The enforced sale of sea-going vessels in the Netherlands

Enforced sale of hypothecated vessels is a common practice before Dutch courts. Most notably, the District Court of Rotterdam has great knowledge in this specific area of law. Also, civil law notaries are eligible to execute vessels in a similarly effective manner.

Legal titles to sell vessels by judicial sale

A vessel can be sold under the laws of the Netherlands on the request of a creditor who holds an enforceable legal title against the owner of a vessel. We recognize the following legal titles:

  • a Dutch judgment containing an order to pay money, a European enforcement order of this kind and foreign enforceable judgments of a similar kind;
  • a notarial deed from a Dutch civil law notary and enforceable deeds by foreign civil law notaries;
  • arbitral awards containing an order to pay, whether given by a Dutch arbitral tribunal or a foreign tribunal, if enforceable in the Netherlands.

 

Practical types of claim enforcement

In order to get hold of a vessel to place an executorial arrest, we distinguish the following possibilities:

  • direction of a vessel to Dutch jurisdiction by means of negotiation;
  • direction of a vessel to Dutch waters on the authority provided by deeds of mortgage in a take control clause;
  • execution of a leave provided by a Dutch court on the basis of a petition to take control of a vessel on the basis of a take control clause as provided in a deed of mortgage;
  • conservatory arrest of a vessel in a Dutch jurisdiction whilst or prior to obtaining an executorial title;
  • attachment of an executorial title on a vessel (executorial arrest) in Dutch waters, done after a third party has attached a conservatory title on the vessel. The executorial arrestor shall have control of the execution process.

 

Nationality and law applicable to the arrest and following execution

Practically, three types of executable flags can be distinguished:

  • Vessels flying the Dutch flag;

These vessels are governed by Dutch law alone and may be attached for every and any claim against its owner.

  • Vessels flying the flag of a party to the Brussels Arrest Convention 1952;

These vessels can only be arrested on the basis of the maritime claims defined in art. 1.1. Art. 1.1.q brings claims arising out of mortgage or hypothecation of a vessel under the definition of a maritime claim. Dutch law applies to the execution itself.

  • Vessels flying the flag of a party not member of the Brussels Arrest Convention 1952.

These vessels are governed by Dutch law alone and may be attached for every and any claim against its owner.

 

Procedural order of effecting a take control clause

Dutch law provides for a possibility to effect a take control clause by petition to the court. The ex parte procedure is both fast, cheap and relatively informal. One usually obtains leave on the same day after having delivered the petition to the court. Party presence does not make part of the procedure.

Due to connectivity requirements Dutch courts shall only administer petitions with a so-called Dutch link. If there is no Dutch link at all, it is advised to enforce the take control clause in a connected jurisdiction before ordering the vessel to sail to Dutch waters.

 

Procedural order of effecting executorial arrest

  • A judicial order to pay within 24 hours is served by bailiff to the (fictive) mortgagor aboard the vessel; or
  • a bailiff initiates the mortgage execution by formally notifying the execution to the mortgagor. This is also possible when the deed of mortgage is enforceable in the Netherlands;
  • a public civil law notary is instructed to initiate a judicial sale; after which
  • a Dutch summary court is requested to determine the appropriate foreign media to publish the execution notification (usually Lloyd’s List and local media);
  • said proper announcement lasts for a period of 14 days besides notification to owners, other creditors registered in the Dutch Ship Register and arrestors of the vessel.

– or, in case of a choice for a judicial sale before a court –

  • a Dutch court is petitioned to schedule a date and hour of sale;
  • a period of thirty days shall have to pass before the vessel can be sold, after:

1. the auction conditions have been filed at the court; and
2. a declaration that the abovementioned execution notification has been followed up, is filed at the court; and
3. a lawyer-made list of known creditors is filed at the court.

  • the parties mentioned under 3. are notified the day and hour of sale immediately, after which a lawyer files a declaration of this notification at the court;
  • three days minimum before the auction date, an estimate of expenditures/costs is filed at the court.

– in both cases –

  • before the sale the conditions of sale and the estimate of expenditure is acknowledged by the court and any interested parties;
  • the sale consists of two instances and is done by a bailiff before the court:

first, a premium is tendered by bidders, by means of bidding in an upward motion. This premium is added to the eventual hammer price of the vessel and is the basis for calculation of the encouragement premium.
Second, a high price (which does not have anything to do with the tendered premium) is established. From this high price, in steps a lower price is mentioned until a buyer says: ‘Mine!’, thereby fixing the price in the second round.

This fixation results in the sales price to be paid by the buyer, consisting of the sum of:

1.  the costs as provided on the list of expenditures;
2. the tendered premium in the first round;
3. the hammer price in the second round; and
4. a small percentage of the bid in the first round (usually 0,5% as an encouragement fee).

Besides the actual auction, mortgage executors are eligible to request the court for an out of court sale to an undisclosed party for a fair market price. Such out of court sale has the same effect as a judicial sale before the court and can be requested by mortgage executors that are willing to execute before a civil law notary also.

 

Main stipulations in the auction conditions

  • As is, where is sale of the vessel;
  • no warranties by the enforcing creditor;
  • quick payment of the buying price;
  • security provided by every bidder for a prescribed amount;
  • transfer of risks of the vessel upon the moment of judicial sale; and
  • the currency.

 

Division of profits

The sale upbringings are to be distributed in order of priority. This order is listed as follows:

1.  costs of execution, wreck removal, preservation made after the arrest of the vessel, claims out of labour agreements, salvage, contribution in general average;
2. securities out of mortgage or pledge;
3. claims resulting out of the operation of the vessel and against the carrier under a bill of lading;
4. limitation claims; and last
5. claims without preference, shared equally.

If the upbringings are mostly consumed by a first mortgagee, all claims with lower preference simply are in – to put it as such – bad luck. This is a good reason why creditors choose to auction vessels that are sailing in normal operation; the creditors are high on the division list, right after the ordinary costs of exploitation (port and crew).

 

Effect of the judicial sale

Upon payment of the total buying price, the vessel is free from any and all encumbrances and liens.
It is widely thought that a judicial sale before a court and the consequential judgment of sale holds greater protection towards third parties who may doubt the legality of the judicial sale. The effect is however the same, so that also a civil law notary’s deed may be used to deregister a vessel.

In effect, after the judicial sale the vessel is ‘clean’ and may be entered in a registry without any encumbrances or liens attached.

All costs are born by the buyer, whilst the effecting creditor cannot be affected by third party claims.
As per the order of priority, a mortgagee holds high-ranking preference and is thus eligible to take a share (if not the first share) of the proceedings.

 

Quick and cost-effective way of mortgage divesting

The judicial sale of vessels in the Netherlands is a very quick and cost-effective solution for creditors willing to divest their activity in the shipping market. Executing parties take a claim-safe position, whilst accruing costs are paid by the buyer of the vessel.

Dependent on the vessel and its owner, it is a popular option for divesting banks to either find a party for a private judicial sale or to establish a SPV to buy the vessels themselves.

 

Langelaar Klinkhamer Advocaten B.V. can advise you on all topics of the judicial sale of (both brown- and) blue-water vessels and has many years of experience in assisting you in the quick divestment of mortgaged vessels.

Questions regarding this blog post? Please contact David van Bemmel by phone: +31 (0)10 – 411 41 46 or email: vanbemmel@langelaarklinkhamer.com.

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David van Bemmel
David van Bemmel

David van Bemmel is als advocaat bij Langelaar Klinkhamer Advocaten gespecialiseerd in (internationale) handel, transport en verzekeringen. Hij procedeert en adviseert veelvuldig in natte en droge zaken op het gebied van zowel de zee- als binnenvaart. Naast de procespraktijk legt David zich toe op handelscontracten. Vragen naar aanleiding van deze blog post? Neem contact op met David door te mailen naar vanbemmel@langelaarklinkhamer.com.

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