In a landmark judgement delivered by the First Hall Civil Court presided by Hon. Judge Henri Mizzi on Tuesday 03rd December 2024, the Court rejected a request by Kroll Trustee Services Limited to approve the private sale of M/V JAY 1 because the proposed sale, involving a set-off agreement, failed to meet legal standards for fairness and creditor protection.
Kroll Trustee Services Limited, having an executive title over the vessel M/V JAY 1 for a claim of over $67 million USD Dollars, sought to acquire the vessel through a private sale of $13 million USD Dollars, offsetting the price against its claim. This is following a judicial sale by auction for the sale of the vessel which took place in October but was unsuccessful. In their Court Application, Kroll argued that acquiring the vessel through a private sale would maximize recovery efforts.
However, Neriman Associates SA, a separate creditor of the vessel, opposed the sale. They argued that allowing an executing creditor to purchase the vessel could disadvantage other creditors and that a set-off was not possible in a court approved private sale, in accordance with Chapter 12 of the Laws of Malta. They argued that whilst Sub-Title IV of Chapter 12 of the Laws of Malta which regulates judicial sales by auction refers to the possibility of a set-off, this is excluded in Sub-Title V regulating court approved private sales. Moreover, the proposed price of $13 million USD dollars was deemed low compared to other offers received during earlier proceedings.
During the oral submissions, Kroll made reference to a judgement given by the First Hall Civil Court on 18th February 2016 presided by Chief Justice Mark Chetcuti; Pacific Seaways Shipbuilding Inc. vs The Vessel M/V KAY whereby the Court held that what makes this sale a little bit different is that the prospective buyer is the same creditor who is requesting the sale. He is asking for permission to acquire the vessel in partial payment of the credit owed to him. The Court does not make a restriction on who can be the acquirer and as in a normal judicial sale by auction, any creditor can participate in the sale animo compensandi”.
Hon. Judge Mizzi emphasized that in those proceedings there was only one creditor and there was no opposition to the sale as proposed. The Court stated that the argument that a judicial sale by auction is intended to protect all creditors and therefore, since a set-off is allowed there, it should be allowed in a court approved private sale, could have convinced the Court in the Case of Pacific Seaways. However, in this case, the Court held that even if a creditor can be a purchaser, it cannot offer to offset the price against its claim.
Article 363 of Chapter 12 of the Laws of Malta states that the price of the vessel is to be deposited into Court within 7 days from the date when the sale is finalized. The Court held that the word “price” should be given its ordinary meaning where it is intended to protect the interests of all known creditors, and not a technical meaning where it can mean the way of ending an obligation. The Court did not accept Kroll’s submission that the price can be considered deposited in the form of proof of the set-off because the proof has no value for other creditors.
The Court further analyzed Sub-Title IV of Chapter 12 of the Laws of Malta which deals with judicial sales by auction and the purchase by means of a set-off. It stated that the set-off cannot be extended to Sub-Title V of Chapter 12 of the Laws of Malta because the legislator chose to allow and regulate the possibility of a set-off in the provisions of the law pertaining to judicial sales by auction only. In fact, if the Court were to allow a payment by set-off in a court approved private sale when there are other creditors, a precedent would be created that could bypass protections embedded in the law.
The Court also found that Kroll failed to provide adequate evidence that the sale price was reasonable or reflective of the market value of M/V JAY 1. Although two valuation estimates were submitted, Neriman convincingly argued that they were undervalued and that higher offers had been received during the auction process. Furthermore, the absence of broader efforts to market the vessel to potential private buyers raised questions about the transparency and fairness of the process.
As a result, the Court ruled that the proposed private sale did not meet the legal requirements for protecting creditors’ interests or ensuring transparency and rejected Kroll’s request for the private sale of M/V JAY 1.
Neriman Associates SA was represented by Dr Cedric Mifsud and Dr Jodie Darmanin in these proceedings.
Av. Jodie Darmanin
Associate
Mifsud & Mifsud Advocates
For more information you can contact one of our Team Members at Mifsud & Mifsud Advocates.
