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Banks and Lenders in the Maritime Business

The shipping sector is growing by leaps and bounds. This strong growth has been fueled, in large part, by the explosion of international trade. Countries continually seek to expand trade through bilateral and multilateral agreements; private citizens are constantly buying and selling things on the internet. In fact, there are millions of people who make a living by working from home and selling products online.

At the same time, shipping companies are expanding their businesses to keep up with the demand. Like any other business, shipping companies will turn to banks and other lenders to provide them with cash to help them expand. Shipping companies will borrow money to purchase new boats, equipment, conduct research, and more. As a result, banks and other lenders need to be advised of potential liabilities when lending money to shipping companies.

Pollution and Hazardous Substances

In general, banks that finance shipping companies are shielded from fines related to pollution and hazardous substances. Over the past several years, there has been an array of fines and penalties for those maritime vessels that pollute U.S. waters. When this occurs, the bank or lender that finances the shipping company is not responsible under the federal Oil Pollution Act of 1990, also known as OPA 90. When a vessel pollutes water or other maritime areas, OPA 90 shields those not involved in the management of the vessel.

Often, large shipping companies will have subsidiaries that finance ships, including those of the parent company. In that instance, it is crucial that any negotiations or other discussions between the financing affiliate and parent company be at arm’s length to avoid losing the OPA 90 shield.

Similar to OPA 90, the Comprehensive Environmental Response Compensation and Liability Act, or CERCLA, regulates discharges of hazardous waste. CERCLA, like OPA 90, shields those not involved in management of the ship from fines and penalties related to hazardous waste. Similarly, like OPA 90, any affiliate transactions should be at arm’s length to avoid potential fines and penalties due to CERCLA violations.

Bank that Owns a Ship

If a bank owns a ship, then OPA 90 and CERCLA do not shield a bank. In addition, a banker should also consider whether the bank qualifies under the citizenship requirements. The United States, for example, strictly regulates the citizenship of vessel owners. Those requirements are overseen by the U.S. Coast Guard, who maintains a registry of vessels entitled to fly the U.S. flag, also referred to as U.S.-flag vessels. Any company that owns a U.S. vessel must be organized in the United States and meet certain management citizenship tests. For example, a corporation must have a U.S. citizen chief executive officer and chairman of the board of directors and no more than a minority of the number of directors necessary to constitute a quorum can be non-citizens. In addition, for a U.S.-flag vessel to be able to participate in the U.S. coastwise trade, corporation must be beneficially owned at least 75% by U.S. citizens.

If you are in the maritime business, partner with the Kolodny law firm, experienced maritime lawyers.

(image courtesy of Ryan Wilson)

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