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28 August, 2018
The Companies (Amendment) Bill 2018 was passed in Parliament on 6 August 2018 as a consequence of the landmark decision of the Singapore Court of Appeal in Diablo Fortune Inc v Duncan, Cameron Lindsay [2018] SGCA 26 (“Diablo case”), that shipowners' liens are registrable security under section 131 of the Singapore Companies Act (“Act”). This update discusses these recent developments and their impact on banking transactions.
What are shipowners' liens?
Maritime charterparties usually provide that, in the event of non-payment by the charterer, a shipowner can by way of a shipowner’s lien claim payment of sub-hire or sub-freight due to the charterer from a third party sub- charterer.
Are shipowners' liens registrable security?
In the Diablo case, the Singapore Court of Appeal affirmed that shipowners' liens are a form of security by way of a charge on book debts or floating charge. Therefore, shipowners' liens are registrable charges under section 131 of the Act. Non-registration will void the security against a liquidator and creditor of the company.
Amendments to Act to exempt registration for shipowners' liens
As a consequence of the decision in the Diablo case, an Amendment Bill was passed in Parliament on 6 August 2018 to amend section 131 of the Act in relation to the registration of shipowners’ liens as charges. Upon the effective date of the amendment, shipowners' liens will be exempted from registration as charges under section 131 of the Act. Shipowners' liens created before the amendment date becomes effective, will still have to be registered if, the company has been wound up, or a creditor of the company has acquired a proprietary right to, or an interest in the subject matter of the lien.
Impact on banking transactions
Lending to charterers
Banks lending to charterers that have given shipowners' liens to shipowners, should take note of the Diablo case and the corresponding amendments to the Act. Shipowners' liens are security interests and will therefore take priority over unsecured creditors and other subsequent secured creditors of the charterer, in the subject matter of the lien.
Lending to shipowners
Banks lending to shipowners that have been given shipowners' liens, should also take note of the Diablo case and the corresponding amendments to the Act to ensure that the shipowners' liens remain valid and enforceable security interests that will take priority over unsecured creditors and other subsequent secured creditors of the charterer, in the subject matter of the lien.
Foreign charterers
In the case of a charterparty governed by Singapore law and having a foreign charterer, banks should check if shipowners' liens (which are now held to be security interests following the Diablo case) are still registrable security interests in the foreign jurisdiction of the charterer.
Other forms of liens?
Although the Diablo case relates to shipowners' liens, the issues relating to the nature of liens and security principles considered by the Singapore Court of Appeal in that case may also apply to other forms of liens (especially non-possessory liens). Such liens may also be deemed as floating charges which may require registration in order to be enforceable.
