The Legal Status Of The Ships Under Construction When The Shipbuilding Company Becoming Insolvent

Different nature of shipbuilding contract will result in different ownership, and different ownership will lead to the distribution of rights to different parts. Therefore, the insolvency of the shipbuilding company will affect the ownership of the ships. At the same time, there are many ways to tackle these problems and choose the most useful way to guarantee the interests of both sides is the target I want to achieve in this article.Firstly, I want to analysis the current situations as well as the reasons caused by the insolvency of the shipbuilding company. Since 2009 the new orders of the global shipbuilding industry has decreased and the price of the new ships also reduced. Although six years have passed, shipbuilding industry still stayed in a downturn. In recent years, a large number of shipbuilding companies have become insolvent, not only those small and medium-sized shipbuilding companies, but also those traditional and large-sized. There are three main reasons: Firstly, there are nearly no orders for the shipbuilding companies to build. For example, in China some shipbuilding companies haven’t received one order in a whole year so that these companies nearly become insolvency if this situation continues to appear; Secondly, some shipping companies canceled the shipbuilding orders even the ships were finished. The deposit of the shipbuilding contract occupies the minority of the whole shipbuilding fees, and the shipbuilding companies have to cost their own money when building ships. Therefore, if the contract is canceled, it is a disaster for the shipbuilding companies; Thirdly, some shipbuilding companies are afraid of not getting the remaining money back, they refused to continue to build ships according to the orders. And even in some shipping companies, they used to plan to order new ships. But now they dropped the plans and started to scrap some of the ships they owned. Because the usual costs of the ships including the protection fees and port fees are very huge. And sometimes even though the ships have products to ship, the profits they get could not cover the costs they pay. Hence, many shipping companies have to destroy their ships so that protect their companies not becoming insolvency.Secondly, I will analysis the nature of the shipbuilding contract, because the nature of shipbuilding contract will affect the ownership of the ships directly. The nature of shipbuilding contract varies differently in each country, there are three main theories: First, nearly in all the common law countries, shipbuilding contract is treated as sales contract. That is to say, the ownership of the ship is transferred to the shipping company when the ship is delivered, registered or as the contract signed; Second, in most civil law countries, shipbuilding contract is treated as the contract for work and material, such as China. In this theory shipbuilding company only has the right to lien the ship, and the ownership of the company is owned by the shipping company since the contract is signed; Three, the shipbuilding contract is considered as a mixed contract, because the contract of sale or contract for work and material will lead to unfair phenomenon. The third theory is used in many countries now. Even if UK, it is a sales contract country, and now in some cases there also exists contract for work and material. Although China in theory is contract for work and material, now in practice use sales contract very often. The above three viewpoints have their advantages, also have some disadvantages. The construction of the ship is a huge project, and shipbuilding contract is very complex. Obviously it is not very suitable to define the nature of the contract only in one way. Therefore in order to maximize the interests of both sides and guarantee the fair environment, we can use one or multiple theories in one time.Thirdly, I will analysis the effect of the ownership of materials and the distribution of insolvency property, under different nature of shipbuilding contract after the shipbuilding company becoming insolvent. It can be divided into two conditions: one is the shipping company has paid the deposit, and the other is not paid the deposit. Under the two conditions also could be divided into three types: first is the shipbuilding company has invested money into the construction, second is the shipbuilding company hasn’t invested money into the construction, third is the shipping company has canceled the contract. In above cases according to the different nature of the shipbuilding contract, the ownership of the ships before construction differs differently. As to achieving a relatively fair condition and maximizing the interests, we should analysis the situations according to the environment. At the same time, due to the flexibility and freedom of contract, both sides of the shipbuilding contract can negotiate with each other. In addition, we can take some effective measures to make up for the losses, such as insurance. Insurance is a feasible system, the shipbuilding company and shipping company can both apply for the compensation of the insurance company, after the shipbuilding company becoming insolvent.Fourthly, I will analysis the effect of the ownership of ships under construction and the distribution of insolvency property, under different nature of shipbuilding contract after the shipbuilding company becoming insolvent. Under the contract for work and material, the ownership of the ship under construction is owned by the shipping company since the contract was signed. In this circumstance, the protection of the shipbuilding company is not enough, and it is unfair to the shipbuilding company and his creditors. The relevant legal system of Taiwan area is worth learning, we need to consider the party who provide the materials and the price or these materials. Under the sales contract, there are three main theories: first is the theory of delivery, second is the theory of signing contract, third is the theory of negotiation of the contract. According to the above theories, there are also three situations for the transfer of the ownership of the ships under construction: one is the time of delivery is regulated in the contract, two is the time is not regulated in the contract, third is the ownership is transferred before the delivery. As the process of ship construction is very long, cost time, invest more and high risk, both the shipbuilding company and shipping company can take the ships under construction for the mortgage to the banks or other financial institutions. No matter the sales contract or the contract for work and material, the banks only have the priority to distribute the property, rather than dispose the ships under construction.Fifthly, I will analysis the jurisdiction and applicable law of the shipbuilding company becoming insolvent. The jurisdiction of the shipbuilding company becoming insolvent could be divided into three stages: First, when applying for the insolvency, the parties should sue to the civil courts because there do not need maritime knowledge, and do not need to sue to the maritime court. And the applicable law is the Chinese Insolvency Law; Second, after the declaring of insolvency, this stage needs a variety of professional skills and knowledge, the parties should sue to the maritime court. And the applicable law is Maritime Law; Last, the parties could choose to sue to the courts or go to the arbitration. And when choosing the arbitration procedure, it also need to choose the relative legislations or clauses.