It has not been unknown in recent years for some of the largest and well known Charterers to fail with little, if any, warning.  When this happens, Owners who are owed money by their Charterers, for example for unpaid hire, may find themselves with limited options for the recovery of their losses.  Where the Charterers are insolvent or have no assets, it is likely that recovery will be remote.The following steps should be taken into consideration to ensure that the Charterers pay their hire and Owners are protected as much as possible:

I. Due diligence

Due diligence measures must involve more than just determining the Charterer’s identity, it will also be necessary to ascertain and to collect more detailed information on the Charterers, their business and risk profile.For instance, the below steps can be taken:

  • Enquire about the structure of Charterer’s company/ies;
  • Ask about the identity of the directors/shareholders/ultimate beneficial owners owning more the 10% of shares (this will also assist with your sanctions’ and AML checks);
  • Allocation of responsibilities among specific persons and functions within the company;
  • Find out/enquire which other countries/regions the charterers trade to;
  • Try to obtain a guarantee from the parent company (if any).  If there is money owed, Owners would then be able to go after the parent company, usually a more substantial entity.

II. Reputation

  • Always found out about the reputation of your potential charterer.
  •  Always check BIMCO, INTERTANKO, INTERCARGO and similar organisations;
  • Always check with brokers, P&I Clubs and P&I correspondents;
  • Always conduct a search on the internet for any information on the charterers.

III. Ensure that Owners  are protected by the terms of the charterparty

The general rule is that the Charterer must pay the full amount of each hire instalment. The exceptions to this rule which allow the Charterer to deduct from hire are as follows:
  • Where the Charterer has an express right of deduction under the terms of the charterparty;
  • Where the Charterer is entitled to an adjustment of hire following a period of off-hire;
  • Where the Charterer has claims for damages which it is permitted to set-off against hire.
The market is challenging and timely hire payments are necessary for the smooth running of the vessel.  There are, however, remedies that Owners may wish to consider when it becomes clear that Charterers are suffering from financial difficulties and/or they are unlikely to pay hire or other amounts due in accordance with the charterparty, as well as ensuring that certain clauses are inserted into the charterparty to protect them:
  • Owners should ensure that they incorporate the right to lien cargo carried on board in case of non-payment of hire/freight as well where applicable a lien for demurrage;
  • Liening sub-freights owed to Charterers is another possible remedy which, if incorporated into the charterparty, permits Owners to serve notice on sub-charterers ensuring that any outstanding freight owed under the sub-charter must be paid directly to them.  (In voyage charters, Owners should additionally always incorporate a clause to lien for demurrage).
  • Another option may include freezing Charterers’ bank account (depending on the jurisdiction the account is located in) and this will act as an effective way of obtaining payment provided the account is in receipt of funds;
  • Owners can try to arrest other assets, such as Charterers’ bunkers on other vessels.  Whether this is possible will largely depend upon the law and jurisdiction of where the Charterers’ assets are located.  Specific jurisdictional advice is recommended before taking any steps to arrest Charterers’ assets.

We would be pleased to review your charterparties before fixing in order to ensure that you are fully protected.

Furthermore, we can conduct detailed searches on your potential chartering partners in order for you to make an informed decision before fixing.