Aviation Finance & Leasing

Transcription

1 Aviation Finance & Leasing in 25 jurisdictions worldwide 2014 Contributing editor: Mark Bisset Published by Getting the Deal Through in association with: Advokatfirman Vinge ǼLEX Al Busaidy, Mansoor Jamal & Co Alegre, Calderón y Márquez Abogados Arnecke Siebold Rechtsanwälte AZB & Partners Basch & Rameh Beijing Run Ming Law Office Blake, Cassels & Graydon LLP Camilleri Preziosi Clifford Chance CIS Limited Clyde & Co LLP Conyers Dill & Pearman (Cayman) Limited Cuatrecasas, Gonçalves Pereira De Brauw Blackstone Westbroek NV Herbst Kinsky Rechtsanwälte Kim & Chang Maciel, Norman & Asociados Meyer Avocats Patton, Moreno & Asvat Pillsbury Winthrop Shaw Pittman LLP Russin Vecchi & Heredia Bonetti Stephenson Harwood AARPI Verhaegen Walravens

2 CONTENTS Aviation Finance & Leasing 2014 Contributing editor: Mark Bisset Clyde & Co LLP Getting the Deal Through is delighted to publish the first edition of Aviation Finance & Leasing 2014, a new volume in our series of annual reports, which provide international analysis in key areas of law and policy. Following the format adopted throughout the series, the same key questions are answered by leading practitioners in each of the 25 jurisdictions featured. Every effort has been made to ensure that matters of concern to readers are covered. However, specific legal advice should always be sought from experienced local advisers. Getting the Deal Through publications are updated annually in print. Please ensure you are always referring to the latest print edition or to the online version at Getting the Deal Through gratefully acknowledges the efforts of all the contributors to this volume, who were chosen for their recognised expertise. Getting the Deal Through would also like to extend special thanks to contributing editor Mark Bisset of Clyde & Co LLP for his assistance in devising and editing this volume. Getting the Deal Through London June 2014 Global Overview 3 Mark Bisset Clyde & Co LLP Aircraft Mortgages - English Law or New York Law? 6 Thomas A Zimmer and Dominic Pearson Pillsbury Winthrop Shaw Pittman LLP Argentina 8 María Laura Maciel and Rogelio N Maciel Maciel, Norman & Asociados Austria 14 Christoph Wildmoser Herbst Kinsky Rechtsanwälte Belgium 18 Giulia Mauri Verhaegen Walravens Brazil 24 Kenneth Basch Basch & Rameh Canada 30 Donald G Gray and Jason MacIntyre Blake, Cassels & Graydon LLP Cayman Islands 37 Matthew Stocker Conyers Dill & Pearman (Cayman) Limited China 42 Liu Yi Beijing Run Ming Law Office Dominican Republic 49 Maria Esther Fernandez A de Pou and Raul E Rodríguez Pereyra Russin Vecchi & Heredia Bonetti England & Wales 58 Mark Bisset Clyde & Co LLP France 63 Edward Campbell Stephenson Harwood AARPI Germany 70 Ulrich Steppler and Katja Helen Brecke Arnecke Siebold Rechtsanwälte India 77 Ashwin Ramanathan, Nithya Narayanan, Aayush Misra and Manish Jha AZB & Partners Ireland 83 Hilary Marren and Joe Fay Korea 90 Young Kyun Cho, Young Min Kim and Robert L Gilbert Kim & Chang Malta 95 Malcolm Falzon, Steven Decesare and Tara Cann-Navarro Camilleri Preziosi Mexico 102 Javier Alegre and Carlos Campillo Alegre, Calderón y Márquez Abogados Netherlands 107 Berend Crans and Thijs Elseman De Brauw Blackstone Westbroek NV Publisher Gideon Roberton [email protected] Subscriptions Rachel Nurse [email protected] Business development managers George Ingledew [email protected] Alan Lee [email protected] Dan White [email protected] Published by Law Business Research Ltd 87 Lancaster Road London, W11 1QQ, UK Tel: Fax: No photocopying: copyright licences do not apply. First published 2014 ISSN The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. This information is not intended to create, nor does receipt of it constitute, a lawyer client relationship. The publishers and authors accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of June 2014, be advised that this is a developing area. Printed and distributed by Encompass Print Solutions Tel:

3 CONTENTS Nigeria 114 L Fubara Anga and Chinanu Osuji ǼLEX Oman 119 Mansoor Malik and Nathaniel Armstrong Al Busaidy, Mansoor Jamal & Co Panama 128 Maria de Lourdes Marengo Patton, Moreno & Asvat Portugal 134 Luís Soares de Sousa Cuatrecasas, Gonçalves Pereira Russia 142 Victoria Bortkevicha and Evgeniya Armstrong Clifford Chance CIS Limited Sweden 148 Fredrik Wilkens, Emma Stuart-Beck and Malin Sund Advokatfirman Vinge Switzerland 154 Frédéric Meyer, Raphaël Baeriswyl, Philippe Renz and Antoine Labaume Meyer Avocats United States 160 Thomas A Zimmer Pillsbury Winthrop Shaw Pittman LLP 2 Getting the Deal Through Aviation Finance & Leasing 2014

4 IRELAND Ireland Hilary Marren and Joe Fay Overview 1 To which major air law treaties is your state a party? Is your state a party to the New York Convention of 1958? Ireland is a signatory to, and has ratified, the Chicago Convention of 1944 on International Civil Aviation. The 2001 Cape Town Convention on International Interest in Mobile Equipment and the associated Protocol on Matters Specific to Aircraft Equipment were given force of law in Ireland by the International Interests in Mobile Equipment (Cape Town Convention) Act Ireland is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), subject to the reservation that Ireland will only enforce the judgments of other contracting states. Ireland has signed, but has not yet ratified, the 1948 Geneva Convention on the International Recognition of Rights in Aircraft. Ireland is not a party to the 1933 Convention for the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft (known as the Rome Convention). 2 What is the principal domestic legislation applicable to aviation finance and leasing? There is no specific piece of legislation targeted solely at aviation finance and leasing, other than perhaps the International Interests in Mobile Equipment (Cape Town Convention) Act 2005 which gives effect to the Cape Town Convention and the related Aircraft Protocol. Legislation which is relevant to typical aviation finance and leasing structures in Ireland includes the Companies Act and certain provisions relating to the creation and enforcement of security arising under the Land and Conveyancing Law Reform Act 2009 (as amended). 3 Are there any restrictions on choice-of-law clauses in contracts to the transfer of interests in or creation of security over aircraft? If parties are not free to specify the applicable law, is the law of the place where the aircraft is located or where it is registered the relevant applicable law? In general, parties are free to choose the laws to govern contracts between them, and such choice will usually be given effect provided that it has been expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances in which it was entered into. However, the law which governs contractual obligations in a document relating to the creation of a right in rem (for example, the transfer of property or the creation of security interests in property) is not dispositive of such matters. Generally, as a matter of Irish law, creation of an interest in property must be valid in accordance with, inter alia, the law of the place where the property is deemed to be located at the relevant time (the lex situs). However, if the sale of an aircraft or engine falls within the scope of the Cape Town Convention and the related Aircraft Protocol then, as a matter of Irish law, the applicable contract of sale will be effective to transfer the seller s interest to the buyer without reference to the lex situs. Title transfer 4 How is title in an aircraft transferred? Under Irish law, title in an aircraft is customarily transferred by way of a bill of sale. Irish law will also give effect to transfer of title by way of delivery, although it is usual to obtain a written acknowledgement of delivery from the purchaser. 5 What are the formalities for creating an enforceable transfer document for an aircraft? A bill of sale must be in writing, must identify the property to which it relates and the purchaser, and must be signed by the seller. It need not be signed by the purchaser. If it is intended for the instrument of sale to constitute a contract of sale within the meaning of the Cape Town Convention and the related Aircraft Protocol then, in addition to there being a connecting factor with the convention, the contract must be in writing, must relate to an aircraft object of which the seller has the power to dispose and enable the aircraft object to be identified in conformity with the convention. Furthermore the contract of sale must not contain an express reservation of title. Registration of aircraft ownership and lease interests 6 Identify and describe the aircraft registry. The Irish aircraft register is operated and maintained by the Irish Aviation Authority (IAA). It is a registry of nationality, not title. Registration of an aircraft in the name of a person does not establish that person s title to the aircraft, nor can it be regarded as giving notice (whether actual or constructive) as to a person s interest in an aircraft. The IAA has concluded a number of 83-bis arrangements of which at least seven are active, namely those with Colombia, Italy, Mexico, Mongolia, Norway, the Russian Federation, and Spain. An aircraft may not be registered in the state, or continued to be registered in the state unless it is wholly owned by: a citizen of Ireland or a citizen of a member state of the European Union having a place of residence or business in Ireland; or a company registered in and having a place of business in Ireland and having its principal place of business in Ireland or in another member state of the European Union, whereof not less than two thirds of the directors are citizens of Ireland or of member states of the European Union; or by such citizen and company in combination. Notwithstanding the foregoing, an aircraft may also be registered in Ireland if it is chartered by demise, leased or on hire to, or is in the course of being acquired under a lease-purchase or hire-purchase 83

5 IRELAND agreement by, a citizen or company such as is referred to above or by such citizen and company in combination, but such registration is subject to such conditions as the IAA may deem fit to impose. Please note that an aircraft will not qualify for Irish registration if: it is already registered in another country; it appears to the IAA that any statutory requirements relating to the safety of the operation or the airworthiness of the aircraft cannot by complied with; or it is not compliant with applicable noise or exhaust gas emissions regulations or orders made or effective under the European Communities Act Can an ownership or lease interest in, or lease agreement over, aircraft be registered with the aircraft registry? Are there limitations on who can be recorded as owner? Can an ownership interest be registered with any other registry? Can owners, operators and lessees interests in aircraft engines be registered? As mentioned in question 6, the Irish aircraft register is a register of nationality, not title. The basic criteria for registration of an aircraft in Ireland are set out in question 6. The rights of a mortgagee, lessor or lessee in an aircraft cannot be separately registered or noted on the Irish register of aircraft. There is no separate register of engines. Interests which fall within the Cape Town Convention and the related Aircraft Protocol may be registered against an airframe or the applicable engine at the International Registry. 8 Summarise the process to register an ownership interest. As noted above, the Irish aircraft register is a register of nationality, not title. This answer provides basic information in relation to the process for registering an aircraft with the IAA where the applicant is an Irish company (which will usually be the case). More detailed information is available at the website of the IAA: An application to have an aircraft registered with the IAA must be made by filling out a form (AWSD Form 1) and sending the signed original to the IAA. This form is available online at www. iaa.ie. Evidence must be given in support of the particulars, and the applicant is required to declare the truth of the particulars set out in the application. Where the applicant is an Irish company, no notarisation or appostilling will be required. A completed, dated and signed aircraft registration AWSD Form 1 must be sent to the IAA, along with the prescribed fee. If the aircraft has been registered in another state, a certificate from the competent authorities in the state of such registration that the registration is cancelled will be required. A Certificate of Airworthiness must be obtained from the IAA before an aircraft registered on the Irish register can operate. In order to issue a Certificate of Airworthiness, the IAA will require, inter alia, the following: if the aircraft is previously registered in another jurisdiction an Export Certificate of Airworthiness from that jurisdiction; the identity of the company which owns the aircraft, including a list of its directors and shareholders, a copy of its certificate of incorporation and its Memorandum and Articles of Association (constitutional documents); details regarding the jurisdictions in which the aircraft will operate; a maintenance programme for the aircraft be agreed with, and approved by, the IAA; and the current practice of the IAA is to require that there be some company or organisation based in Ireland which will be responsible to the IAA, which will provide technical support for the aircraft and which can deal with any queries of a technical nature raised by the IAA. 9 What is the effect of registration of an ownership interest as to proof of title and third parties? As noted above, the Irish aircraft register is a register of nationality, not title. 10 Summarise the process to register a lease interest. It is not necessary or possible to register a lease with the IAA. 11 What is the regime for certification of registered aviation interests in your jurisdiction? The certificate of registration is issued by the IAA. It states the nationality and registration marks of the aircraft, the manufacturer and manufacturer s designation of the aircraft, the aircraft serial number and the name and address of the registered owner (as noted in earlier answers, this will not necessarily be the legal owner). The criteria for registration and the application procedure are summarised above. 12 Is an owner or mortgagee required to consent to any deregistration or export of the aircraft? Must the aviation authority give notice? Can the operator block any proposed deregistration or export by an owner or mortgagee? Subject to the content of the following paragraph, registration can be cancelled by the IAA at the written request of the registered owner or the lawful representative of the registered owner with the appropriate power of attorney. To export or deregister an aircraft, a request in writing from the registered owner (signed by a director or the company secretary of the company being the registered owner) is required. The request must include the complete description of the aircraft, registration marks, make, model, serial number, statement of reason for cancellation. The name of the foreign state to which the aircraft is being exported is also required. Where an Export Certificate of Airworthiness is required, the applicant should submit the applicable Certificate of Airworthiness application forms with prescribed fee to the IAA. Where the registered owner has issued an irrevocable deregistration request and export authorisation (IDERA) in accordance with the Cape Town Convention and the related Aircraft Protocol which has been duly recorded by the IAA, the IAA is obliged to co-operate with and assist the authorised party thereunder in the exercise of the remedies set out in article IX of the Protocol (which include the deregistration and export of the aircraft). Where the authorised party named in an IDERA is applying for deregistration, it will need to present the original stamped duly recorded IDERA to the IAA. Where an IDERA has been registered against an aircraft, the authorised party named in the IDERA (or its designee) is the only person who may request the deregistration of the aircraft and the IAA must honour the terms of the IDERA, subject to applicable safety laws and regulations. The authorised party acting on foot of an IDERA will be required to certify to the IAA that all interests registered at the International Registry ranking in priority to the interest of the authorised party have been discharged or that the holders of such interests have consented to the deregistration. In practice, IDERAs have supplanted deregistration powers of attorney as the means of effecting deregistration of Irish registered aircraft in distressed circumstances. However, it is usual to obtain a separate deregistration power of attorney with a view to possibly enabling the grantee to perform and effect actions which do not relate to deregistration, and 84 Getting the Deal Through Aviation Finance & Leasing 2014

6 IRELAND which are more extensive than the powers and delegations provided for in an IDERA. 13 What are the principal characteristics of deregistration and export powers of attorney? Deregistration and export powers of attorney (other than IDERAs; see question 14) must be in writing, should be signed, should be expressed to be by way of deed and are usually executed under the common seal of the registered owner. Even if expressed to be irrevocable, the power of attorney may be revoked by the grantor unless it is expressly stated to secure an obligation of the grantor in favour of the attorney. Powers of attorney can be granted to more than one person and where granted by an Irish company will typically survive the insolvency of that company (although the ability to exercise them may be limited or restricted depending upon the type of insolvency procedure which applies to the Irish company). Deregistration and export powers of attorney are not registrable at the IAA (see, however, question 14 regarding IDERAs). 14 If the Cape Town Convention is in effect in the jurisdiction, describe any notable features of the irrevocable deregistration and export request authorisation (IDERA) process. The prescribed form of IDERA to be registered at the IAA under the Cape Town Convention and the related Aircraft Protocol is available on the IAA s website The IDERA must be signed in duplicate by the registered owner (or by a director of the registered owner, if it is a company). Both originals are submitted to the IAA which retains one and returns the other (stamped). This stamped counterpart original must be carefully retained by the authorised person as the original must be presented to the IAA if the authorised person (or its designee) wishes to act on the IDERA. An IDERA which has been registered with the IAA may be revoked by the authorised person only. Applications to revoke an IDERA must be made in writing on the authorised person s letterhead and signed by an approved signatory. Security 15 What is the typical form of a security document over the aircraft and what must it contain? Security over an aircraft is typically taken by way of a mortgage, which must be in writing and be a deed. The mortgage must secure a payment obligation but need not specify a maximum secured amount. Similarly, the mortgage instrument need not record the economic details of the financing (eg, the amount of the loan, the interest rate, the repayment structure). The mortgage must clearly identify the secured property. There are no statutory requirements relating to the terms of aircraft mortgages (other than in the case of a mortgage created by an Irish individual or partnership and which is required to be registered under the applicable Bills of Sale legislation). If it is intended that the mortgage should give rise to an international interest for the purposes of the Cape Town Convention and the related Aircraft Protocol, then the requirements set out therein must be complied with. 16 What are the documentary formalities for creation of an enforceable security over an aircraft? What are the documentary costs? As there is no register of aircraft mortgages in Ireland, it is not necessary to have the execution of the mortgage notarised or legalised. As a matter of Irish law, a deed must be in writing, executed under the common seal of the relevant company (or executed by an authorised attorney acting under a power of attorney which has been executed under the common seal of the company), witnessed and delivered. If the mortgage is not in English (or in Irish) then it will have to be translated into English if it is to be enforced before the Irish courts. 17 Must the security document be filed with the aviation authority or any other registry as a condition to its effective creation or perfection against the debtor and third parties? Summarise the process to register a mortgagee interest. There is no register of aircraft mortgages in Ireland and, as previously noted, it is not possible to register an aircraft mortgage with the IAA. Where the security is created by an Irish incorporated company, or a company incorporated outside of the state but which has a place of business within the state, then pursuant to Part IV of the Companies Act 1963 (as amended), prescribed particulars of the security must be registered with the Registrar of Companies within 21 days of the creation of the security. The particulars to be filed include the name of the chargor, the date of creation of the charge, the amount secured by the charge, short particulars of the property charges and the identity of the person entitled to the charge. There is no requirement to renew the filing made under Part IV of the Companies Act The filing fee is 40. If the security is created by an individual or partnership, then it must be registered at the Central Office of the High Court within seven days after execution in accordance with the applicable Bills of Sale legislation. This registration must be renewed every five years. If the security constitutes an international interest for the purposes of the Cape Town Convention and the related Aircraft Protocol, then such international interest should be registered against the relevant aircraft object at the International Registry. If the security is, or contains, a charge over book debts and the company creating the security is incorporated in Ireland or operates in Ireland then a filing under section 1001 of the Taxes Consolidation Act 1997 (as amended) should be made with the Irish Revenue Commissioners within 21 days of the creation of the security. 18 How is registration of a security interest certified? Where a filing has been made with the Registrar of Companies in accordance with the requirements of Part IV of the Companies Act 1963, by a company incorporated or registered in the state, then the Registrar of Companies will issue a certificate of registration of a charge. The certificate is conclusive evidence that the requirements of Part IV have been complied with. There is no prescribed period within which the Registrar must issue the certificate it can often take a number of months. 19 What is the effect of registration as to third parties? If a filing with the Registrar of Companies in respect of a security interest is required to be made pursuant to Part IV of the Companies Act 1963 (see question 17), but no such filing is made within the prescribed period, then the security is rendered void against the liquidator and any creditor of the company and the sums secured by the security interest become immediately due and payable. However, registration with the Registrar of Companies is merely perfection of the security; it does not, in itself, create priority. Priority after registration with the Registrar of Companies will be according to the date of creation of the security interest. Protection will be afforded to a mortgagee insofar as all subsequent mortgagees will be deemed to be on notice of the existence of the prior mortgage and of its particulars as filed with the Registrar of Companies (or in the case of security created by an Irish individual or partnership, as filed with the Central Office of the High Court). In Ireland, the only registration system of priority in respect of security interests in aircraft arises under the Cape Town Convention 85

7 IRELAND and the related Aircraft Protocol. If a mortgage or charge constitutes an international interest thereunder, which is capable of being and has been registered in the International Registry, then the rights and interests of the chargee as creditor with respect to the airframe and the engines pursuant to the international interest constituted under the mortgage or charge will be subject only to: the rights and interests of any persons who are evidenced as having a registration in relation to the airframe and engines that is prior to the international interest constituted under the mortgage or charge on a priority search certificate issued by the International Registry; the rights and interests of the operator owner and the operator in the airframe and the engines pursuant to the Convention and the quiet enjoyment provisions set out in the relevant transaction documents; a pre-existing right or interest which enjoyed under the applicable law, before the effective date of the Convention, a priority greater than an international interest constituted under the mortgage or charge; the non-consensual rights or interests included in those categories covered by Ireland s declaration under article 39 of the Cape Town Convention; and the rights of Ireland, any state entity, intergovernmental organisation or other private provider of public services to arrest or detain an aircraft object under the laws of Ireland for payment of amounts owed relating to those services in respect of that or another aircraft object pursuant to the declaration made by Ireland under article 39 of the Cape Town Convention. 20 How is security over aircraft and leases typically structured? What are the consequences of changes to the security or its beneficiaries? Security over an aircraft is usually taken by way of a mortgage. Security over a lease is usually taken by way of a security assignment from the lessor, with written notice to the lessee (and, by preference, a written acknowledgement from the lessee). Where the security is granted in favour of a security trustee which holds the security on trust for one or more beneficiaries then, normally, a change in the identity of the beneficiaries will not require the grant of new security (or confirmation of the existing security). 21 What form does security over spare engines typically take and how does it operate? There is no form of security peculiar to spare engines. The principles which apply to aircraft apply equally to engines. Where the engine is installed on the airframe it would be usual to include that engine in the general aircraft mortgage. If the engine is off-wing, then a mortgage is taken over the engine in the same way as a mortgage is taken over the airframe. The filing and registration requirements set out in questions 17, 18 and 19 apply. Enforcement measures 22 Outline the basic repossession procedures following lease termination. How may the lessee lawfully impede the owner s rights to exercise default remedies? There is no restriction in Irish law on enforcement of a lease by the lessor by taking possession of the aircraft following termination or default, provided the terms of the lease allow it. If the repossession is contested, the lease should also accommodate entry onto the property of the lessee (or other relevant landowner) to take possession. Repossession without judicial proceedings is likely to involve risks if it is not consensual. In particular, a lessee may claim that what it regards as an unjustified attempt by a lessor to recover possession is a breach of the covenant in the lease for quiet enjoyment and use of the aircraft, and may seek to restrain any such attempt by injunction. If the lessor anticipates that the lessee will not co-operate (or, where the lessee is in liquidation or examinership, that the liquidator or examiner is unlikely to consent to repossession), the prudent course is often to begin judicial proceedings for recovery of the aircraft. Proceedings for recovery of an aircraft are usually eligible to be heard in the Commercial Court, a specialist division of the Irish High Court with enhanced case-management procedures designed to progress cases expeditiously and to minimise costs. In many cases, the lessor will seek an injunction to detain the aircraft or to restrain its removal from Ireland pending the hearing. An application to restrain or detain an aircraft by interim injunction can be made ex parte (without notice to the lessee) in urgent cases. If an interim injunction is granted, notice of the making of an order is served immediately on the lessee and any other relevant party and the court fixes a hearing date (within a few days) for the hearing of the application with both parties present. An interlocutory injunction, restraining disposal or requiring delivery up of an aircraft, may be granted where the court is satisfied that: there is a serious question to be tried; damages are an inadequate remedy in the circumstances; and the balance of convenience favours the applicant (lessor). If an interlocutory injunction is granted, the applicant must give an undertaking in damages confirming that it will, if ultimately unsuccessful at the trial, compensate the defendant for any loss and damage caused as a result of the granting of the interlocutory injunction. The court may make various types of interlocutory orders, for example restraint of disposal, detention, preservation or inspection of the aircraft, pending trial. Where an injunction application seeks to restrain a lessee from removing an aircraft from Ireland, the applicant must also satisfy the court that the defendant s intention is to dispose of the asset for the purpose of preventing recovery of damages and not merely for the purpose of carrying on its business or discharging its lawful debts. 23 Outline the basic measures to enforce a security interest. How may the owner lawfully impede the mortgagee s right to enforce? On the occurrence of an event of default under a mortgage, the mortgagee can in principle take possession of the aircraft without judicial proceedings. However, there is no specific legislation relating to enforcement of security over aircraft. While it is likely that the Irish courts would apply land law by analogy in respect of the mortgagee s position and power of sale, much will depend on the language of the mortgage, including the provisions for appointment of a receiver, etc, and the position of the defaulting mortgagor (particularly, whether it is co-operating). In Ireland, mortgages may be executed as legal mortgages (which constitute an immediate transfer of title from the aircraft to the mortgagee, subject only to the mortgagor s equity of redemption) or as equitable mortgages (which constitute only an agreement to transfer title to the mortgagee). Strictly, in the case of a legal mortgage, a mortgagee is entitled, on default and in view of his legal title, to take possession immediately and sell the asset. However, in practice, the mortgagee will require lawful and vacant possession of the aircraft before it can exercise its power of sale. In the event of non co-operation, judicial proceedings may be required to obtain lawful and vacant possession. In the case of an equitable mortgage, there may not be an immediate right of sale and the mortgagee may have to obtain a court order declaring the sum due on the mortgage to be a valid charge on the aircraft and directing sale of the aircraft if the outstanding monies are not paid within a specified time. Unless an express right of access is contained in the mortgage, the mortgagee 86 Getting the Deal Through Aviation Finance & Leasing 2014

8 IRELAND may need to obtain the consent of a relevant landowner or an order of court to enable access and repossession. In practice, it is possible to obtain possession without judicial proceedings where there is co-operation by the mortgagor and relevant landowners or third parties, but in view of the risk of claims by the mortgagor (in defence or by counterclaim or cross-claim for damages), and the risk of claims by third parties for losses caused by wrongful seizure, trespass or other reasons, it is unusual for a mortgagee to attempt to enforce its rights in a contested claim in Ireland without legal proceedings. 24 Which liens and rights will have priority over aircraft ownership or an aircraft security interest? If an aircraft can be taken, seized or detained, is any form of compensation available to an owner or mortgagee? The following aircraft liens exist under Irish law: seller s lien; salvage lien; possessory lien; and contractual lien (including pledge). A possessory lien is a common law legal lien. There are a number of pre-requisites for such a lien to exist in respect of an aircraft, namely: there must be possession by the lien-holder, which possession has been lawfully acquired and is continuous; the labour bestowed on the aircraft must improve it in some way; and the labour must be authorised by the owner, completed and the debt for such labour must be due. The owner will be subject to a possessory or contractual lien even though it may have expressly prohibited its creation by the operator of the aircraft, unless the lien-holder was aware of this. Aircraft liens will take precedence over the right of a lessee. That said, a lessee will usually be aware of the creation of aircraft liens, since it will be using the aircraft. In respect of a possessory lien, the lessee will usually have ordered these with the authority of the owner, whether that authorisation is expressed, implied or ostensible. The lessee will be aware of any salvage lien, and will be subject to any pledge over the aircraft. The lessor will usually be required to pay off the liens and then seek indemnity against the lessee. Liens are not capable of registration with the Registrar of Companies. Under the Air Navigation and Transport Acts, certain persons are granted a right to detain and in some cases to sell (or cause to be forfeited) aircraft in a variety of circumstances including: airport charges;* air navigation charges;* licensing; air navigation; customs;+ noise and aircraft emissions; patents; public health; unpaid tax;* crimes;* or war or national emergency. The legislative right of a person not only to detain, but also to sell, an aircraft exists in those cases marked with an asterisk (*). The legislative right to cause an aircraft to be forfeited is marked with a cross (+). It occurs in the case of the contravention of certain provisions of customs law, and in connection with certain crimes such as drug trafficking and illegal immigrants trafficking. On the liquidation of companies, if the mortgage has been perfected, the priority of the mortgage in the event of liquidation or bankruptcy of the mortgagor will be determined according to the order of priorities as set out below: creditors secured by a registered fixed charge; certain social welfare payments; costs, fees and expenses of the liquidator. The costs, fees and expenses of a receiver will be paid pro rata out of the proceeds of realisation of the assets secured by the fixed charge; creditors granted preference by statute; creditors secured by floating charge; unsecured creditors; and shareholders. Examiners remuneration, costs and expenses also have priority over the holders of fixed charges but rank after liens. Where an international interest exists, see question 19. Taxes and payment restrictions 25 What taxes may apply to aviation-related lease payments, loan repayments and transfers of aircraft? How may tax liability be lawfully minimised? Transfers of aircraft Instruments for the sale or transfer of aircraft are exempt from Irish stamp duty. For the purposes of Irish VAT, the sale of an aircraft is a supply of goods and the place of supply for VAT purposes is the place where the aircraft is located at the time of the supply. Accordingly, there would be deemed to be a supply for Irish VAT purposes if the aircraft is physically located in Ireland when title to the aircraft is transferred. Provided the aircraft is used or to be used by a transport undertaking operating for reward chiefly on international routes, VAT on the supply of the aircraft will be zero rated. Withholding tax on lease payments or interest payments Generally, lease rentals paid under an operating lease or a finance lease are not subject to Irish withholding tax. Withholding tax at the standard rate of income tax (currently 20 per cent) must be deducted from payments of yearly interest that are within the charge to Irish tax. Yearly interest includes any interest that is capable of arising for a period of at least one year. This includes interest arising where no period is defined, even though in practice, the period may be significantly less. However, there are a large number of exemptions from the obligation to withhold amounts on account of Irish tax from payments of Irish source yearly interest. There is an exemption for interest payments made by a company in the ordinary course of a trade or business carried on by it to a body corporate that is resident for the purposes of tax in a member state of the European Communities (other than Ireland) or in a territory with which Ireland has concluded a double taxation agreement (residence for these purposes to be determined in accordance with the laws of the territory of which the lender claims to be resident) where that member state or territory imposes a tax that generally applies to interest receivable in that member state or territory by companies from sources outside that member state or territory. The Irish courts will enforce a grossing up clause requiring payment of an additional sum to compensate for interest withheld from payments of Irish yearly interest. VAT on lease payments The lease of an aircraft is a supply of services for Irish VAT purposes. Provided the aircraft is used or to be used by a transport undertaking operating for reward chiefly on international routes, VAT on the lease of the aircraft will be zero rated. 87

9 IRELAND Update and trends It is likely that Ireland will, in the near future, give effect to the special insolvency regime, known as Alternative A in the Aircraft Protocol to the Cape Town Convention, with a waiting period of 60 days. This means that in certain respects, at least, Irish insolvency procedures will be modified for aircraft assets so that unless a default is otherwise remedied, a creditor will automatically acquire the right to repossess the aircraft asset after a period of 60 days. 26 Are there any restrictions on international payments and exchange controls in effect in your jurisdiction? Exchange Control consent has been generally abolished since As a general matter, no approvals or notifications to the Central Bank of Ireland would be required for payments, including payments of insurance claims out of Ireland. However, it is possible that the Minister for Finance may impose financial restrictions or asset freezing measures by orders under certain domestic and EU legislation. 27 Are there any limitations on the amount of default interest that can be charged on lease or loan payments? Default interest provisions in a lease or loan agreement may be unenforceable to the extent that these are subsequently adjudged to be in the nature of a penalty. 28 Are there any costs to bring the aircraft into the jurisdiction or take it out of the jurisdiction? Does the liability attach to the owner or mortgagee? The importation of an aircraft into Ireland from outside the European Union will give rise to a charge to Irish VAT. Irish VAT will be chargeable at a rate of 0 per cent where the aircraft is used or to be used by a transport undertaking operating for reward chiefly on international routes. If the aircraft is not used or to be used by a transport undertaking operating for reward chiefly on international routes, the appropriate rate of VAT is 23 per cent. The importation of an aircraft into Ireland from outside the European Union will also be subject to the payment of customs duties. No VAT or export taxes are payable on the export of the aircraft from Ireland. Insurance and reinsurance 29 Summarise any captive insurance regime in your jurisdiction as applicable to aviation. There is no captive insurance regime in Ireland applicable to aviation. 30 Are cut-through clauses under the insurance and reinsurance documentation legally effective? Not applicable. Aviation insurance for Irish airlines is typically placed in the London market under insurance contracts which are governed by English law. 31 Are assignments of reinsurance (by domestic or captive insurers) legally effective? Are assignments of reinsurance typically provided on aviation leasing and finance transactions? Assignments of reinsurance are legally effective in Ireland. In our experience, assignments of reinsurance are typically provided in aviation leasing and finance transactions in Ireland. 32 Can an owner, lessor or financier be liable for the operation of the aircraft or the activities of the operator? Liability in negligence arises from a failure to take reasonable care to discharge a duty of care with the result that damage is caused to a party to whom that duty is owed. The mere provision of finance for a commercial enterprise would not of itself be sufficient to give rise to a duty of care on the part of the financier to those who suffer damage as a result of the negligent operation of an aircraft by a commercial enterprise. The financier of an aircraft could come under a duty of care to third parties only in exceptional circumstances. For example, financing an aircraft which was known to be defective or failing to exercise a control open to it if it became aware that the aircraft was being improperly operated or maintained might well give rise to a liability. As far as we are aware, however, an issue of this kind has not come before an Irish court. It is possible that a claimant could seek to fix an owner, lessor or financier with liability under certain safety and defective products legislation. However, it is likely that good defences would be available to an owner, lessor or financier in the event of such claims. 33 Does the jurisdiction adopt a regime of strict liability for owners, lessors, financiers or others with no operational interest in the aircraft? Strict liability is imposed by section 21 of the Air Navigation and Transport Act 1936 (as amended) (the 1936 Act) on the owner (who will be entitled to be indemnified by another in whom legal liability is created ) where material damage is caused to any persons or property on land or water by any article or person falling from an aircraft Hilary Marren Joe Fay [email protected] [email protected] Riverside One, Sir John Rogerson s Quay Tel: Dublin 2 Fax: Ireland 88 Getting the Deal Through Aviation Finance & Leasing 2014

10 IRELAND while in flight, taking off or landing. Only if the lenders could be considered the owner by virtue of holding a security interest of a proprietary nature could liability arise under this provision. In the event that any of the financiers could be considered to be the owner for the purpose of strict liability imposed by section 21 of the 1936 Act, liability on the part of the relevant financier would be excluded by section 21(2) pursuant to which the party to which the aircraft is demised for more than 14 days is deemed liable instead of the owner if no pilot, commander or operative member of the crew is in the employment of the owner. Similarly, in the event that a lessor or financier could be treated as the owner for the purpose of the strict liability imposed by section 21 of the 1936 Act, section 21(2) would also exclude liability on their part. While the owner could be treated as the owner for the purpose of the strict liability imposed by section 21 of the 1936 Act, liability on the part of the owner could be excluded by section 21(2). 34 Are there minimum requirements for the amount of third-party liability cover that must be in place? EC Regulation No. 785/2004 of the European Parliament and of the Council of 21 April 2004 imposes certain minimum requirements in respect of liability for passengers, baggage and cargo. EC Regulations have direct effect in Ireland. 89

11 Annual volumes published on: Acquisition Finance Advertising & Marketing Air Transport Anti-Corruption Regulation Anti-Money Laundering Arbitration Asset Recovery Banking Regulation Cartel Regulation Climate Regulation Construction Copyright Corporate Governance Corporate Immigration Data Protection & Privacy Debt Capital Markets Dispute Resolution Domains & Domain Names Dominance e-commerce Electricity Regulation Enforcement of Foreign Judgments Environment Foreign Investment Review Franchise Gas Regulation Insurance & Reinsurance Insurance Litigation Intellectual Property & Antitrust Investment Treaty Arbitration Islamic Finance & Markets Labour & Employment Licensing Life Sciences Mediation Merger Control Mergers & Acquisitions Mining Oil Regulation Outsourcing Patents Pensions & Retirement Plans Pharmaceutical Antitrust Private Antitrust Litigation Private Client Private Equity Product Liability Product Recall Project Finance Public Procurement Real Estate Restructuring & Insolvency Right of Publicity Securities Finance Shipbuilding Shipping Tax Controversy Tax on Inbound Investment Telecoms and Media Trade & Customs Trademarks Vertical Agreements For more information or to purchase books, please visit: Strategic Research Partner of the ABA Section of International Law Official Partner of the Latin American Corporate Counsel Association AVIATION FINANCE & LEASING 2014 ISSN