As we previously reported, Australia has now enacted the implementing legislation to give effect to the Convention in Australia, however several steps remain to be taken before it is in effect as described in this article. In addition, the interaction of the Cape Town Convention and other Australian law will need to be considered, and industry advisors will need to come to a view and agree a new approach to documentation and registration of aircraft transactions.
What is the Cape Town Convention?
Signed at Cape Town in November 2001, the Cape Town Convention and the relevant Aircraft Protocol, together the “Convention”, bring into force a framework for an international standard for the protection of ownership rights and security interests in aircraft.
The Convention establishes:
- that an “international interest” in aircraft assets (such as airframes, aircraft engines and certain helicopters) arises in favour of:
- the seller/conditional seller under a sale/title reservation agreement;
- the lessor under a lease agreement; and
- the creditor under a credit agreement.
- an electronic registration system for the perfection and priority of “international interests” (“International Registry”); and
- default rights and remedies to enforce such international interests (including interim remedies) that are more tailored to aircraft finance transactions, such as giving secured parties the right to de-register or immobilise aircraft.
Afforded within the Convention’s framework is flexibility whereby ratifying nations are permitted to make declarations (“Declarations”) to opt-in, opt-out or determine within pre-defined parameters how the Convention is to apply to its jurisdiction. Based on the declarations we now know will be made, the Convention will not have retrospective effect and therefore existing transactions will not need to be registered on the International Registry.
We have described the Convention and its benefits and provided regular updates regarding the progress of draft enabling legislation through the Australian Parliament – see our articles from:
- 28 May 2013 – Joint Standing Committee on Treaties recommends ratification of Cape Town Convention and Aircraft Protocol
- 4 June 2013 – Cape Town Bills introduced in the Australian Parliament on 29 May 2013
- 4 July 2013 – Cape Town Convention Bills receive Royal Assent on 28 June 2013
Several steps remain before the Convention is in effect in Australia, which we expect will be progressed expediently by the new Coalition Government once it resumes business.
We expect that the Convention system would be operational in Australia for new transactions in early 2014.
As outlined below, there are a number of implications that industry needs to consider now, and take the necessary steps to prepare before the Convention is in effect.
What has happened to date?
As we previously reported, Australia has now enacted the following implementing legislation to give effect to the Convention in Australia.
- International Interests in Mobile Equipment (Cape Town Convention) Act 2013 which provides that the Convention will have force of law in Australia and that the Convention will prevail over any law of the Commonwealth and any law of a State or Territory to the extent of any inconsistency.
- International Interests in Mobile Equipment (Cape Town Convention) (Consequential Amendments) Act 2013 which provides for consequential amendments to the following legislation:
- Air Services Act 1995 – to make it clear that a registered interest under the Convention will be a security interest for the purposes of provisions of that Act dealing with the priority of statutory liens. Under the new regime, an earlier Convention registration will prevail over a statutory lien. Given Air Services Australia has had a long standing practice of passing on service charges by contract and not by statute, this is not expected to have any practical implications.
- Civil Aviation Act 1988 – to confer upon the Civil Aviation Safety Authority (“CASA”) functions associated with the Convention.
- Personal Property Securities Act 2009 (“PPSA”) – if the PPSA is inconsistent with the Convention, then the Convention will prevail.
What are the next steps?
The following next steps are set to take place:
- CASA will be conferred functions to deal with recordation, removal and the exercise of the Irrevocable Deregistration and Export Request Authority (IDERA), the instrument under which an aircraft can be de-registered as part of an enforcement action. The Convention also provides that the “authorised party” under an IDERA is the sole person who can exercise such de-registration. This is important as it gives financiers the comfort of the negative assurance that there will be no change in the registration of the aircraft (nor re-registration in another country) without hearing from CASA.
- The formal lodgement of the Instrument of Accession to the Convention, accompanied by Declarations in respect of the Convention, with the International Institute for the Unification of Private Law (UNIDRIOT).
We now know that Australia will take the following approach to Declarations:
- it will declare that upon the substantive insolvency of a debtor, the aircraft will be returned to the creditor on the earlier of:
- a waiting period of no more than 60 days; and
- the date under applicable law on which the creditor is entitled to the possession of the aircraft,
unless all defaults (other than the insolvency default) under the relevant security agreement have been remedied and the debtor has agreed to perform all further obligations under the relevant security agreement. This regime, based on the US Section 1110 of the Bankruptcy Code, is also known as “Alternative A”;
- it will declare that upon receiving an IDERA, CASA will record the authorisation and assist with the authorised party to exercise relevant remedies;
- it will declare that transaction parties will continue to be free to agree which law will govern their contractual rights and obligations;
- it will declare that any remedies available to a creditor under the Convention which are not expressed under the relevant provisions of the Convention to require application to a court may be exercised without leave of the court;
- it will declare that Australia will co-operate to the maximum extent possible with foreign courts and foreign insolvency administrators in the repossession of aircraft as set out above; and
- it will declare that the Federal Court and the courts of the States and Territories will have jurisdiction under the Convention.
- The formal ratification of the Convention with the Federal Executive Council’s approval.
Questions arising from the implementation of Convention
The interaction between the Convention and Australian domestic law (particularly the PPSA and insolvency law) needs to be further considered. We understand that the Australian Government does not have any plans at present to enact any further legislation amending domestic laws to cater for the introduction of the Convention.
The guiding principle is that the Convention will prevail only to the extent of any inconsistency with any other Australian law (so the aviation industry and the courts will have to work out when the Convention is “inconsistent”).
Various formulations for determining “inconsistency” have been put forward over the years in the constitutional law or statutory interpretation context, but in the present circumstances where industry participants will favour pragmatism, industry advisors will need to come to a view and agree a new approach to documentation and registration of aircraft transactions.
This was made clear in the Explanatory Memorandum to the International Interests In Mobile Equipment (Cape Town Convention) Bill (“Explanatory Memorandum”), which noted that if the Australian Government adopts an implementation model which provides that the Convention will prevail in the event of any inconsistency, the onus will be on the aviation industry and the courts to understand the operation of both the PPSA and the Cape Town Convention and identify where inconsistencies arise, and that it would not be unreasonable for industry to incur some of the costs associated with operating under and within the two schemes (see paragraph 4.32 of the Explanatory Memorandum).
In the following paragraphs below we raise some matters for consideration and highlight some examples where analysis needs to be undertaken to determine the extent of inconsistencies.
PPSA
Given the approach to implementing the Convention described above, it is expected that the PPSA will still apply in aviation transactions and registrations under the PPSA will be required. A multitude of reasons can be put forward for this position, but in simple terms the PPSA will continue to apply where there is no inconsistency between the Convention and the PPSA. One clear example which practitioners could put forward and was cited in a Parliamentary discussion earlier in the Convention implementation process and the Explanatory Memorandum (see paragraph 1.28 of the Explanatory Memorandum) is to do with the definition of “proceeds” under PPSA which is broader than the definition in the Convention.
It should be noted that the Convention provides that any additional remedies permitted by applicable law may be exercised with respect to a transaction registered under the Convention to the extent that those remedies are not inconsistent with the mandatory provisions of the Cape Town Convention. This could also be taken to suggest that the local law requirements for the creation and perfection of security interests under PPSA continue to apply.
Insolvency laws
Analysis will need to be undertaken as to what provisions of the Corporations Act will be inconsistent, and which provisions will continue to apply.
As the Australian government is not contemplating any specific amendments to insolvency laws in Australia, it appears that the Convention will simply co-exist with the current insolvency regime (to the extent not inconsistent).
For example, practitioners will need to consider whether provisions such as s 588FL Corporations Act, relating to the vesting of security interests in collateral in the grantor if it becomes insolvent if not registered within a certain time, will continue to apply to aircraft. If this registration requirement is construed as being “inconsistent” with Alternative A of the Convention, then a secured party’s rights under Alternative A to require the aircraft to be returned (or defaults cured) as described above would prevail (regardless of whether the secured party registered its security interest within the timeframe prescribed under s 588FL of the Corporations Act). However, because the Convention does not deal with any matters other than “international interests” and associated rights, registration under the PPSA would still be required at least in respect of other aspects of aviation financing transactions which are not covered by the Convention (for example, bank account charges and other ancillary security).
Taking another example, the maximum 60 day waiting period for repossession (or for the debtor to cure all defaults other than the insolvency default) will likely operate concurrently with the current regime under s 440B and related provisions of the Corporations Act. These are already quite creditor friendly in that it requires an administrator of a lessee to make a decision as to continuing to use or possess an aircraft or else incur personal liability for rent and other amounts attributable to the use or possession of the aircraft from the end of that decision period.
Even so, Alternative A would prevail after 60 days and the 60 day requirement under Alternative A of the Convention would alleviate any uncertainties around the present regime including, for example, removing the potential need to go to court or seek the administrator’s consent even where the administrator has issued a disclaimer notice within the 5 business day decision period under s 443B of the Corporations Act.
Such a result would be consistent with one of the objects of the Convention which is to provide more certainty to those who invest in the aviation industry given the unique situation of aircraft assets as high value, highly depreciable and mobile assets requiring speedy, effective and tailored remedies.
The above are some examples of the interactions between the Convention and current domestic laws, and there will be others that will need to be worked through prior to and during the implementation period.
Useful data on aircraft ownership/leases
Useful data on aircraft ownership/leases that a article by Dale Rayner in a browse recently found:
Ten things to know about leasing and financing aircraft in Australia
1| Registration of an Aircraft in Australia
Pursuant to the Civil Aviation Act, s20AA a person must not fly an aircraft in Australian territory unless it is registered in accordance with the Civil Aviation Safety Regulations 1998 (the CASR) (or the aircraft is employed in private operations and has the nationality of a contracting State under the Chicago Convention). Under the CASR an application to register an unregistered aircraft may be made by the owner or a person who is acting their behalf. If the registration holder is not an eligible person, the registration holder must appoint an eligible person to be the registered operator.
An “eligible person” means:
2 | Security Perfection – PPSA & Cape Town Convention
A new security regime was established by the Personal Property Securities Act 2009 (PPSA) on 30 January 2012. The PPSA has significant implications for lessors of aircraft as an aircraft lease is often characterized as a security interest under the PPSA. As a result:
Sub-leases may also be security interests under the PPSA and therefore may be subject to the risks referred to above (which can multiply through lease chains where there is a failure to perfect a security interest at any level in the chain).
This is an area of considerable uncertainty and a number of submissions requesting clarification are being made by the industry as part of the 3 year review of the PPSA currently being undertaken by the Australian government.
Australia has also recently passed legislation to adopt the Cape Town Convention on International Interest in Mobile Equipment (2001) (the Convention) and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to aircraft Equipment (the Protocol and together with the Convention, the Cape Town Convention). There are a number of steps which the Australian government needs to take in order to put the Convention into effect. These are expected to be completed in late 2014 or early 2015.
The interaction of the PPSA and the Cape Town Convention is also currently being considered in the market. It is expected that due to some differences in coverage of the PPSA and the Convention, registration will be undertaken under both regimes for most aircraft financings.
3 | Choice of law
As a matter of Australian law, parties are generally free to choose the governing law of a contract provided the choice was not (a) made in bad faith, (b) made illegally, (c) contrary to rules of public policy or mandatory laws of the forum. The PPSA contains specific rules as to the law which governs the validity, perfection and effect of perfection of security interests despite the governing law chosen by the parties.
4 | Enforcement of Foreign Judgments
A foreign judgment may be recognized by the courts of Australia either at common law or under the Foreign Judgments Act 1991 (FJA). The FJA provides for the registration of “enforceable money judgments” obtained in the superior courts of a country to which the FJA applies. The United Kingdom is such a country. The application for registration of the judgment must be made within 6 years. Once registered it is as though the judgment was given by the Australian court (and there is no reconsideration of the merits). An order for delivery-up or possession would not be a “money judgment” registrable under the FJA.
5 | Aircraft Requisition
The Crimes Act 1914 allows for a member of the defence force or a member of the Australian Federal Police to seize an aircraft they reasonably believe to be pirate controlled. Various legislation also exists which empowers a court to order forfeiture of property used in the commission of a criminal offence. The federal government also has the power to acquire property on “just terms” (generally requiring payment of compensation). The royal prerogative inherent in the Australian parliaments also allows requisition of aircraft by government in the course of war like operations.
6 | Sovereign Immunity
An airline should generally not be entitled to sovereign immunity from legal action or proceedings in Australia where the airline is participating in commercial activity.
The High Court recently unanimously dismissed an appeal by P T Garuda Indonesia Ltd (“Garuda”) and held that Garuda had no claim to immunity. The Australian Competition regulator (ACCC) alleged that, with respect to commercial freight services to Australia, Garuda and several other airlines had engaged in anti-competitive conduct. The High Court held however, that Garuda could not claim immunity because the proceedings against it concerned a commercial transaction.
7 | Stamp Duty
Stamp duty is generally not payable where the aircraft is not physically present in a State of Australia on the date the documentation is executed.
Conveyance or transfer duty is imposed on the sale (Including agreements for sale), assignment, transfer of “dutiable property”. However exceptions will sometimes apply, depending on the circumstances, where the property dealt with only comprises goods such as aircraft. South Australia and Western Australia do not have this exception.
NSW is the only state which continues to impose mortgage duty. Care therefore needs to be taken in relation to the timing of the mortgage. Duty generally will not be imposed if the aircraft is not physically located in NSW (or in its airspace) on the date the documents are executed.
8 | Security over Aircraft
Australian law recognises the creation of security over a moveable object such as an aircraft. As stated above, parties are generally free to choose the law governing an aircraft mortgage however specific rules may apply in relation to the validity, perfection and effect of perfection of security under the PPSA. It should be noted however that the validity of the transfer of title to a tangible movable (for example, an aircraft) and its effect on the proprietary rights of the parties thereto and of those claiming under them, are likely to be governed by the laws of the country where that aircraft is located at the time of the transfer (i.e. the lex situs).
9 | Repossession and Deregistration
Australian courts will uphold provisions in security documents allowing for repossession of an aircraft. There are no waiting periods imposed (other than to the extent agreed between the parties in the default provisions in the transaction documentation). Court proceedings are not required to effect repossession. Injunctions are available for preservation of assets (grounding etc). Certain consents (to enter land etc) and clearance of statutory liens may be required to effect the repossession.
However if the mortgagee enters into administration, there may be a stay on enforcement in certain circumstances (see below) without the consent of the administrator or leave of the courts.
Deregistration of the aircraft with the Civil Aviation Safety Authority is typically undertaken utilizing a deregistration power of attorney taken at the outset of a transaction (or a provision in the documentation of similar effect).
10 | Insolvency
A lessee may be subject to winding up/liquidation, receivership or voluntary administration under the Corporations Act. Due to the personal liability under Australian law that directors have for trading while insolvent, voluntary administrations are common.
Voluntary administration gives rise to a stay on civil actions against a company during the administration (which will continue until an agreement is reached with creditors or a decision is made to liquidate the company). During this time creditors may only enforce security if they hold security over the whole or substantially the whole of the assets of the company (which will often be the case for an aircraft mortgagee provided a special purpose vehicle holds title to the aircraft).
In the case of leases, if a company enters into administration, the Administrator has 5 business days in which to give a notice to the lessor notifying whether it wishes to exercise rights in respect of the lease. If the administrator elects to continue the lease, the administrator would be liable for rentals.
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The Cape Town Convention and Aircraft Protocol – more to come
As we previously reported, Australia has now enacted the implementing legislation to give effect to the Convention in Australia, however several steps remain to be taken before it is in effect as described in this article. In addition, the interaction of the Cape Town Convention and other Australian law will need to be considered, and industry advisors will need to come to a view and agree a new approach to documentation and registration of aircraft transactions.
What is the Cape Town Convention?
Signed at Cape Town in November 2001, the Cape Town Convention and the relevant Aircraft Protocol, together the “Convention”, bring into force a framework for an international standard for the protection of ownership rights and security interests in aircraft.
The Convention establishes:
Afforded within the Convention’s framework is flexibility whereby ratifying nations are permitted to make declarations (“Declarations”) to opt-in, opt-out or determine within pre-defined parameters how the Convention is to apply to its jurisdiction. Based on the declarations we now know will be made, the Convention will not have retrospective effect and therefore existing transactions will not need to be registered on the International Registry.
We have described the Convention and its benefits and provided regular updates regarding the progress of draft enabling legislation through the Australian Parliament – see our articles from:
Several steps remain before the Convention is in effect in Australia, which we expect will be progressed expediently by the new Coalition Government once it resumes business.
We expect that the Convention system would be operational in Australia for new transactions in early 2014.
As outlined below, there are a number of implications that industry needs to consider now, and take the necessary steps to prepare before the Convention is in effect.
What has happened to date?
As we previously reported, Australia has now enacted the following implementing legislation to give effect to the Convention in Australia.
What are the next steps?
The following next steps are set to take place:
We now know that Australia will take the following approach to Declarations:
unless all defaults (other than the insolvency default) under the relevant security agreement have been remedied and the debtor has agreed to perform all further obligations under the relevant security agreement. This regime, based on the US Section 1110 of the Bankruptcy Code, is also known as “Alternative A”;
Questions arising from the implementation of Convention
The interaction between the Convention and Australian domestic law (particularly the PPSA and insolvency law) needs to be further considered. We understand that the Australian Government does not have any plans at present to enact any further legislation amending domestic laws to cater for the introduction of the Convention.
The guiding principle is that the Convention will prevail only to the extent of any inconsistency with any other Australian law (so the aviation industry and the courts will have to work out when the Convention is “inconsistent”).
Various formulations for determining “inconsistency” have been put forward over the years in the constitutional law or statutory interpretation context, but in the present circumstances where industry participants will favour pragmatism, industry advisors will need to come to a view and agree a new approach to documentation and registration of aircraft transactions.
This was made clear in the Explanatory Memorandum to the International Interests In Mobile Equipment (Cape Town Convention) Bill (“Explanatory Memorandum”), which noted that if the Australian Government adopts an implementation model which provides that the Convention will prevail in the event of any inconsistency, the onus will be on the aviation industry and the courts to understand the operation of both the PPSA and the Cape Town Convention and identify where inconsistencies arise, and that it would not be unreasonable for industry to incur some of the costs associated with operating under and within the two schemes (see paragraph 4.32 of the Explanatory Memorandum).
In the following paragraphs below we raise some matters for consideration and highlight some examples where analysis needs to be undertaken to determine the extent of inconsistencies.
PPSA
Given the approach to implementing the Convention described above, it is expected that the PPSA will still apply in aviation transactions and registrations under the PPSA will be required. A multitude of reasons can be put forward for this position, but in simple terms the PPSA will continue to apply where there is no inconsistency between the Convention and the PPSA. One clear example which practitioners could put forward and was cited in a Parliamentary discussion earlier in the Convention implementation process and the Explanatory Memorandum (see paragraph 1.28 of the Explanatory Memorandum) is to do with the definition of “proceeds” under PPSA which is broader than the definition in the Convention.
It should be noted that the Convention provides that any additional remedies permitted by applicable law may be exercised with respect to a transaction registered under the Convention to the extent that those remedies are not inconsistent with the mandatory provisions of the Cape Town Convention. This could also be taken to suggest that the local law requirements for the creation and perfection of security interests under PPSA continue to apply.
Insolvency laws
Analysis will need to be undertaken as to what provisions of the Corporations Act will be inconsistent, and which provisions will continue to apply.
As the Australian government is not contemplating any specific amendments to insolvency laws in Australia, it appears that the Convention will simply co-exist with the current insolvency regime (to the extent not inconsistent).
For example, practitioners will need to consider whether provisions such as s 588FL Corporations Act, relating to the vesting of security interests in collateral in the grantor if it becomes insolvent if not registered within a certain time, will continue to apply to aircraft. If this registration requirement is construed as being “inconsistent” with Alternative A of the Convention, then a secured party’s rights under Alternative A to require the aircraft to be returned (or defaults cured) as described above would prevail (regardless of whether the secured party registered its security interest within the timeframe prescribed under s 588FL of the Corporations Act). However, because the Convention does not deal with any matters other than “international interests” and associated rights, registration under the PPSA would still be required at least in respect of other aspects of aviation financing transactions which are not covered by the Convention (for example, bank account charges and other ancillary security).
Taking another example, the maximum 60 day waiting period for repossession (or for the debtor to cure all defaults other than the insolvency default) will likely operate concurrently with the current regime under s 440B and related provisions of the Corporations Act. These are already quite creditor friendly in that it requires an administrator of a lessee to make a decision as to continuing to use or possess an aircraft or else incur personal liability for rent and other amounts attributable to the use or possession of the aircraft from the end of that decision period.
Even so, Alternative A would prevail after 60 days and the 60 day requirement under Alternative A of the Convention would alleviate any uncertainties around the present regime including, for example, removing the potential need to go to court or seek the administrator’s consent even where the administrator has issued a disclaimer notice within the 5 business day decision period under s 443B of the Corporations Act.
Such a result would be consistent with one of the objects of the Convention which is to provide more certainty to those who invest in the aviation industry given the unique situation of aircraft assets as high value, highly depreciable and mobile assets requiring speedy, effective and tailored remedies.
The above are some examples of the interactions between the Convention and current domestic laws, and there will be others that will need to be worked through prior to and during the implementation period.
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Civil aviation – farewell Personal Property Securities Act welcome Cape Town Convention
6 key points
What should aviation financiers and aviation related businesses do now?
Aviation financiers and aviation related businesses should start to review their current agreements to ensure they are compliant and refer to the correct legislative framework.
Australian Government agrees to accede to Cape Town Convention
On 12 October 2012 the Minister for Infrastructure and Transport, Mr Albanese, announced that the Australian Government will accede to the Cape Town Convention1. Details on the Australian Government’s decision to accede can be found at Legal Flyer (December 2010) and Australian government announces it will accede to the Cape Town Convention – major development in aviation finance for Australia.
Shortly after publishing its media release, the office of the Minister tabled the Cape Town Convention2 at the Joint Standing Committee on Treaties. Once the treaty examination process has been completed, it will report to Parliament on the implementing legislation. It is expected that the Joint Standing Committee’s report will be tabled in Parliament on or by 19 June 2013.
Will the Cape Town Convention cover the field?
The Cape Town Convention is envisaged to complement the PPSA, not replace it entirely. The PPSA will only apply in accordance with the terms of the Cape Town Convention as it relates to aircraft objects that fall out the definitions of ‘aircraft’ and ‘airframe’ under the Cape Town Convention.
While this may leave financiers, owners and lessors with the obligation to comply with both the PPSA and the Cape Town Convention, most commercial aircraft will fall out operation of the PPSA.
How will accession impact on the Personal Property Securities Act and other legislation?
No significant restructuring of the PPSA will be required. The Personal Property Securities Regulations 2010 were drafted to include provisions that recognise the role of the Cape Town Convention as they relate to aircraft and their inclusion has given the government the opportunity to accede without the need to undertake a fundamental overhaul of the PPSA. The only significant amendment will be to insert a provision that makes it clear that the Cape Town Convention prevails over the PPSA to the extent of any inconsistency with the PPSA. This same provision is likely to be required to be added to the Civil Aviation Act 1988 which will require amendments to allow for the recording of IDERAs and to direct CASA to de-register an aircraft from the aircraft register in prescribed circumstances. The Civil Aviation Safety Regulations 1988 will also require amendment to reflect the requirements of the Aircraft Protocol, in particular Article XIII (recording of IDERAs) and Article XI (insolvency remedies).
Minimal amendment will be required to other legislation such as the Corporations Act 2001 to allow for implementation of the Cape Town Convention.
Harmonising laws between Australia and New Zealand
It has been one of the objectives of the Council of Australian Governments to harmonise the laws between Australia and New Zealand through its National Reform Agenda. New Zealand introduced implementing legislation to enable its government to accede to the Cape Town Convention on 31 May 20104. The bill received royal assent on 30 June 2010 and the 12 declarations made by the New Zealand government came into effect on 1 August 2010.
Once Australia passes its own implementing legislation it will be closer to satisfying this objective.
Next steps
There are several steps to be completed before accession can take place; the treaty examination process must be completed, implementing legislation needs to be drafted and the relevant bills passed by both houses of parliament. Once that has happened it is likely that the commencement of the bill to implement the Cape Town Convention will come into force on royal assent with the declarations coming into force at a later date, the usual period being within 3 months of royal assent.
Final thoughts
The decision to register an international interest under the Cape Town Convention will be optional;5 however failure to register that interest on the International Registry6 can be fatal to the interests of a financier, owner, lessor and lessee. This is primarily driven by the priority rules contained in the Cape Town Convention that provide simply that the first party to have a registered and “searchable” interest has priority.
Like the PPSA, if a secured party has a registrable interest in an aircraft object that is covered by the Cape Town Convention, the interest must be perfected in the manner required under the Cape Town Convention. Failure to do so may result in the extinguishment of the interest or at a minimum, loss of priority to competing creditors or a subsequent purchaser, even where that party has actual knowledge of the interest.
In light of the significant changes to the substantive and procedural laws relating to perfection of an interest in aircraft objects that have occurred because of the introduction of the PPSA and in the near future, the Cape Town Convention, Norton Rose FulbrightNorton Rose Fulbright will be providing an educational program on best practices when dealing with the Cape Town Convention and the conducting of aircraft closings
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Australian Government announces implementation of Cape Town by 2014 – a positive development for the aircraft sector
The Australian Government announced that it would sign up to the Cape Town Convention. It is expected to become part of domestic law by 2014.
This is a positive development in the Australian aircraft sector which if implemented correctly, will have benefits for financiers, lessors and airlines.
What is the Cape Town Convention (“Convention”)?
The Convention helps to facilitate aircraft financing by providing financiers with an international standard for the protection of ownership rights and security interests in movable assets. It is used by major airlines, lessors and financiers across the world.
The Convention establishes:
Advantages of the Convention
Under the OECD’s Aircraft Sector Understanding, Australian airlines will have the benefit of reduced premiums in export credit financing arrangements. To apply, the OECD will need to be satisfied that the Convention and its qualifying declarations have been adequately implemented into national law.
Financiers and lessors also stand to benefit for all transactions (not just export credit transactions), as the Convention brings speed and certainty to the repossession process, which should significantly reduce the risk of lending or leasing to Australian airlines.
Current regime for registration – PPSA
In Australia, security interests arising under aircraft financing transactions are currently registered under the PPSA regime.
The commencement of the Personal Property Securities Act 2009 (“PPSA”) on 30 January 2012 (“RCT”) in Australia introduced a new system for the creation, registration and enforcement of security interests in assets, which replaced the previous registration of company charges at ASIC. The PPSA contains transitional provisions which affect security interests created before the RCT. These transitional security interests enjoy temporary perfection until 30 January 2014 unless registered before this date. Absent any current detail on the implementation of the Convention, registration of these security interests should continue under the PPSA.
It is unclear how the Government intends to deal with the registration of interests under the Convention and PPSA following the implementation of Cape Town in 2014. In our view, it is essential that there is no duplication of registrations systems or registration costs for parties to aircraft financing transactions. If not implemented efficiently, parties may need to register under Cape Town and under the PPSA.
Interaction with PPSA
We are speaking to the Government about the best way of moulding the systems moving forward. We need to ensure that there is consistent interplay between the PPSA and the Convention to avoid any duplication of registration and costs for parties under the two regimes.
We made submissions to the Government in 2010 in support of the implementation of the Convention into Australia provided that it ties in with the PPSA.
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