Ownership of a vessel is not always the prerogative of a single person or entity. Whether by inheritance, joint purchase or operating arrangement, several people may find themselves co-owners of the same vessel. If this situation is not properly managed, it can lead to deadlock, particularly when one or more of the owners wishes to withdraw. In such cases, a sale by auction is one of the legal means of breaking the deadlock. This technical procedure involves auctioning the vessel so that its value can be shared between the various rightful owners. In these complex situations, where the financial and legal stakes are high, the assistance of a expert ship seizure lawyer and sales procedures is decisive in protecting the interests of each party.
What is a sale by auction of ships?
The sale by auction is a legal mechanism for ending collective ownership of property that cannot be divided in kind. By definition, a vessel is indivisible. It cannot be divided into several lots. Auctioning therefore involves selling the vessel en bloc, generally at public auction, and dividing the sale price between the joint owners.
Definition and distinctions (vs. forced sale)
It is important not to confuse an auction with a conventional forced sale. A sale by auction originates in the desire to end co-ownership. It is initiated by one of the co-owners (or his creditor) who no longer wishes to remain in this situation. The primary objective is to transform the property into cash so that it can be divided. It is a procedure that organises the exit from a situation of shared ownership. To put it another way, the reason for the sale is the end of joint ownership.
In contrast, a forced sale is the result of an enforcement measure. It is the result of seizure and execution of shipsIn this case, the sale is not linked to the ownership structure of the vessel, but to the existence of a claim. In this case, the sale is not linked to the ownership structure of the vessel, but to the existence of a debt. Although the purpose, a sale by public auction, may appear identical, the basis of the action is radically different. The auction is therefore part of the broader framework of boat, ship and aircraft auctions but with a legal cause of its own.
The specific legal framework (Law no. 67-5 of 3 January 1967, Decree no. 67-967 of 27 October 1967)
French maritime law provides a precise framework for the status of ships and the operations that affect them. The founding legislation is that of 3 January 1967, supplemented by its implementing decree of 27 October 1967. These texts set out the rules governing the ownership, mortgaging and sale of ships. For the auction, they set out an essential principle: the applicable procedure is that of seizure for execution. In other words, even if the reason for the sale is different, the procedural stages (competent court, drawing up of specifications, advertising, auction procedure) are modelled on those of a compulsory sale. This reference ensures legal certainty and a tried and tested procedure for all parties involved.
Sale by auction in the event of joint ownership of the vessel
Joint ownership is the simplest form of co-ownership. It often arises through no choice of the owner, for example as a result of inheritance, or when several owners buy together without a corporate structure. Each owner, known as an "undivided co-owner", holds an abstract share of the vessel (for example, one third, one quarter, etc.).
Conditions for implementation by an undivided co-owner or a creditor
The Civil Code lays down a fundamental principle governing joint ownership: "No one may be forced to remain in joint ownership".. On this basis, any undivided co-owner may, at any time, request partition and therefore, in the case of a vessel, bring about its sale by auction. They do not have to justify their decision; their mere desire to leave the joint ownership is sufficient. This option is an absolute right.
In addition, the personal creditors of an undivided co-owner can also initiate a sale by auction. If they are unable to seize their debtor's undivided share (an abstract share with no market value), the law gives them the right to bring about partition in the name of their debtor so that the vessel can be sold. They can then claim payment from the undivided shareholder's share of the sale price.
Procedure and applicable rules (analogy with seizure and execution of ships)
As stipulated in article 10 of the law of 3 January 1967, the sale by auction of an undivided vessel follows the rules for seizure and execution. The procedure is therefore judicial and formalised. It begins with a summons to appear before the court. A schedule of conditions is then drawn up, containing all the information about the vessel, the conditions of sale and the upset price. Advertising is compulsory to inform potential buyers and ensure the highest possible bid. Finally, the sale takes place at the bar of the court, and the vessel is awarded to the highest bidder. The nature of the shares of ownership and the question of whether the property is part of the seizable or unseizable vessels are points that are analysed upstream of the procedure.
The special rules governing the sale by auction of ships operated on a partnership basis
When the operation of a ship becomes a structured economic activity, simple joint ownership shows its limits. Maritime law has therefore developed a specific and much more organised form of co-ownership: joint tenancy.
Specific features of co-ownership and its importance
Under this system, ownership of the vessel is divided into shares, known as "quirats". Each tenant owns a certain number of these shares, which are freely transferable. Unlike joint ownership, joint tenant ownership is organised around a manager, who represents the joint owners and is responsible for the day-to-day management of the vessel. Major decisions are taken at a general meeting. This system is designed for the commercial operation of vessels, providing a stable framework for investors.
Voluntary auction: decision by the majority of the joint tenants
The co-ownership regime provides a more flexible exit route than joint ownership. The sale of the vessel can be decided without going before a judge, by a simple decision of the joint owners' meeting. The law requires a double majority: the decision must be taken by a number of co-owners representing more than half the quirates, i.e. more than half the value of the vessel. If this majority is reached, the minority co-owners cannot oppose the sale. The auction is then "voluntary" and takes place amicably, often via a shipbroker, without the apparatus of a judicial sale.
Sale by court order: punishment for serious malfunctioning
What happens if the majority required for a voluntary sale is not reached, but the situation is blocked? One or more joint tenants, even if they are in the minority, can then apply to the court for a compulsory sale of the vessel. However, unlike undivided co-owners, minority joint tenants do not have an absolute right to the sale. They must prove the existence of "just cause".
Case law recognises as just cause situations of serious malfunction that paralyse the operation of the vessel. Examples include
- A deep and lasting disagreement between the co-owners that prevents them from making decisions.
- The majority's refusal to undertake repairs essential to the vessel's seaworthiness.
- Prolonged immobilisation of the building, causing it to lose value and generating costs.
The judge will examine whether the continuation of the co-ownership has become detrimental to the common interest. If so, he will order the sale by auction, which will then once again follow the rules of the seizure and sale procedure.
Consequences for co-owners and creditors
The outcome of the auction, whether voluntary or legal, is the sale of the vessel. The price obtained is then distributed. The order of distribution is strict. First, the joint-ownership creditors (those whose claims have arisen for operating purposes, such as fuel suppliers or repair yards) are paid. The balance is then divided between the joint tenants in proportion to the number of shares they hold. The personal creditors of each tenant will then be able to claim the amount due to their debtor.
Navigating the intricacies of the auction process, whether as a result of joint ownership or joint tenancy, requires an in-depth knowledge of maritime law and enforcement procedures. Procedural choices, the justification of a legal claim or the negotiation of an amicable exit have direct and important consequences. To secure your rights and successfully complete a sale by auction procedure, you need the support of a lawyer specialised in maritime law is essential. Our firm can help you defend your interests. Contact our team for an analysis of your situation.
Sources
- Law no. 67-5 of 3 January 1967 on the status of ships and other seagoing vessels
- Decree no. 67-967 of 27 October 1967 on the status of ships and other sea-going vessels
- Transport Code
- Code of Civil Enforcement Procedure
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