Superyacht lawyer Mark Needham offers advice to yacht managers when they are asked to sign a manager’s undertaking and subordination agreement.
IT WAS ALEXANDER POPE, ONE OF THE greatest English poets of the eighteenth century, who said “Fools rush in where angels fear to tread.”
In the context of yacht related financial transactions, it is a phrase that is well worth bearing in mind if you are the manager of a yacht, and a bank asks you to surrender some of the legal rights you have in connection with the yacht. It is likely that the yacht’s owner will put pressure on you to sign whatever documents the bank puts in front of you, but a prudent manager should proceed with caution and check up on just exactly how the bank’s requirements might impact on your business. There is almost always scope for negotiation, and plotting the right course through this complex exercise can reduce the risk to you, whilst not holding up your owner’s finance arrangements. A win-win.
To set the scene: when a yacht owner has decided to take finance against his yacht, it is almost inevitable that the finance house / bank will, quite reasonably, require a security package to be put in place securing their interest in the underlying asset until such time as the loan has been repaid. Often, this security package consists of
(1) A legal mortgage over the yacht;
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