TNAG-2308-FCO40-3345-Future-of-Hong-Kong-shipping-register-1991 — Page 231

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Under the present system in Hong Kong, a mortgagee who agrees to a restructuring has a number of options

to leave the existing mortgage as it is: the mortgage, if in account current form, will usually be expressed to secure the account current as regulated by the underlying credit agreement "as amended from time to time". but we are doubtful if this alone is effective to render the mortgage effective security for the credit agreement if it is indeed amended;

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to discharge the existing mortgage and to take a new mortgage for the amended obligations: this may result in the mortgage being postponed to third party rights which have arisen between the dates of the old and new mortgages; there is also always the risk of the new mortgage being struck down as a fraudulent preference if the mortgagor goes into liquidation within 6 months of the new mortgage;

to leave the existing mortgage as it is but to take a new mortgage for the amended obligations: this enables the mortgagee to "hedge its bets", but it is still impossible to assure a mortgagee that there is no possibility of its position being prejudiced ty agreeing to the restructuring.

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In such cases, it would be of great assistance if existing mortgage security could be amended to cover the obligations as restructured whilst preserving the mortgages priority as against other lenders as well as the mortgages validity as against a liquidator of the mortgagor. flags permit the registration of mortgage amendments, and this may make such an alternative flag more attractive where restructurings may be a possibility.

(5) Mortgagees without Common Seal

Many other

The present forms of mortgage envisage that they will be discharged by the mortgagee under its common seal. However, we feel that this does not take sufficient account of the fact that many lenders are financial institutions incorporated in jurisdictions where the concept of a common seal is not known, and such financial institutions will usually only be able to sign under the hand of an authorised officer.

It would be useful if the new legislation could make clear that such a discharge is sufficient. Since it is not necessary as a matter of law for a memorandum of satisfaction on a mortgage deed itself to be under seal, perhaps the requirement of a seal to discharge a ship mortgage could be dispensed with altogether.

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