Part 2 South Africa: Protecting maritime creditors against defaulting shipowners
In Part 1 of this blog, we looked at the key factors making South Africa an attractive arrest jurisdiction.
In this Part 2, we discuss how South Africa’s laws on the distribution of proceeds following maritime arrest and sale benefit maritime creditors.
Distribution of proceeds
A court may order that any maritime property which has been arrested be sold by way of public auction or private treaty. This is usually done where there is a large number of creditors who have arrested the property and the shipowner has walked away or has failed to secure the creditors’ claims. In South Africa, the proceeds of the sale constitute a fund to be held in court. A referee is appointed to receive and assess all claims against the sale fund lodged by local and international creditors in a procedure which is similar to insolvency proceedings. Creditors’ claims are paid in accordance with the ranking under South Africa’s Admiralty Jurisdiction Regulation Act.
A further attractive feature of instituting proceedings in South Africa for non-bank creditors is that the regime favours necessaries and repair claims which are less than 12 months old over the claim of any mortgagee bank when determining the ranking of claims against a sale fund. A mortgage claim is likely to exhaust any residue in a sale fund so obtaining a ranking ahead of the mortgagee bank may be essential to getting paid.
[Local] maritime creditors should ensure that their standard trading terms are up to date and apply to their contracts with shipowners. A passing reference to STCs in an invoice or delivery note will not be sufficient for a creditor to rely on those STCs should a dispute arise. Action should be taken against a ship before it sails (although this is not always possible where payment terms do not require payment upon presentation of invoice and therefore the ship has sailed before the payment has become overdue and a claim can be made).
Maritime litigants are well-served by the Admiralty Jurisdiction Regulation Act which allows importers, exporters and vessel suppliers to protect themselves by making use of the admiralty actions and other useful admiralty mechanisms set out in the Act. This is particularly important in light of the severe financial difficulties faced by shipowners and operators which expose creditors to a risk that they will won’t be paid.