Assuming the vessel is owned through a company, the paperwork can be divided into six broad categories:

• Seller due diligence, proving that the company exists and has the capacity to own and sell the vessel;

• Beneficial owner due diligence, confirming identity and providing a personal guarantee;

• Seller corporate documents, resolving to sell and appointing attorneys;

• Asset due diligence, demonstrating provenance and conformity with safety regulations;

• Liability due diligence, showing that those would could have a claim against the vessel do not; and

• Sale process documents, which will show that the sale took place, when and where.

Let’s look at each group in further detail.

SELLER DUE DILIGENCE

A Certificate of Incorporation, Memorandum of Association and Articles of Association, in respect of the selling company (including any amendments) are needed to verify that the seller is the legally-registered entity it appears to be, which actually has the authority to own and sell the asset. This may sound obvious, but companies can only do what they’re empowered to do.

A recent Certificate of Incumbency, or equivalent certificate, is important in verifying the current shareholders and directors of the seller, as well as confirming that the seller is in good standing and no action is being taken against them. A Certificate of Good Standing, or equivalent certificate, is also needed from the seller's registry to certify that they are in good standing with that registry.

These documents are necessary fundamental to ensuring that the buyer is not at risk of fraud.

BENEFICIAL OWNER DUE DILIGENCE

A Personal Guarantee & Indemnity, whether on standard MYBA terms or otherwise, from the yacht’s beneficial owner, goes a long way to providing additional security for the buyer in case the seller is unable to fulfil its obligations under the sale agreement. The seller, after all, is almost certainly an offshore company with no assets to claim against other than the vessel which has just been sold. The guarantee should make provision for private arbitration so that, in the event of a dispute, matters aren’t settled in the public eye. Up-to-date personal identity documents are also useful in making sure that whoever signs the guarantee is who they claim to be.

It should be noted that not all beneficial owners are happy to provide these documents. Some take the view that all their assets are owned through companies with which they don’t want to have any involvement. If you don’t want to agree to provide these to the seller, that’s your prerogative. This may or may not be a deal-breaker for the buyer.

SELLER CORPORATE DOCUMENTS

As with any large transaction undertaken by a company, the seller needs to produce written Resolutions, signed by someone with the requisite authority, confirming ownership, approving the sale, and authorising representatives to act on behalf of the company in respect of the completion of the sale (such attending on board at completion, and signing the sale documents).

For the sake of certainty, Powers of Attorney are also needed to give the individuals the powers which the company has resolved to given them.

ASSET DUE DILIGENCE

It doesn’t provide conclusive proof, but the Certificate of Registry does help to prove ownership. The Builder’s Certificate shows who the builder was (yard pedigree being an important component of value) as well as it’s specification (which is vital when establishing what regulations will apply and establishing whether it can be chartered). Providing all the previous Bills of Sale will establish a chain of ownership transferal, extending back to its launch, which helps to confirm current ownership, as well as being documents which a fraudster would struggle to produce.

The yacht will be subject to various regulations and all the relevant safety and convention certificates must be obtained well in advance of the sale so that the buyer knows that the yacht is capable of satisfying these rules.

LIABILITY DUE DILIGENCE

Debts incurred by an owner, in respect of their yacht, can be enforced against that yacht (as well as that owner) even after it’s been sold to an unsuspecting buyer. So a recent Transcript of Register will show that the vessel is free from any registered liens or encumbrances and is still solely owned by the seller.

It’s also important to obtain a Manager’s Letter (if a yacht manager has been engaged) and a Captain’s Letter, confirming that the seller has no liabilities to the manager, or captain, or any third parties, and that the yacht has not been involved in any incidents or accidents since the pre-sale condition survey. Crewmembers’ Letters will confirm that each crewmember has been paid everything owed to them.

And where the yacht is being sold as having a tax-paid status, evidence of this must be prepared – allowing sufficient time for the buyer to take advice from a local tax specialist.

SALE PROCESS DOCUMENTS

A Completion Timetable, which lists all parties involved in the completion of the sale, their contact details, and the necessary steps to be taken during and after completion, is essential to ensure that all parties are aware of the steps required to complete the sale and that they are well-coordinated.

The Bill of Sale, signed by the seller, declares that the vessel is free from all debts, claims, liens, and encumbrances and transfers ownership to the buyer. This document is necessary to establish transfer of ownership, and is vital for re-registration in the buyer’s name.

As the time and location of the transfer of ownership may have tax implications, a Protocol of Delivery & Acceptance, in an agreed format, must be agreed.

As a formal payment request, the seller’s Commercial Invoice is essential for bookkeeping and provides customs authorities with essential information regarding the transaction. Finally, the seller must produce a Letter of Undertaking that the yacht will be deleted from the current ship registry soon after the sale. Deletion isn’t free and involves professional time which the seller will have to pay for.

Feel free to contact us for further guidance.