Derivatives Association (ISDA)? If not, may a swap provider exercise its close-out netting rights under an ISDA master agreement despite an obligor’s insolvency?

Yes, Singapore has adopted the ISDA Model Netting Act by way of the Payment and Settlement Systems (Finality and Netting) Act 2002.
Source: Haridass Ho & Partners

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