Introduction

The Republic of Liberia administers the world’s second-largest flag state administration. Its motto is “All flags are not alike”.

Liberia’s Ship and Corporate registry programmes are exclusively administered by LISCR LLC, a Delaware limited liability company and an agent of (and acting on behalf of) the government of Liberia. This exclusive appointment has been made under Title 21, Section 11 of the Liberian Maritime Law by the Commissioner of Maritime Affairs in his capacity as Head of the Liberian Maritime Authority, the principal agency of the government of Liberia that is charged with protecting and enforcing the Liberian Maritime Laws, Conventions and Regulations (www.liscr.com). The flag prides itself on managerial and operational excellence, safety and technical oversight, innovative services, and white-listed recognition by the international port state regimes.

Similarly, the Liberian corporate registry has earned international recognition from business professionals, financial institutions, attorneys, and corporate secretarial firms for its historical commitment to legal stability, significant investments in advanced information technologies, and devotion to providing first-class corporate services to clients worldwide. Recent law changes in Liberia have evidenced this commitment.

Amendments to the Liberian Maritime Law and Regulations

During the worldwide COVID-19 pandemic, the Liberian registry had to adapt to the global crisis. Greater use of its worldwide network of regional offices and flag state-trained nautical inspectors was helpful, but it was not completely sufficient to offset people’s inability to meet face to face.

For example, prior to COVID-19, in order to record a preferred mortgage at the Liberian Registry, three executed and notarised originals were required to be delivered to them. Since this was no longer possible, the Liberian registry instituted temporary procedures modifying its mortgage recordation process to permit documents to be recorded by email as a pdf. However, Liberian law required that the Registry continue to collect the three originals post-recordation. This temporary permission related to all vessel registration documents including registry applications, evidence of ownership (Bills of Sale), preferred ship mortgages, financial charters, and deletion documentation.

These temporary measures proved successful during the coronavirus crisis and led the Republic of Liberia to formally amend its maritime law and related regulations (the “2022 Amendment”). Effective as of 9 August 2022, the ability to electronically file all registry instruments by email became permanent, and the requirement to submit originals was abandoned.

In addition, these new amendments expanded and clarified certain preferred mortgage recording provisions. The recording of a vessel mortgage puts third-party creditors of the ship on notice of a mortgagee’s prior lien for an outstanding debt secured by the whole of the ship. Prior to the 2022 Amendment, practitioners argued that a preferred Liberian ship mortgage was not meant to disclose the sensitive and highly negotiated terms of the loan nor the financial covenants therein. The 2022 Amendment expressly changed the necessity to attach as an exhibit to the mortgage a copy of the underlying instrument(s) evidencing the indebtedness to be secured (eg, loan agreement, swap agreement, finance charter). This change reflected the practice of English law jurisdictions, which permit the filing of an account current form of a mortgage.

Moreover, these Liberian law amendments, specifically state that it is unnecessary to reflect in the mortgage or finance charter certain of the underlying material terms of the indebtedness (interest rate(s), repayment schedule and term, and repayment date) in the recorded instrument to be enforceable under Liberian law. These law amendments will secure certain future modifications to the underlying indebtedness (other than an increase in the amount of the indebtedness or an extension of the maturity date – where the initial maturity date was earlier reflected in the recorded instrument), and provide clarity to practitioners on the need to file amendments. The changes legislated and eliminated a debate among practitioners of Liberian maritime law regarding the requirement for physical annexure and amendment.

Also, the Liberian Registry in 2021 instituted the “Seafarer Certification Application Portal”. By using this online system, existing Liberian seafarers and applicants have the ability to directly apply for flag state-approved licences and upgrades.

Beneficial Ownership Disclosure

As a result of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes and recommendations issued by the Financial Action Task Force, Liberia needed to evidence its commitment to transparency. Liberia realised that information on the natural person behind a legal entity or arrangement, or beneficial ownership information, is key to anti-money laundering, countering the financing of terrorism, international tax transparency, and the fight against tax evasion and other financial crimes.

Use of bearer shares abolished

The Liberian corporate registry met international demands and standards of transparency by abolishing the use of bearer shares. This was enacted by an amendment to the Liberian Business Corporation Act in 2018 (the “2018 Amendment”).

The new provisions provided for the maintaining of beneficial ownership information for domestic and foreign entities so as to eliminate risks for tax evasion, illicit flow of capital, money laundering, and terrorist financing. The effect of this amendment was to eliminate the possibility for any bearer shares for new Liberian non-resident corporations incorporated after 31 May 2018 and made provisions for all existing corporations that were authorised to issue bearer shares in their Articles of Incorporation, to eliminate by operation of law these provisions and authorise only registered shares in their place. The 2018 Amendment provided an option of having bearer shares placed into custody under a custodial agreement with an “approved” custodian.

Since this law change, we have seen a proliferation of international disputes among the shareholders of closely held Liberian corporations. Prior to the change in law, it was not uncommon for all of the beneficial ownership to be represented by a single share certificate issued to bearer held in a patriarch’s desk drawer.

Up-to-date records identifying registered and beneficial owners

To further expand the Liberian registry’s commitment to transparency, effective 6 April 2020, the Liberian Associations Law was amended to require every domestic entity and foreign entity authorised to do business in Liberia to keep up-to-date records identifying the names and addresses of all registered owners and, with the exception of public companies, ultimate beneficial owners of such entities.

The goal was to provide assurance of the identity and transparency of the ultimate beneficial owners of Liberian corporations, partnerships, limited liability companies, limited partnerships, foundations, and foreign maritime entities. Accordingly, effective from 31 December 2021, such entities are required to file an Annual Declaration of Shareholding, Beneficial Ownership, Management, and Record-Keeping.

The Declaration is filed with the Liberian Trust Company, the exclusive registered agent for all Liberian entities. The document is not part of the jurisdictional public record.

The onus is on the filing Liberian entity to obtain information on the natural persons who ultimately own or control a legal entity or arrangement

A legal entity or arrangement cannot be the beneficial owner of a Liberian legal entity; a beneficial owner is always a natural person. Similarly, a nominee shareholder-entity, a nominee director, or any other representative, legal and natural, holding in their names the shares or interests of the beneficial owners cannot be the beneficial owner. Shares held by such third parties must be treated as belonging to the beneficial owner.

Consequently, all Liberian non-resident domestic entities must keep accurate and up-to-date records with the names and addresses of all registered shareholders/members/partners and beneficial owners. The Liberian Associations law does not require such records to be kept in Liberia; each entity is statutorily required to retain and maintain such records for a minimum of five years.

Wilful or reckless failure to keep, retain or maintain records as required, or refusal to keep such records, will be sanctioned. Failure of any entity to confirm record-keeping by submitting an Annual Declaration of Shareholding, Beneficial Ownership, Management, and Record-keeping shall result in immediate resignation by the Liberian Trust Company as registered agent and a USD1,000 non-compliance penalty, rendering the entity “not in good standing” and impeding its normal course of operation. A sanctioned entity may also be subject to revocation of its formation documents/licence to operate and certificate to do business, dissolution, or any combination of the penalties prescribed in the law, at the discretion of the Registrar.