When Is a Barge Not a Vessel? Answer: When It’s in Bankruptcy

by Robert M. Schwartz, Esquire, Hill Betts & Nash LLP

In a recent case, the United States Bankruptcy Court has once again demonstrated that illiquidity provides an exception to the Law of the Sea.1 The Treasure Bay court invalidated a $115 million First Preferred Ship Mortgage because, it held, the two barges involved were not “vessels” for the purposes of the U.S. recording statutes. In so doing, and by its disregard for earlier actions taken by the U.S. Coast Guard, the Bankruptcy Court invaded certain areas reserved by Congress for the U.S. Coast Guard’s determination as well as committing serious error in the interpretation of U.S. maritime law. The case has great import regarding the stability of marine finance transactions involving U.S. flag vessels and, along with the Lykes Bros. Steamship Company case decided last year, constitutes a trend which could chill marine finance.

The Bankruptcy Court reasoned that the barges which were moored and used as gambling casinos never met the definition of “vessel” for purposes of perfecting a ship mortgage because, (1) the structures were not constructed to be used as anything but floating gambling casinos, (2) the structures were moored or otherwise secured “at all relevant times at permanent locations” and (3) they were “not capable of movement and never moved across navigable waters in the course of normal operations. There was no transportation function that could be incidental to the primary purpose of the two structures-the operation of gambling casinos.” 2

This is only an excerpt of When Is a Barge Not a Vessel? Answer: When It’s in Bankruptcy

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