Cyprus has a well-established maritime infrastructure which offers many advantages to ship owners and business people in this industry. Shipping upholds a significant role in the Cyprus economy and after overcoming the economic crisis in 2013, the shipping finance has flourished. The Republic of Cyprus is a member of the IMO, the Council of Europe, the Commonwealth and many other international organizations. In addition, it is a signatory to many international maritime conventions and has concluded bilateral agreements of cooperation in merchant shipping and double tax treaties with many countries.
Furthermore, WISTA Cyprus (Women’s International Shipping & Trading Association), founded in 2012 and based in Limassol, is the largest third-party ship management centre in the EU and among the top three worldwide.
Legal Ownership & Registration
Pursuant to the Cyprus Merchant Law, a vessel can be provisionally or permanently registered under the Cyprus flag at the Register of Cyprus Ships. This body is a public register, situated at the port of Limassol, at the Department of Merchant Shipping of Ministry of Communications and Works.
Upon registration, the Registrar of Cyprus Ships issues a certificate of ownership which includes, inter alia, the particulars of the vessel and the name and address of the legal owner. All actions relating to a local vessel, such as registrations, discharges, transfers and transmissions of mortgages must be recorded in the Register of Cyprus Ships. The certificates in question constitute admissible evidence, prescribed by the Merchant Shipping Law, in regard to the matters stated therein, including the legal ownership of the vessel.
Ship Mortgages & Liens
Once a ship is registered at the Register of Cyprus Ships, the owner is automatically entitled to create a mortgage at the Register. The Cyprus Merchant Shipping (Registration of Ships, Sales and Mortgages) Law of 1963 allows a vessel or a share in a vessel to be registered as security for the creation of a loan. In other words, when a shipowner wishes to obtain money, they can do so by borrowing it on the security of their ship, while an interest in the ship is given to the person who is prepared to lend them money. The shipowner is known as the ‘mortgagor’ and the person lending the money is known as the ‘mortgagee‘.
The Mortgage Register shows only brief details of the mortgage, such as the date and time of its creation and registration, the name and address of the mortgagee and the number of shares mortgaged. A mortgage can be registered in the name of an agent or trustee for the benefit of one or more creditor parties. In case the owner is a legal person (i.e. a company), the vessel must also be registered with the Registrar of Cyprus Companies within 3 weeks of the mortgage formation.
Once a ship is registered at the Register of Cyprus Ships, the owner is automatically entitled to create a mortgage at the Register.
All filings related to a mortgage of a ship are made to the Ships Register. No stamp duty is required for the documents which form the mortgage and the secured amount can be in the form of any currency. The Mortgage Register is open to inspection by the public upon payment of a search fee and a certified copy of the mortgage documents may be given on application.
A mortgage must always be accompanied by a collateral deed of covenants containing the contractual agreement between the owner and the mortgagee while dealing with matters relating to the mortgage – as prescribed by the Merchant Shipping Law – such as
- the repayment of principal
- the payment of interest
- the insurances and renewals thereof
- limitations on employment of the vessel
- the events of default upon which statutory or other agreed powers of the mortgagee may be exercised and powers exercised by the mortgagee.
The form for a deed of covenants depends on the nature of the underlying documents that the mortgage intends to secure (loan agreement, guarantee, etc) and reflects the basic obligation, warranties and undertakings of the owner under such documents. There is no need for the total amount of the mortgage to be stated in the deed of covenants collateral. The underlying debt instrument does not have to be filed with or attached to the deed of covenants, although there is nothing to prevent the parties from doing so. The deed of covenants must also be registered at the Cyprus Ships Registry together with the mortgage and forms part of the mortgage.
Documents required for the Registration of a Mortgage on a Cyprus Ship :
- The written application by a local lawyer with €30 for advocate stamps.
- The resolutions of directors on behalf of the shipowner.
- The mortgage and deed of covenants (duly executed).
- A certificate of directors and secretary (in case of a Cyprus registered Company).
- An Incumbency Certificate duly executed (in case of a foreign-registered Company).
Types of mortgages
The Merchant Shipping Law prescribes two types of ship mortgages.
- Firstly, there is a mortgage to secure the principal sum and interest. This type is used when a fixed sum of money is advanced to the mortgagor at an agreed interest and the mortgagee is solely seeking to secure such a sum with interest. Due to the complexity of most financial transactions, the principal sum and interest mortgage form becomes rather obsolete and it is not preferred by the majority.
- Secondly, there is a mortgage to secure an account current, which used more often than the first one. This type is preferred by the mortgagees, who are always desirous of securing further amounts, such as costs, expenses and other liabilities. Contingent liabilities, including swap liabilities, can also be secure in this form of mortgage – provided that the agreement to create such liabilities is in place prior to the execution of the mortgage or such liabilities are directly connected with other existing obligations that are secured by the same mortgage.
Protection of mortgages
An important advantage of registering a mortgage is the ability to obtain priority when there are more than one mortgage registered in respect of the same ship. Notwithstanding any express, implied or constructive notice, the mortgages shall be executed in priority according to the date at which they were recorded in the Register. In any case, the Registrar of Cyprus requests the written consent of all existing mortgagees to the registration of a subsequent mortgage.
The rights of mortgagees are protected by Admiralty law in Cyprus
- A mortgagee may initiate action for enforcement of a mortgage in a Cyprus court or effect his vested right of vessel’s disposal or its share which is subject to the mortgage.
- A mortgagee may sell the mortgaged vessel but if more than one mortgagee exists, he/she needs a court order.
- On the establishment of default, actions for ship sale have always been successful in all foreign courts.
- In case of a forced sale via auction or private agreement mortgagee’s rights have priority in the distribution of proceeds.
- In case the vessel subject to the mortgage is a legal person (a company), mortgagee’s rights will be fully protected against creditors and liquidators as the mortgage will be registered at the Registrar of Cyprus Companies.
Cyprus Ship Mortgages – an efficient method to secure your finance.
The Cyprus Ships Register does not maintain a register of liens over a vessel that arises by operation of Cyprus law; rather, only mortgages are registrable. The particulars are evidenced by a certificate or transcript, during a public inspection process of a mortgage register upon payment of a search fee.
Ship mortgages and other charges granted in connection with a vessel finance transaction over the property or assets of a Cyprus company – or a foreign company based in Cyprus – such as assignments, pledges, fixed or floating charges, must be registered at the Companies Registry as charges against the assets of such a company, pursuant to the Cyprus Companies Law, Cap 113.
In repaying a ship loan in a foreign currency, there is no requirement for a central bank or other regulatory approval. However, compliance with anti-money laundering and anti-terrorism regulations must be ensured.
Furthermore, usury laws in Cyprus do not limit the interest agreed to be payable on the principal amount of a loan to a bank lender that is not regulated by the Central Bank of Cyprus.
Discharge of a mortgage
A mortgage can be voided by the mortgagee by executing a memorandum of discharge. The memorandum must be validated and delivered to the Registrar of Cyprus Ships or to a consular officer following the instructions of the Registrar.
The procedures of Cyprus Ship Finance are quite straightforward, although you are always advised to consult our Cyprus lawyers with expert knowledge and experience on the matter.