Using offshore maritime structures can offer a number of benefits to clients, including tax efficiency, asset protection, and flexibility.
In this article, Lisa Grant – Client Director in Jersey, discusses the benefits of holding vessels through offshore maritime structures in more detail, providing information on how to structure your marine financing securely and efficiently.
What are the benefits of holding vessels through offshore maritime structures?
1. Mitigating risk
- Offshore structures ringfence both costs and risks
- In the event of a catastrophic environmental issue, litigation or claim in relation to the vessel, legal ownership stands alone and in view of the structure, removing the client from the front line
- Offshore structures provide protection to the executives and the offshore owning entities within the structure
2. Off balance sheet
- Should regulations such as M&As not allow a client to hold vessels directly, using an offshore arrangement could enable the vessel to be held off balance sheet in some circumstances, through a stand-alone structure
3. Confidentiality & commercial separation
- Clients may want to separate different areas of their business, which can be done effectively and with confidence
- Various structures are available that offer a high degree of confidentiality for peace of mind
- It is possible to limit the information the structure is obliged to provide about itself, to any person other than as specifically required by the relevant, or as set out in its own regulations.
- This applies to distressed vessels. If an owner defaults on a loan(s) and the vessel arrested – then the vessel can be acquired at judicial auction, or by private treaty and can be warehoused for the lender/bank.
- This can be done in a quick and efficient manner and if appropriate, the vessel can continue to be operated until such time as it is considered suitable to sell it, whilst considering market conditions at that time.
5. Independent structuring
- Providing an independent structure (special purpose vehicle) for an investment in shipping. This is particularly suitable for a joint venture or syndicated loan arrangement, or through a managed fund with different asset classes.
Where shipping interests have historically been held directly by families, transferring ownership into an offshore tax neutral structure such as the type Ocorian administers, can provide significant benefits for succession and inheritance planning purposes.
- Protection of rights – The rights of the bank/loan provider are protected through various structures, such as the type we administer, the most used is a purpose trust, which ensures that under the supervision of the enforcer, the obligations of the vessel owning company are fulfilled. In a structure initiated by a bank/loan provider, the bank/loan provider can receive any surplus by way of the participation in the loan arrangement, once the liabilities of the vessel owning company have been discharged.
- Use of purpose trusts – The purpose trust provides a long-term flexible vehicle through which to own the vessel holding company, often with a holding company (SPV), between the two. If required, due to the flexibility of the purpose trust, beneficiaries may also be appointed to the trust at a later date, prior to the termination of the structure. This is an alternative way of facilitating the extraction of surplus funds, depending on tax considerations.
7. Location, location, location
- Jersey – one of the world’s major international finance centre, it’s in GMT time zone and English speaking, and offers a robust and stable environment tailor made for the finance industry, it is a stable, internationally recognised tax neutral jurisdiction with a legal environment attractive to lenders, making loan agreements easy to enforce.
- Bermuda – Asset managers choose Bermuda as a domicile for maritime finance vehicles because the jurisdiction offers speed to market, set up and ongoing cost efficiency, low friction administration, and wide availability of maritime expertise.
- Cayman – Uniquely placed for strategic success in international shipping. Companies and structures incorporated in the Cayman Islands are amongst the most popular in the world due to the political and economic stability, the use of the English language and US Dollar currency and their maritime knowledge and heritage.
- Singapore – Whilst not offshore, Singapore is a Global Business Centre with more than 130,000 vessels calling at the port of Singapore annually, serving as a crucial maritime gateway to Asia. Singapore boasts a sophisticated maritime legal framework, is backed by good infrastructure and governmental support and is home to more than 150 of the world's top international shipping groups.
How do you structure your marine financing securely & efficiently?
When buying or leasing a movable asset such as a ship, arrangers and investors need to establish one or several companies through which to structure the financing. Consider appointing a third party to act as an independent administrator of those companies, to take care of the funds flow and the operational activities of the deal. The support of an experienced, knowledgeable corporate trust and agency service provider is key.
How can Ocorian help?
We have significant and specialised maritime expertise in the corporate management of bespoke commercial shipping structures. We currently administer structures owning many types of commercial vessels and work closely with commercial and technical managers, who undertake the day-to-day operational management of the vessels under the company’s administration.
Our corporate administration of these structures is primarily undertaken in Jersey, but we also have offices in London, Bermuda, Cayman Islands and Singapore providing services where required.
Contact us to discuss how we can support your maritime structure and financing needs.