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Recent developments in yacht sale and purchase, ownership and financing

Hill Dickinson LLP US MLA Fall Meeting 18 October 2018 Panos Pourgourides Partner Hill Dickinson LLP. Recent developments in yacht sale and purchase, ownership and financing. Summary. Sale and Purchase Comparison between IYBA and MYBA forms What goes wrong?

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Recent developments in yacht sale and purchase, ownership and financing

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  1. Hill Dickinson LLP US MLA Fall Meeting18 October 2018Panos PourgouridesPartner Hill Dickinson LLP

  2. Recent developments in yacht sale and purchase, ownership and financing

  3. Summary • Sale and Purchase • Comparison between IYBA and MYBA forms • What goes wrong? • Deferred consideration and part-exchange • Commission, escrow, know-your-client • Ownership Issues • Finance • Comparison between US and European lending model • Demise of the European tax-driven leasing structure • Construction Finance • Bank work outs and enforcement

  4. IYBA v MYBA • IYBA – Seller bound on signing, Buyer, option only, to accept following survey • MYBA – Seller bound on signing, Buyer bound but free to withdraw after seatrial, with conditional right to withdraw after survey • Place of delivery • Confidentiality • Change of Name • Inventory • Notices

  5. What goes wrong? • Service of invalid notices • Buyer missing time limits • Definition of “defect” • Inventory • Insurance – timing, protocol • Breakdown – caveat emptor • Liability claims against seller/ yacht

  6. Deferred Consideration, Part Exchange • Option 1 – sell now, mortgage back to seller as security for balance of price • Option 2 – charter now, with option to purchase, mortgage in favour of buyer for his deposit or part-payment • Self help remedy when supply of outside finance is limited, but pros and cons to the different approaches • Part Exchange – Again associated with sluggish market, but different for dealers and private buyers and sellers

  7. Commission, Escrow • Complexities of when commission deemed earned, CA, joint listings • Escrow often now a challenge for European brokers and lawyers • Increased KYC requirements, source of funds, sanctions

  8. Ownership Issues • Choice of flag – Paris MOU, REG, MI and others • Choice of shipyard – Construction standards, support during warranty, pedigree and depreciation profiles • Insurance – Hull (and increased value), war risks, P&I, crew and MII • Tax – VAT, commercial vs pleasure operation, leases, temporary admission • Valuations and condition surveys

  9. Finance • US Model – Asset backed, standalone, lead on credit • European Model – Private banking, expectation of assets under management and additional collateral • Debt v lease • Demise of European tax-driven leasing structures – Malta and Cyprus • Alternatives?

  10. Construction finance issues

  11. Pre-delivery finance – is the contract bankable? • Contracts via intermediary sellers rather than builders direct • Strength/reputation of builder and any refund guarantor   • Assignment, governing law and jurisdiction   • Instalments – profile and milestones? • Termination provisions • Builder's insurance

  12. Security – Refund Guarantees Arguably best form of security, but: • Cost • ‘On demand’ or by reference to final award/ judgement? • Triggers? • Validity periods • Issuing bank credit rating, central bank approvals

  13. Security – Transfer of title • Often used in conjunction with refund guarantees once hull is watertight • Buyer can usually also register mortgage once title is transferred – but note builder’s lien • Registration of title (and mortgage) can usually be done locally or with intended flag on delivery • No inherent cost

  14. Security – transfer of title But, the buyer’s security isthe boat – with all attendant risk – so: • Is the transfer actually effective and properly recorded? • Builder’s lien, other suppliers’ retention of title clauses • Local receivers and administrators • Do instalments match work-in-progress throughout the build? • Additional cost of removal and completion elsewhere? • Is builder’s insurance adequate?

  15. Workouts and enforcement Typical order of priorities on enforcement: • Admiralty marshall costs • Maritime lien claims (except where the lien attached after a possessory lien arose in which case the possessory lien ranks first) • Possessory lien claims • Mortgages • Statutory liens • Balance of the fund to the owner or his trustee in bankruptcy or any judgment creditor who has obtained a charging order

  16. Hill Dickinson – What do the legal directories say about us? Chambers and Partners HNW Guide 2017: • ‘The best maritime law team in the superyachtbusiness’ • ‘Absolutely first-class, astute and experienced…’ • ‘Market leaders with a reputation that precedes them’ • ‘Highly specialised…at the top of their game…know what they are talking about 100%’ Legal 500 2017: • ‘At Hill Dickinson LLP, Panos Pourgourides has an ‘excellent reputation’ for advising ultra-high-net-worth individuals and lenders, including BNP Paribas and JP Morgan, on superyacht and corporate jet financings.’

  17. Panos Pourgourides, Partner, The Yacht Team Hill Dickinson

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