Law of Ship Mortgages

Page 378



15.1 Introduction

15.1.1 This book is primarily concerned with ship mortgages over UK and British registered ships. However, this book also considers the enforcement of mortgages over ships, wherever registered, that are physically located in England and Wales. Continuing with this approach, this chapter will deal with the effect of domestic insolvency law on the rights of a mortgagee and also with the recognition of foreign insolvencies by the English courts - and in particular the impact of foreign insolvencies on the enforcement of mortgages over ships, wherever registered, located within the jurisdiction of the English courts and on the enforcement of mortgages by UK-based mortgagees over ships anywhere in the world. The shipping industry, which is concerned with the transportation of raw materials and commodities around the world, is sometimes seen as a barometer for the health of the world economy. Ship-owners unquestionably encountered severe financial difficulties in the wake of the global economic downturn of 2008 and the slowdown in the Chinese economy that began in 2015. These difficulties have been exacerbated by overcapacity fuelled by unprecedented expansion in Chinese shipbuilding over the past 10-15 years, with China overtaking South Korea in 2009 to become the world’s biggest shipbuilding nation. The decline in oil prices since July 2014 has also led to the abandonment of many offshore drilling projects, with predictable consequences for offshore support/supply and deep water drillships. However, considering the scale of the collapse in freight earnings rates and ship values that have occurred, as well as the ever increasing capital adequacy and auditing restrictions placed on banks with problem loans on their books, it has perhaps been surprising that there has not been a larger number of ship mortgage enforcements through judicial sales. Instead, there has been a trend away from ship mortgage enforcements, whether through self-help remedies or Admiralty court processes, towards either consensual restructurings1 or formal insolvency processes.

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