A Guide to Loans and Recoveries in Ship Finance Transactions in Nigeria Courtesy of the Akabogu & Associates Team! Enjoy!

1. Copyright © 2017 Akabogu and Associates,
All rights reserved.

2. This Guide is intended solely for information purposes and is not to be
construed, under any circumstances, by implication or otherwise, as legal
advice
Mortgagor: The person who wishes to purchase a vessel or construct a vessel.
Mortgagee: The Body advancing the Credit Facility
INTRODUCTION
Ships aren't necessarily cheap assets to acquire and unless you are listed on the
Forbes Rich List, you may just need the assistance of a financial institution or
lending house to facilitate the acquisition of that dreamboat that you have
wished so hard upon a star for. More importantly is the fact that the financial
institution that advances the credit facility used to purchase a ship will also be
interested in ensuring that its interests remain secure. In recognition of the
difficulties faced by many financial institutions in securing their interests in
ship finance transactions, the team here at Akabogu & Associates has put
together a concise and compact mini guide for financial institutions who may
be going through such challenges. Three things you should note:
1. HAVE A LEGAL MORTGAGE
A Ship Mortgage is a common method of financing the purchase or
construction of a ship. Just like a normal mortgage transaction in real estate, in
a ship mortgage, the Mortgagee in exchange for credit, gives the Mortgagor a
proprietary interest in the vessel which returns to him, upon repayment of the
loan advanced.
The registration of Ship Mortgages in the Nigerian Ship Registry or indeed any
other relevant registry is advisable and is provided for under Section 53(1) of
Nigeria’s Merchant Shipping Act, 2007. “Why?” you may ask. This is because,
the registration of such brings same to the awareness of Nigeria’s Maritime
Administration and Safety Agency (NIMASA) and such a move is important
when it comes to the enforcement of the lender’s security.
2. OPTIMISE YOUR RISK MANAGEMENT STEPS
Financiers are advised to take crucial steps to ensure that credit is advanced to
the right person and more importantly ensure that there is some guarantee
that it will receive its money back. How then, can a lender protect its interest in
ship mortgage transaction?
Due Diligence: Conduct searches on the vessel. From the Nigerian Ship
Registry Office to relevant international ship intelligence services, a financier
should take advantage of the information available on the said vessel. Searches
may come at a cost.

3. Assess the Vessel’s Value: Ships are tangible and like every tangible item, will
depreciate in value over time. As such, it is advisable that an assessment of the
vessel’s condition is conducted. The assessment of a vessel’s condition is better
conducted by a classification society.
Register the Mortgage: Registering the Mortgage in line with the Merchant
Shipping Act 2007 will guarantee that:
(i)The Mortgagee’s interest in the vessel is protected against bankruptcy
proceedings, where the mortgagor is declared bankrupt (Section 57, Merchant
Shipping Act, 2007);
(ii) An earlier registered mortgage will always take precedence over a later
registered mortgage (Section 53, Merchant Shipping Act, 2007);
(iii) Where there is a forced sale, only a registered mortgagee will be notified of
such. Remember, a mortgagee will be paid back his security from the proceeds of
a forced sale (subject to maritime liens) and as such will be interested in being
notified of same
Monitor the Loan: Having profiled the risk of the borrower at the beginning of
the transaction, ensure that you keep closer look at the activities of the borrower
post disbursement to ensure that the funds are properly applied. Monitor the
movement of the ship, keep an eye on operations to avoid the accrual of maritime
liens and enter caveats where necessary.
Reduce the risk of default: The longer the term the greater risk of exposure.
Higher pay back costs but lower instalment payments means less risk of default.
3. FORCED SALE: WHEN IT ALL GOES WRONG
A Court ordered sale of a ship may be ordered by way of an interlocutory order or
executory judgment. This will be as a consequence of a legal or equitable
mortgagee bringing an action in rem pursuant to section 2 of the Admiralty
Jurisdiction Act for the enforcement of the Mortgage.
A Mortgagee should strategically consider if a Forced Sale is his best option in
each particular situation bearing in mind such things as priorities, charterparties
and their value, the value of the ship and the likelihood of securing a buyer.
CONCLUSION
Ship Financing is important to the development of Nigeria's Maritime sector and
the legal issues surrounding such transactions are beyond being documented in
this mini guide. Owing to our commitment to the rapid development of this
sector, we have compiled this mini guide to serve as handy nuggets for financiers
interested in advancing or recovering ship finance loans.

4. Victor Onyegbado Esq
Partner
Enare Erim Esq
Associate
Damilola Yakubu Esq
Associate
Ngozi Medani (Miss)
Associate
Authors