Closing the Sale
By Mike Vaughn
We all seem to agree that finding an owner who will sell and a buyer who will buy are the most difficult parts of a ship transaction. However, closing up the transaction and successfully concluding the sale may also be strewn with difficulty.
The first thing to remember is that it is basically a simple transaction. The buyers pays a certain amount of money and the owner signs a bill of sale.
There are a variety of complications of this simple act.
Generally, when you develop a check list for the closing these are the things you want to be certain about:
- Is the Bill of Sale in proper form and duly notarized?
- Has the buyer completed all inspections and accepted the vessel?
- Has the buyer completed all of his financing arrangements and are funds ready to transfer?
- Has the buyer designated a person to physically accept the delivery of the vessel?
- Have sales or use taxes been examined to see if they apply and funds made available for payment, if necessary?
- Is an export permit required by the Maritime Administration, if the ship is being sold to foreign buyers?
- If the buyer is retaining U.S. registry, does he have proof of citizenship and is it recorded in the Bill of Sale?
- Are all signatures duly notarized for filing?
At the closing, it is necessary to physically deliver the Bill of Sale to the buyer and for him to acknowledge receipt. Ordinarily, we have the buyer designate one individual to physically take charge of the vessel and accept delivery of it.
The First Preferred Ship's Mortgage is then filed with the appropriate documentation office along with the Bill of Sale.
If the vessel is incorporated and the buyers is taking over the stock in the corporation, the process will some what different. In that case, the bill of sale will be for the total number of shares of stock in the corporation. The corporate minutes then must reflect that the prior officers and members of the board of directors have resigned and the new officers and board of directors have been duly elected. The buyer may save substantial expense doing the transaction in the manner thereby avoiding redocumenting the vessel under a foreign flag.
It is not unusual for a delay or two to take place. In dealing with foreign flag vessel or change of flag, we find that there will always be a new bureaucratic requirement that must be met, that will cause some delay.
- Be certain that there is a clear title on the vessel and obtain a certificate from the documentation service.
- Require written receipts from all parties for their documents.
- Provide copies of all documents and forms for each party and maintain a complete set for your records.
- Request that each party have it's own attorney review and approve the documentation.
- Be certain that an inventory of goods, equipment and parts to be transferred with the ship has been reviewed by the buyer and accepted in writing acknowledge that all equipment is on board.
THE MECHANICS OF CLOSING THE SALE
I recently had the opportunity to assist two parties in the closing of a sale of a medium size commercial ship. During the course of discussing the matter with them, it occurred to me how much is taken for granted by the buyer and seller in any transaction.
Marine transactions are very different from most sales due to the fact that the principal asset will soon disappear over the horizon and if everything is not properly resolved nothing but problems wait.
Every transaction should have a basic contract or memorandum of agreement. This is very simply a written understanding of what the parties intend to do.
It should contain at the very least the following information:
- Names of the parties
- Name and Document Number of the Ship
- The price and any good faith deposits
- Who will hold the deposits and handle the financial exchange
- The types of inspections to be done
- A time limit on completion of the inspections
- Provisions for a sea trial
- A closing date to complete the agreement
- The title documents to be furnished by the Seller
- Provision for payment of any taxes
- How and when the payment will be made
- Where the ship will be delivered or accepted.
The buyer must be assured that the title he is receiving from the seller meets the legal requirements. To do this he should have a documentation service obtain and review a transcript of title from the US Coast Guard.
This will assure him that the Bill of Sale is executed in the correct name and that all owners are signing the Bill of Sale. Also, if there are liens or mortgages on the title, he must make arrangements for them to be paid out of the purchase funds and for satisfaction of lien or mortgage documents to be filed.
BILL OF SALE
Generally, the US Coast Guard standard Bill of Sale is satisfactory to pass title if properly completed and executed. The Bill of Sale is not effective until filed with the US Coast Guard Office of Documentation. Many buyers hold the Bill of Sale assuming that they will shortly resell the vessel. This is not a good practice. The buyer’s ownership is not established until the bill of sale is registered.
ESCROW AND TRUST FUND EXCHANGE
How and when do the buyer and seller exchange money and title?
If the parties are meeting face to face and all essential elements are satisfied and there will be no purchase money mortgage against the vessel, the parties can very easily trade money for title.
However, if the parties are dealing at a distance or if there is a mortgage involved an escrow will have to be established.
The escrow will provide a written list of items to be provided by the buyer and seller. When all paper work has been provided by the seller and when the buyer has deposited all sums owed, the escrow agent or attorney then transmits the money to the seller and the paper work to the buyer.
Generally this is the easiest way to complete the transaction.
When mortgages are involved, financing institutions will require that the mortgage be files and documented before the funds are disbursed. This is to assure them that they have the First Preferred Ship’s Mortgage on file.
FORMS AND DOCUMENTS
Most of the forms need can be found at the USCG web site or may be ordered by fax from the USCG Office of Documentation. We maintain some of the forms at the end of our web site.
The more complicated transactions may require the assistance of a knowledgeable attorney and the services of a documentation service.
Remember to keep your paper work in order and make certain that all parties fully understand all aspects of the transaction.