On 4 February 2025, Malta enacted Act No. I of 2025, introducing substantive amendments to the Merchant Shipping Act (Chapter 234 of the Laws of Malta). This legislative reform, enacted with the advice and consent of the House of Representatives, reflects Malta’s commitment to remaining a leading maritime jurisdiction by modernising its shipping laws and expanding the suite of security instruments available to ship financiers.
A Response to Market Demand
The amendments were introduced in response to industry-wide developments and the increasing use of sale and leaseback financing models, particularly in transactions driven by leasing institutions across Asia. This evolving commercial reality prompted a comprehensive review of the existing legislative framework, leading to the introduction of a new legal mechanism: the finance charter instrument.
This instrument enhances the maritime finance ecosystem by enabling financiers to secure their interests in Malta-flagged vessels through a registered legal charge, even in the absence of a traditional mortgage structure.
Purpose and Legal Effect of the Finance Charter Instrument
Maltese maritime law has long prioritised creditor protections. However, traditional security mechanisms—such as registered mortgages—may not always be suitable in lease financing arrangements, where legal title remains with the lessor.
The new amendments now allow a lessor to register a finance charter instrument as a form of security over a leased vessel, regardless of whether the vessel is bareboat registered under the Malta flag. While not equivalent in all respects to a registered mortgage, the finance charter instrument establishes a direct legal encumbrance on the vessel, offering financiers additional security. When combined with conventional protections such as pledges, assignments, and guarantees, this instrument provides a robust and flexible security package.
Insolvency Protection and Priority of Claims
Drawing inspiration from the legal treatment of registered mortgages, the legislation provides that a registered finance charter interest remains unaffected by the bankruptcy of the charterer, provided that such bankruptcy occurs after the registration date of the interest. This protection applies even if the vessel remains in the possession or control of the charterer at the time insolvency proceedings commence.
As a result, the lessor’s security interest is shielded from the general insolvency estate of the charterer and takes priority over all unsecured claims, save for specific privileged claims as outlined in Article 50 of the Merchant Shipping Act.
Moreover, if a vessel is sold under judicial authority, the lessor’s interest will attach to the proceeds of sale and retain its priority in accordance with the order of registration. This mechanism reinforces the security position of the lessor in liquidation or enforcement scenarios.
Strengthening Compliance with International Maritime Norms
Past audits—such as the 2019 Port State Control inspection—have highlighted compliance deficiencies, notably with regard to onboard safety equipment on Maltese-flagged vessels. The proposed reforms aim to address these issues by reinforcing adherence to international conventions, including the Safety of Life at Sea (SOLAS) Convention and other instruments under the International Maritime Organisation. This demonstrates Malta’s resolve to maintain high safety standards and regulatory compliance across its fleet.
Revising Ship Registration Requirements
In a move to align domestic regulations with contemporary shipbuilding practices, the proposed legislation removes the requirement for a vessel’s identification details to be physically engraved on the keel. This change reflects current construction methods and is expected to improve Malta’s attractiveness to international shipbuilders. In addition, the maximum permissible age for registering a vessel under the Maltese flag will be reduced from 25 years to 20 years. This policy is aimed at encouraging the registration of newer, more efficient, and environmentally compliant vessels.
Improving Administrative Efficiency and Governance
The legislative proposal reallocates certain decision-making powers from the Minister responsible for shipping to the Registrar-General. This decentralisation is intended to reduce bureaucratic bottlenecks, facilitate timely decision-making, and enhance operational flexibility. Such streamlining of authority is likely to improve investor confidence and foster greater trust in the Maltese maritime administration.
Further Noteworthy Amendments
The draft Act also includes a variety of supplementary provisions intended to reinforce the legal framework surrounding ship registration and finance:
- Requiring advance payment of registration fees to promote transparency and accountability.
- Streamlining the registration and indexing of mortgages over ships.
- Introducing detailed provisions for registering mortgages on vessels still under construction.
- Clarifying procedures for correcting registration inaccuracies and further defining the Registrar-General’s involvement in judicial sales of vessels.
These refinements are intended to improve both legal clarity and practical efficiency across multiple facets of maritime administration.
Conclusion
Through the proposed amendments encapsulated in Act No. I of 2025, Malta seeks to reaffirm its commitment to excellence in maritime governance. By modernising its legal structures, embracing digital transformation, and enhancing protections for industry stakeholders, Malta positions itself to meet the evolving challenges of the global maritime landscape. Stakeholders across the sector are encouraged to engage with the proposed reforms to fully understand the opportunities and responsibilities that will follow.
Vassallo Associates can advise on all aspects of Maritime Law. Contact us today to discuss your requirements.