Just over a year has passed since the coming into force of the most recent amendments to Malta’s Merchant Shipping Act. Pursuant to Act I of 2025 significant reforms were introduced to further reinforce Malta’s maritime offering as Europe’s foremost flag and directly respond to evolving ship finance practices. The anniversary of these legislative developments provides an apt opportunity to reflect on the successes of the Act.

Some of the most notable developments relate to the security framework under Maltese law, namely (i) the formalisation of mortgages over ships under construction, (ii) the rendering of corrections to errors on registered mortgages permissible within a given period and (iii) the introduction of a registerable finance charter instrument (FCI). Collectively, such developments have eased certain formalities and addressed shifting market realities and have acted as complementary elements to a broader legislative effort aimed at modernising Malta’s maritime law and addressing practical realities that impact ship financing.

Under Maltese law, a ship constitutes a distinct form of movable property capable of serving as security for obligations, most commonly through a registered mortgage. A mortgage attaches not only to the vessel itself but also to its equipment, machinery, and appurtenances, and becomes effective against third parties upon registration.

The Maltese legal framework is widely regarded as creditor-friendly, with mortgages uniquely designated as executive titles and therefore are enforceable without the need for lengthy court proceedings. Ranking according to the date and time of registration, the mortgage also extends to proceeds, such as insurance claims.

Against this backdrop, the 2025 amendments build on an already robust framework by addressing gaps that may have existed in more complex or modern financing scenarios.

A key innovation has been the clearer recognition of a “ship under construction” as a registrable asset. While the concept existed previously, the amendments provide greater operational clarity, particularly by linking eligibility for registration to the stage at which the vessel becomes identifiable (typically upon keel laying).

The amendments expressly regulate the registration of mortgages over ships under construction, confirming that the general mortgage principles apply equally at this stage. Crucially, the mortgage is no longer limited to the vessel’s condition or equipping at the time of registration. Instead, it automatically extends to future stages of construction, attaching to the evolving asset as it is built.

This addresses a fundamental financing challenge, namely that during construction, title often remains with the builder, making it difficult for financiers to obtain effective security. The revised framework seeks to address this issue by permitting the registration of mortgages once title has been appropriately vested, whether in the builder or in the buyer, thereby facilitating financing arrangements even prior to delivery.

Furthermore, where ownership of a ship under construction is vested in more than one person, the declaration of ownership must be executed jointly by all owners. In such cases, the owners may elect to specify their respective shareholdings in the ship under construction. Should those proportions subsequently change, the owners may jointly file a further declaration reflecting their revised respective interests

By enabling security from the construction phase, Malta has brought its legal framework closer to the realities of shipbuilding finance, where large capital outlays often occur long before a vessel becomes operational. The reform enhances certainty for lenders and reduces structural risks associated with pre-delivery financing.

Within the broader policy trend of making the mortgage regime more efficient, creditor-friendly, and commercially reliable, Maltese law introduced the possibility of affecting amendments to errors on the mortgage document pursuant to which a party to a registered mortgage may, with the consent of the other party or parties, correct any error within seven days of mortgage registration.

Historically, errors in registered instruments (such as errors to names, amounts, vessel details, cross-references etc.) could create uncertainty, delays, or even challenges to validity or enforceability. Without a correction mechanism, fixing an error necessitate the cancelling and re-registering the mortgage which could lead to a loss of priority ranking against intervening creditors or the requirement to register an amendment mortgage.

This small procedural change therefore allows quick post-registration correction, preventing minor clerical or drafting errors from escalating into legal defects that derail enforceability. The additional flexibility and practicality in correcting mistakes post registration provides an additional safeguard and ensures that a registered mortgage remains a real right that is certain, liquidated and due and fully enforceable against the debtor and third parties.

While traditional mortgages remain central, modern ship finance increasingly relies on leasing and sale-and-leaseback structures. In such arrangements, ownership is often retained by a finance lessor, while possession and operation are transferred to a charterer.

Prior to the 2025 amendments, Maltese law did not fully accommodate the need to secure the lessor’s interest in these structures, with the result that alternative security options were made available that did not attach directly to the vessel. The introduction of provisions allowing for the registration of a finance charter instrument has effectively addressed this gap and diversified the security options available to creditors.

The introduction of the FCI is one of the more significant legislative measures to modernise Maltese law in line with international market trends and allows the lessor’s rights under a lease or charter arrangement (typically a bareboat or demise charter) to be registered as a charge over the vessel, thereby creating a security interest that is enforceable against third parties.

This mechanism effectively mirrors, to a degree, some of the protection traditionally afforded by mortgages, while being tailored to leasing structures such as the self help remedy to take repossession upon given notice to the charterer of default. It also strengthens the position of the finance lessor in several ways:

• It creates a registrable and enforceable charge attaching directly to the vessel;
• It ensures added protection in insolvency scenarios involving the charterer; and
• It operates alongside, rather than in substitution of, traditional securities such as mortgages, guarantees, and assignments.

Unlike similar security options in other jurisdictions, the FCI does not displace the primacy of mortgages; rather, it supplements the existing hierarchy of security interests, ensuring that mortgagees’ rights may co-exist and remain protected following the registration of charter interests. This allows the possibility of an FCI and a mortgage to be co-concurrently registered over a Malta flagged vessel.

Notably, Malta is the first jurisdiction in Europe to introduce such an instrument, reinforcing its status as Europe’s leading flag and an innovative and financier-friendly flag state. As such, the FCI reflects a legislative willingness to adapt to market practices rather than constrain them within traditional legal categories.

When viewed together, the reforms reveal a coherent legislative strategy that expands the availability and flexibility of asset-based security tied directly to the vessel and this regardless of its stage of completion or the contractual model used.

These legislative amendments uphold the underlying principles that registration of security is the basis of enforceability which attaches to the vessel and all its appurtenances. In this sense, the amendments do not create isolated tools but rather integrate new instruments into an already sophisticated and creditor-oriented system.

The 2025 amendments to Malta’s Merchant Shipping Act represent a natural evolution in maritime ship finance law. By formalising mortgages over ships under construction and introducing the finance charter instrument, Malta has addressed key gaps in both traditional and modern financing models.

The result is a comprehensive, flexible, and commercially aligned framework that facilitates financing across the entire lifecycle of a vessel: from construction to operation, and across ownership and leasing structures.

In an industry where legal certainty and enforceable security are increasingly paramount these legal developments reinforce Malta’s attractiveness as a jurisdiction of choice for shipowners, builders, and financiers.