As part of their international financing structures, Lisa Grant, Director, explains why entities such as banks and asset managers, commercial ship owners, fund managers, commercial ship managers and joint ventures, often choose to use offshore arrangements for administering and holding their maritime investments.
There are a number of benefits of holding vessels through offshore structures. These include:
- Mitigating risk - By using offshore structures, both costs and risks are ring-fenced. In the event of any litigation or claim in relation to the vessel, legal ownership stands alone and in view of the structure, removing the client from the front line. In addition to protecting the client, offshore structures also provide protection to the executives and the offshore owning entities within the structure.
- Off balance sheet - Should regulations such as M&As not allow the client to hold vessels directly, in certain circumstances using an offshore arrangement can enable the vessel to be held off balance sheet, through a stand-alone structure.
- Confidentiality and commercial separation - If clients want to separate different areas of their business, this can be done in confidence. This type of structure offers a high degree of confidentiality. It is possible to limit the information the structure is obliged to provide about itself, to any person other than as specifically required by the relevant law relating to the purpose trust, or as set out in its own regulations.
- Warehousing - In the case of distressed vessels - where owners have defaulted on loans and the vessel arrested - the vessel can be acquired at judicial auction, or by private treaty and can be warehoused for the lender/bank. This can be done in a quick and efficient manner and if appropriate, the vessel can be operated until such time as it is considered suitable to sell it, taking into account market conditions.
- Independent structuring - Provide an independent structure for an investment in shipping. This is particularly suitable for a joint venture or syndicated loan arrangement, or through a managed fund with different asset classes.
- Jurisdiction - Jersey is a stable, internationally recognised tax neutral jurisdiction with a legal environment attractive to lenders. This means loan agreements are easier to enforce, making Jersey an ideal jurisdiction from which to administer such structures. Asset managers also choose Bermuda as a domicile for maritime finance vehicles. Its speed to market, quick establishment times, ongoing cost efficiency, low friction administration, and depth of available maritime expertise are key pull factors.
- Succession/Inheritance - Where shipping interests have historically been held directly by families, transferring ownership into an offshore tax neutral structure such as the type we administer, can provide significant benefits for succession and inheritance planning purposes.
Structure your financing securely and efficiently
When buying or leasing a movable asset such as a ship, arrangers and investors need to establish one or several companies through which to structure the financing. It pays to have a third party to act as an independent administrator of those companies, the funds flow and the operational activities of the deal. The support of an experienced corporate trust and agency service provider is key.
We have significant expertise in the corporate management of bespoke commercial shipping structures. We currently administer structures owning many types of commercial vessels and work closely with commercial and technical managers, who undertake the day-to-day operational management of the vessels under the company's administration.
The corporate administration of these structures is primarily undertaken out of Jersey, with some of our other offices, such as London, Bermuda, Cayman Islands and Singapore, providing enhancements to this service where required. These enhancements include the provision of directors, loan administration, escrow agency, security trustees and replacement trustee, accounting and agency services on distressed structures.
We also administer vessels flagged in many of the main shipping jurisdictions such as the Marshall Islands, Malaysia, Panama, Liberia and the Bahamas and we have close relationships with the registered agents in these jurisdictions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.