Malta’s Merchant Shipping Act has long formed the backbone of the country’s maritime legal framework, regulating matters such as vessel registration, mortgages, safety obligations, seafarer protections and shipowner responsibilities. Through Act I of 2025, Malta has introduced another important development: the Finance Charter Instrument, or FCI.
The FCI creates a statutory security right in favour of finance lessors, giving them a clearer and more enforceable position in ship financing arrangements involving Malta-registered vessels.
A finance charter is generally a leasing or chartering structure used to finance the construction, purchase, operation or management of a vessel. It is often arranged as a bareboat or demise charter, where the charterer takes over possession, control and operation of the ship, while legal ownership remains with the financier or lessor.
This model allows the financier to retain title as security for its investment, while the charterer benefits from operational control and, in many cases, a route to eventual ownership once the agreed financial obligations have been satisfied.
Article 49B of the Merchant Shipping Act sets out the process for registering an FCI. The instrument is executed by the finance charterer in favour of the lessor, who is also the registered owner of the vessel, and must be witnessed.
Once registered in the public ship register, the FCI gives formal notice of the lessor’s rights. It creates a charge over the vessel and gives those rights legal recognition and protection within the financing arrangement.
The FCI may secure a broad range of obligations arising under the finance charter. These include payment of hire, principal amounts, interest and other obligations owed by the finance charterer to the lessor. This gives lessors a statutory layer of protection in addition to the contractual rights already contained in finance leasing or chartering documents.
A vessel may be subject to both a registered mortgage and an FCI. However, if a mortgage is already registered, the mortgagee’s prior written consent is required before the FCI can be registered. The amendments also make clear that the FCI does not disturb the rights of mortgagees. A registered mortgage will continue to rank ahead of the FCI.
An FCI gives the lessor a privileged position as a secured claimant over the vessel. This is a consequence of the proprietary nature of a finance charter instrument as a charge over the vessel. Accordingly, it is enforceable against the vessel in the same manner as any other privileged claim recognised under Article 50 of the Merchant Shipping Act, including a registered mortgage.
The FCI ranks behind registered mortgages and certain privileged maritime claims, such as crew wages, port dues, salvage claims and claims relating to loss of life or personal injury. It will nevertheless rank ahead of ordinary secured and unsecured claims.
If the vessel is sold by court order or with court approval, the lessor’s rights under the FCI attach to the proceeds of sale, preserving the lessor’s position as a secured maritime creditor.
One of the most important features of the FCI is the statutory right of repossession. If the finance charterer defaults, the lessor may retake possession of the vessel after giving the required written notice.
The procedure mirrors the enforcement framework applicable to ship mortgages. Notice may be served on the master of the vessel, the local agent, or court-appointed curators representing the finance charterer. This statutory remedy reinforces the repossession rights usually included in finance charter agreements.
In the event of a transfer of the vessel, the finance charter instrument must either be released or transferred to the incoming owner together with the vessel. This is a procedural consequence of the change in ownership and may arise independently of any default by the finance charterer.
The FCI also offers protection if the finance charterer becomes bankrupt after the instrument has been registered. In such circumstances, the lessor’s rights are not defeated by the insolvency, even if the charterer had possession or control of the vessel at the time.
The lessor will enjoy priority over the claims of other creditors, trustees, curators or receivers, subject only to claims that rank higher under the Merchant Shipping Act.
Malta is uniquely positioned to support the development of novel maritime security arrangements. Its courts possess considerable expertise in the enforcement of maritime claims and security rights, providing a solid foundation for the recognition of new security structures. Supported by a mature legal framework and specialist judicial experience, instruments such as the finance charter instrument can be afforded effective protection and enforcement, thereby enhancing Malta’s standing within the international maritime sector.
The introduction of the FCI is a significant step in the development of Malta’s maritime finance regime. It gives finance lessors a registrable and enforceable security right, while preserving the established priority of mortgages and privileged maritime claims.
By aligning its legal framework with the practical needs of modern ship finance, Malta has further strengthened its position as a flexible, creditor-friendly and commercially attractive maritime jurisdiction.
Discover how we can support your business by visiting our website and reaching out directly to Nick Warren or at info@dcts-malta.com.