Buying or Selling a Ship in Malaysia: The Legal Process Explained  

Frequently Asked Questions

Q: Can a foreign buyer purchase and register a vessel in Malaysia?

A: It depends on which register is used. The Malaysian Ship Register (MSR) — the domestic register under the MSO 1952 — is restricted to Malaysian citizens and majority Malaysian-owned corporations. A foreign buyer cannot register a vessel on the MSR unless the owning entity meets the Malaysian majority ownership requirement. However, the Malaysian International Ship Register (MISR), administered from Labuan under the Merchant Shipping (Malaysian International Shipping Registry) Act 1995, allows full foreign ownership and is open to Malaysian and non-Malaysian corporations alike. The MISR is designed specifically to attract international shipowners and offers attractive features including tax incentives, a wide range of eligible vessel types, and the ability to fly the Malaysian flag. A maritime lawyer can advise on the appropriate register and the structure needed to qualify for registration.

Q: What checks should a buyer carry out before signing the MOA?

A: Due diligence before signing the MOA — or at least before paying the deposit — is essential and should cover several areas. A physical inspection of the vessel’s condition and a review of its class records, survey history, and outstanding recommendations should be conducted by a qualified marine surveyor. A title search against the vessel’s registration at the relevant ship registry should confirm that the seller is the registered owner and that there are no undisclosed mortgages or encumbrances. An admiralty search should also be conducted to identify any outstanding in rem claims or arrest warrants against the vessel. Finally, the vessel’s compliance status with MARPOL, SOLAS, and MLC 2006 should be reviewed — non-compliance certificates can create significant post-delivery liability for the buyer. A maritime lawyer coordinates and advises on all of these checks.

Q: What is a Deletion Certificate, and when is it required?

A: A Deletion Certificate — also called a Certificate of Deletion or Deregistration Certificate — is a document issued by a vessel’s existing flag state registry confirming that the vessel has been removed from that registry. It is required whenever a vessel is being sold and re-flagged — that is, registered under a different flag state. For a buyer who intends to register the vessel under a new flag, including Malaysia’s MISR or MSR, the Deletion Certificate from the previous flag state is a mandatory registration document. For a seller, procuring the Deletion Certificate is typically an obligation under the MOA to be delivered at closing. A failure to procure the Deletion Certificate on time can delay closing and, depending on the MOA terms, give the buyer the right to cancel and recover their deposit.

Q: The vessel has a mortgage registered against it. Can the sale still proceed?

A: Yes — but the mortgage must be discharged before or at closing, as a condition of the sale. A registered ship mortgage follows the vessel, not the owner, and a buyer who takes delivery of a mortgaged vessel without ensuring discharge takes on the mortgagee’s security interest. In practice, where the seller has an outstanding ship mortgage, the MOA will require the mortgage to be discharged simultaneously with delivery — typically by applying the purchase price proceeds to repay the outstanding loan, with the mortgagee bank releasing the mortgage and issuing a discharge at closing. This is a standard transaction structure and is managed by the lawyers on each side. The title search conducted pre-closing will identify all registered mortgages so that no encumbrance is overlooked.

Q: What are the key risks for sellers in a ship sale transaction?

A: Sellers face several legal risks in a ship sale that a maritime lawyer will help to manage. The most significant is the risk of buyer default — particularly where the buyer fails to pay the balance purchase price on the closing date. Under the NSF 2012 and most standard MOAs, a buyer who defaults after inspection and notice of readiness forfeits the deposit as liquidated damages, and the seller may resell the vessel — but the seller must follow the correct contractual procedure precisely, or risk a counterclaim. Sellers must also ensure that all representations in the MOA about the vessel’s condition, class status, and title are accurate — a misrepresentation can expose the seller to damages claims even after closing. Finally, sellers must ensure all port dues, crew wages, and outstanding invoices are settled before delivery, as these may give rise to maritime liens that follow the vessel to the buyer.

Buying or selling a vessel in Malaysia?  Azhar Yong & Co. advises buyers, sellers, and lenders on ship sale and purchase transactions — from MOA negotiation and title searches to registration and closing — across the Malaysian Ship Register and MISR.