A US court has ordered an arrested handymax bulk carrier owned by Greece's NewLead Holdings to be sold in an admiralty sale on Aug. 8.

Newlead Castellano was arrested off Savannah, Georgia on April 19 this year by Ray Capital, one of NewLead's creditors, which claimed US$7.1m relating to an unpaid promissory note.

Ray Capital and its co-plaintiffs Oppenheim Capital, Cheyenne Holdings and Labroy Shiptrade all hold NewLead promissory notes, which were secured with registered mortgages against Newlead Castellano.

Only Ray Capital has defaulted on its note, while the others remain current noteholders, according to NewLead.

The US District Court for the Southern District of Georgia (Savannah division) granted plaintiffs' motions to inspect and sell the vessel, and authorised legal costs of US$455,407.20.

The court approved the sale because "plaintiff Ray continues to incur great expense to keep the vessel seaworthy, the vessel's value as collateral for plaintiffs and other creditors deteriorates daily". It added that "limited tools" are available to prevent corrosion and physical deterioration onboard the vessel.

But NewLead wishes to keep the vessel and is in the process of appointing new legal counsel to advise on how to defend or reply to the court order.

"As regards the possibility of a sale, there is still a lot of ground to be covered until we reach there, if ever. Vessel's owners – NewLead – have confirmed their intention to keep the vessel and we are thus working towards finding an amicable solution with plaintiff, whilst at the same time preparing to challenge the sale if need be," said a spokeswoman for NewLead.

NewLead filed a motion to vacate the arrest on May 3, which countered that Ray Capital was obliged under the conditions of the promissory note agreement to sell 20% of the monthly dollar volume of NewLead's common stock – but did not.

Because of this, NewLead said, there is no event of default that would permit the note holders/plaintiffs to seize the Newlead Castellano.

The Athens-based shipping company has also claimed that the arrest should be vacated because the dispute is not maritime nature because the notes were issued to raise funds for corporate purposes, rather than shipping.

NewLead claims that the vessel was inspected by port state control two days before being arrested by Ray Capital, and no deficiencies were found.