Tag: shipping

23 Jun 2020

The Creation of Cell Companies by Companies carrying on or engaged in Shipping or Aviation Business

By virtue of Legal Notice 248 of 2020, new regulations were issued under the Companies Act entitled Companies Act (Shipping and Aviation Cell Companies) Regulations (the “Regulations”). These Regulations were introduced to complement the recently introduced enabling provision under article 84E of the Companies Act (Chapter 386 of the Laws of Malta) (the “Companies Act”). The Regulations and article 84E extend the possibility of the creation of, or the conversion into, cell companies by companies carrying on or engaged in shipping or aviation business, which benefit could previously only be availed of by insurance companies, securitisation vehicles, investment companies with variable share capital and more recently by foundations and associations. These Regulations and article 84E of the Companies Act shall be read in conjunction with each other.

A cell company is defined as “a company formed or constituted as such or converted into a cell company and creating within itself one or more cells for the purpose of segregating and protecting the cellular assets of the company” in accordance with the Regulations and article 84E of the Companies Act. A cell has the same meaning as that assigned to it under the Companies Act, namely a cell is “a cell created by a cell company for the purpose of segregating and protecting the cellular assets of the company in such a manner as may be prescribed”. It also includes a reference to segregated accounts, compartments or units within a company having multiple accounts, compartments or units.

Interestingly, the Regulations introduce the definition of “cell shares” and “cell share capital”. Cell shares means shares created and issued by a cell company in respect of one of its cells, the proceeds of the issue of which (the “cell share capital”) shall be comprised in the cellular assets attributable to that cell.

For the purposes of these Regulations, the term “company” is extended to include partnerships en commandite or similar or equivalent body corporates, the capital of which is divided into shares. In order for a company to be so formed or converted, it shall be required to obtain a licence and, or authorisation in order to carry on any relevant activities or to be formed or constituted as a cell company and to carry out specific acts whilst being a cell company.

Within the ambit of these Regulations, the definition of shipping or aviation business is wide ranging, which definition stems from article 84E of the Companies Act. Firstly, it includes the ownership, operation by charter, lease or otherwise, administration and management of any ship together with the carrying on of all ancillary financial security, commercial and other activities connected therewith. In this respect, administration and management includes personnel engagement, as well as employment and management both onboard or otherwise. Additionally, such “business” extends to the holding of shares or other equity interest in any undertaking, whether such undertaking is established in or outside of Malta, provided that such undertaking is solely established or mainly established for the purpose of carrying on or out any one of the activities listed within this definition together with the carrying on of all ancillary financial, security, commercial and other activities connected therewith. The aforementioned activities also extend to the activities of the parent company which holds shares or other equity interest in undertakings, whether Maltese or otherwise, established solely or mainly for the carrying on or carrying out of any of the aforementioned activities. Furthermore, such activities also include the raising of capital through loans, the issue of guarantees or the issue of securities by an undertaking where the intention of the activity is to achieve the objects or activities cited in this article.

Cell companies shall be distinguished from other companies through the inclusion of the words “Mobile Assets Protected Cell Company” or “MAPCC” by their name and through the specific reference to the fact that it is a cell company in its memorandum and articles of association. Furthermore, each cell must be distinguished from one another by each cell being assigned its own distinct name.

In terms of these Regulations, a cell company is bestowed with single legal personality and such cell company may create numerous cells. However, the creation of a cell does not create a legal person separate from the cell company.

Any interest of an owner of a ship or aircraft shall be noted, provided that any registered mortgagee or registered security interest holder has provided its consent. It should be noted that such attribution shall not prejudice any rights of any creditor of the company existing prior to the conversion to a cell company or that of a registered mortgagee or security interest holder.

The cell company is allowed to pay a cellular dividend in respect of cell shares, which cellular dividends may only be paid with respect to the cellular assets and liabilities or profits attributable to the respective cell. Furthermore, if the cell company is obliged to make a payment from cellular assets attributable to a particular cell which are insufficient, the company shall make up for the deficiency from its non-cellular assets.

The Regulations require that separate records, accounts, statements and other documents are kept in order to show the assets and liabilities of each cell as distinct and separate from the asset and liabilities of other cells in the same company. The creditors of a particular cell should only be able to avail themselves of the assets of that particular cell and should not reach to other cells to cater for the debts due by that particular cell. In default of which, the Regulations provide for rules through which the affected cell may be reimbursed for its losses suffered.

The broadening of the law to accommodate cell companies in the shipping and aviation industries should prove to yield diverse opportunities within these sectors which would surely be attractive to the players within the industries. In view of the above, it is evident that owing to the fact that Malta has long appreciated the maritime industry as one of its economic pillars, efforts are continuously being made in order to ensure the industry remains competitive and robust whilst also attracting further business in the aviation industry.

15 May 2020

The Covid-19 shock waves to the shipping industry

The COVID-19 pandemic has created an unprecedented crisis practically grinding the world’s economies to a halt and which in turn impacted the backbone of the world trade, the maritime industry. The impact on maritime business is wide-ranging. Lars Jensen, CEO of the Copenhagen-based provider of container shipping analysis SeaIntelligence Consulting estimated that 17 million TEU would eventually be taken out of service globally this year, whilst ports and terminals may suffer a loss of 80 million TEU of handling volume. Ever since the COVID-19 pandemic hit China’s supply crunch, it has resulted in a ripple effect in the global maritime industry whereby the EU and the US were left with insufficient transport capacity for exports out of China. Furthermore, companies wishing to export goods out of China have been faced with a depletion of air freight capacity.

As a result, consumers have been faced with changing their purchasing habits due to the fear of exposure to the virus. Consequently, a great deal of consumers shifted to purchasing goods locally as opposed to goods from other jurisdictions due to the logistics network of imported goods. The risk for disruption in the supply chain is therefore apparent which underscores the necessity to have smart and adaptive supply chains that utilise modern technology to support the supply chain and avoid any obstructions that may occur.

Disrupted supply chains may be the first adverse impact that comes to mind. Yet the complexity and multi-faceted maritime industry has been facing several more challenges on all fronts, namely crew changes and cruise liners.

Seafarers

Seafarers are essential for the movement of goods globally and are considered to be on the frontline of this global calamity. Seafarers have been faced with situations whereby they are required to stay onboard the vessel for longer periods than their original scheduled shift, and sometimes travel to different ports in countries affected by COVID-19, due to various countries imposing restrictions on change of crew unless absolutely necessary. As a result, some authorities are authorising extensions of seafarers service periods beyond the maximum 11 months’ time period permitted under the Maritime Labour Convention, only where strictly necessary to contain the spread of the virus. Disembarkation is not the only problem in crew changes. Seafarers who are currently awaiting deployment are concerned about possible delays in embarkation and postponement of income.

Similar to their overseas counterpart, locally seafarers’ services as established in the Seafarer’s Employment Agreement in terms of the Merchant Shipping (Maritime Labour Convention) Rules, may be extended for a maximum period of three months due to issues in repatriation. A seafarer who has a valid Certificate of Competency issued by a foreign administration that also has a Flag State Endorsement issued in terms of the Merchant Shipping Act and of the STCW Convention, may request to have the validity of their Flag State Endorsement extended beyond their expiry date should it expire during an extended period onboard.

Cruise liners

Cruise liner companies have been hard hit as they have experienced difficulties when arriving at their scheduled ports. Cruise ships have been stranded at sea, unable to dock at various ports of the world as they were denied entry, travelling along the seas scrambling for safe harbour. Since passengers and crew were denied authorisation to disembark, they were forced to remain in quarantine onboard the vessels finding difficulty in returning home. U.S. cruise liners have already faced costs amounting to nearly $750 million since January as numerous voyages primarily to Asia and the rest of the world have been cancelled. The Cruise Lines International Association had originally suspended operations from US ports for 30 days, however, major cruise liners proposed to restart their operations after the summer season, while other cruise liners have extended their cruising ban even further.

Worse still, a number of passengers and crew tested positive to COVID-19. One of the worst outbreaks of the virus onboard a cruise liner was that on the Diamond Princess, whereby the ship was placed under quarantine as soon as a passenger who had disembarked from the ship tested positive for the virus. The Diamond Princess was placed under lockdown with passengers confined to their cabins for a minimum of 2 weeks. It was reported that a total of over 700 people were infected and resulted in 13 fatalities.

In accordance with Port Notice 5 of 2020, Transport Malta has imposed a temporary indefinite ban on the entry of cruise liners and passenger ships into Maltese ports and territorial waters. By virtue of Legal Notice 92 of 2020, the Superintendent of Public Health extended the existing travel ban on persons to and from Malta whether by air or by sea. However, for obvious reasons this ban has not been imposed over cargo flights, ferry flights, humanitarian flights, repatriation flights and cargo ships, container ships and ro-ro vessels carrying goods and essential commodities and tankers loaded with essential fuels.

Cruise liners may suffer a long term hit following the end of the pandemic as it may undermine people’s confidence in going on cruise liners in the future as travellers may remain fearful of staying in a confined space. Cruise liner companies might therefore have to implement extra measures to win back the confidence of passengers which will require heavy investment at a time in which the industry is already struggling and will prove to be one of the most testing challenges the cruise liners will face.

The local scene:  Transport Malta’s response to COVID-19

Transport Malta published a suggestive list of preventive measures which could be adopted by ship operators with the scope of minimising the spread of the novel coronavirus outbreak, such as ensuring all crew are fully aware of how the virus may be spread. Furthermore, ship agents, operators and masters of the ship are obliged, in terms of International Health Regulations, to immediately report any symptoms of the virus to the next port of call Port Health Medic doctor if there is a suspected COVID-19 diagnosis to ensure the safety of all crew until the potential patient is seen to by a medical professional. Transport Malta has advised that strict hygiene on board vessels should be followed at all times. However, since the crew of vessels live in close quarters to each other, stronger measures were needed since social distancing is a harder task to achieve.

In accordance with Port Notice 6 of 2020, crew members are not allowed to disembark from the vessel throughout the duration of its call in Maltese waters and ports. Additionally, shore personnel are only permitted to board vessels if they are in possession of written authorisation from the Port Health Medic. Furthermore, prior to entry in a port, ships are required to provide the Port Health Office with information regarding ports of call of affected countries.

Transport Malta adopted preventive measures in the early stages of the pandemic reaching the Maltese islands in order to minimise the impact of COVID-19 on the maritime industry and in order to ensure an uninterrupted service is provided to the Maltese shipping community under the current exceptional circumstance. With respect to commercial vessel activities, Transport Malta has temporarily extended the expiry of certifications, registrations and permits of commercial vessels, small ships and moorings, including registration of small ships, nautical licenses, certification of commercial vessels, certification of competency and mooring permits provided that the boat owner is in possession of a valid insurance policy. To further assist the shipping industry Transport Malta took the economic measure of deferring the due payment of the respective registration fees and annual tonnage tax by a period of three months from the anniversary with respect to those whereby the anniversary falls on or after 1 April 2020.

In order to better assist the teleworking measures adopted by local companies and to lessen physical contact, Transport Malta have also facilitated its services by introducing online services regarding yacht and boat registration under the Valletta Registry. The online services range from renewal of certification of registry, provisional and permanent registration, transfer of ownership, online payments, and other ancillary services.

Although the world has been facing a reality check through the COVID-19 instigated lockdown, the world remains largely connected through world trade proving the extraordinary strength and tenacity of the maritime industry in sustaining global supply chains in these unprecedented times.  Furthermore, this pandemic may also act as a catalyst to spur further innovation in the maritime sector to undertake thorough amendments to limit their carbon footprint.