The Financing Charter is currently available for vessels sailing under the Marshall Islands and Liberia flags, but it will soon be introduced for Maltese-flagged vessels, potentially reshaping the legal framework for shipping sale and leaseback transactions.

In a typical finance lease structure, the lessor owns the vessel. However, in some jurisdictions - particularly in the United States, but also elsewhere - bankruptcy courts may recharacterize the lease as a loan, which can strip the lessor of its ownership rights and leave it in the position of an unsecured creditor. 

By registering the Financing Charter on the vessel in favour of the lessor, the lessor, as documented owner, is granted a security interest comparable to a preferred mortgage and therefore the lessor’s rights are secured in a manner similar to those of a mortgagee, should the lease be actually recharacterized. Since the introduction of this instrument in the Marshall Islands and Liberia, these flags have gained popularity among lessors seeking stronger legal protections.

However, EU-based shipping companies must operate under a EU flag in order to benefit from the applicable tonnage tax regime. As a result, by adopting a framework similar to that of the Marshall Islands and Liberia, Maltese legislation will enable international shipping lessors to secure their interests without compromising on the tax benefits that may be available to EU vessel operators, opening up the potential options for ship leasing within the EU. 

To address this, the Maltese Parliament has recently amended the Merchant Shipping Act to incorporate the concept of the Financing Charter into Maltese law. The adoption of the Financing Charter by the Marshall Islands and Liberia has set a precedent that enhances legal protections for lessors in ship leasing transactions.  Malta’s recent legislative amendments reflect a growing recognition of the significance of the Financing Charter within a finance lease transaction. This amendment, coming into effect in April 2025, could provide a viable alternative for EU shipping companies in providing the opportunity to comply with local tonnage tax while offering protection to shipping lessors, similar to the existing regimes in the Marshall Islands and Liberia.