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Ship Mortgage/Ship Hypothec

Written by Putu Ferlyne Grace Evangeline Wardana on 08/08/2024
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.

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Introduction

A ship mortgage/ship hypothec is a legal mechanism that allows shipowners to use their ships as collateral to secure loans. This process is governed by specific regulations and laws to ensure the rights and obligations of all parties involved are clearly defined and protected.

Definition

A ship mortgage is an immovable collateral right over a registered ship, guaranteeing the repayment of certain debts and giving priority to specific creditors over others (Article 1 point 12 of Minister of Transportation Regulation Number 39 Year 2017 concerning Ship Registration and Nationality). To be eligible for a mortgage, a ship must meet the minimum size requirements set forth by Indonesian law, either 20 m³ or 7 Gross Tonnage.

To apply, the application for Ship Mortgage Encumbrance is submitted to Ship Registration and Title Transfer Officer (Pejabat Pendaftar dan Pencatat Balik Nama Kapal/P3BK), by completing several documents, namely:

application letter stating the ship data and guarantee value;
grosse deed of registration or transfer of name of the ship;
credit agreement; and
Power of Attorney to Install Mortgages (Surat Kuasa Memasang Hipotek/SKMH) made in the presence of a Notary.

After completing the documents for a ship mortgage application, P3BK will issue a Mortgage Deed. Each Mortgage Deed results in one grosse deed provided to the mortgagee, which ensures that the mortgage is properly documented and officially recognized.

Ships can be encumbered by more than one mortgage. The rank of each mortgage is determined according to with the date and sequence number of the mortgage deed.

The Importance

A ship mortgage is essential for several reasons:

Access to Capital: Provides shipowners with significant funding by using the ship as collateral.
Improved Loan Terms: With a ship as collateral, shipowners may negotiate more favorable terms with lenders, such as lower interest rates.
Asset Ownership: Enables obtaining necessary funds without selling the ship, allowing continued ownership and use.

The Best Time to Perform

The best time to perform a ship mortgage is:

When Needing Funds: A ship mortgage provides immediate access to capital with flexible financing terms while allowing the ship to remain in operation.
Collateral Reduces Risk: Using the ship as collateral makes lenders/creditors feel more secure because the ship can be executed if the borrower fails to repay the debt.

The Benefits

A ship mortgage offers numerous benefits to both shipowners and lenders:

Legal Certainty and Protection: The formal process of registering a ship mortgage provides legal protection for both the lender and the borrower. It ensures that the lender has a priority claim over the ship in case of default, while the borrower retains ownership and operational control of the ship.
Operational Continuity: Shipowners can secure necessary funding while maintaining control and operational use of the ship, avoiding disruption in their business activities.

The Process

The process of performing a ship mortgage involves several stages:

Credit Agreement: The shipowner (debtor) and the lender (creditor) enter into a credit agreement, specifying that the ship will be used as collateral to secure the loan. This credit agreement is mandatory and without this, an application for a mortgage cannot be made.
Submission of an Application Letter: The shipowner and the mortgagee (or the mortgagee authorized by the shipowner) must submit a letter of application to record the mortgage on the ship to the P3BK at the location where the ship is registered. If by power of attorney, it must submit a SKMH made before a Notary.
Making of Ship Mortgage Deed: P3BK will make a ship mortgage deed and issue a grosse of the ship mortgage deed, which is signed by the ship owner, mortgagee, P3BK, and P3BK Assistant Officer.
Registration: The Mortgage Deed is recorded in the master list of the ship at the registration location. This step formalizes the mortgage and provides legal recognition.

How We can Help

Our services are designed to assist shipowners and lenders in navigating the complexities of ship mortgages. We offer:

Legal Consultation: Expert advice on the legal requirements and implications of ship mortgages, ensuring compliance with all relevant regulations.
Document Preparation: Assistance in preparing and reviewing all necessary documents, including the credit agreement, SKMH (Notary), Mortgage Deed, and Letter of Application.
Registration Process: Ensuring the mortgage is properly recorded in the master list of the ship.

FAQs

Can a foreign national (WNA) own an Indonesian-flagged ship?

WNA cannot own Indonesian-flagged ships directly. However, Indonesian citizens or companies can partner with foreign shipping companies or entities to form a joint venture. This joint venture must have at least one Indonesian-flagged ship with a minimum size of 5.000 Gross Tonnage and crewed by Indonesian nationals.

Can a ship sailing in waters outside Indonesia be mortgaged?

Yes, a ship sailing in waters outside Indonesia can be mortgaged provided that the ship has been registered in Indonesia and has an Indonesian flag.

What is the significance of the grosse deed in a ship mortgage?

The grosse deed has executorial power, meaning it allows creditors to execute the mortgage without court proceedings.

What is the process of discharging (roya) a ship mortgage?

Roya is done by the Ship Registration and Title Transfer Officer upon written request from the mortgagee. If requested by the mortgagor, a letter of consent from the mortgagee is required. Roya can also be based on a final and binding court decision.

What documents are needed for the discharging (roya) of ship mortgage?

The documents needed for the roya of ship mortgage include the original grosse deed of the ship mortgage or its transfer, and the original grosse deed of ship registration or transfer.

What are the laws that governs ship mortgage in Indonesia?

Article 314 Indonesian Commercial Code (KUHD), Law Number 17 Year 2008 concerning Shipping (as amended by Law Number 6 Year 2023 concerning the Stipulation of Government Regulation in Lieu of Law Number 2 Year 2022 concerning Job Creation into Law).

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