New vessel arrest rules bring risks for financial leasing companies

In recent years, the financial leasing of vessels has been increasing, but the business is generally deemed to be highly specialized and relatively risky. Particularly in a shipping market that continues to lie in the doldrums, shipping companies are tied up in debt, meaning that financial leasing companies face difficulties in recovering rent, and even instances where chartered vessels are arrested by the courts or auctioned off, making recovery impossible.

The vessel arrest system is a unique one under maritime law and a particular risk faced in the vessel financial leasing industry. The Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Law in the Arrest and Auctioning of Vessels implemented on 1 March 2015 add a few new provisions beyond the Special Maritime Procedure Law.

So, what effect do the new provisions of the vessel arrest provisions have on the management of risks by financial leasing companies? And how should financial leasing companies respond to such risks? Following are some proposals on how to address these issues.