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 Conyers Dill & Pearman (Cayman) Limited Cuatrecasas, Gonçalves Pereira De Brauw Blackstone Westbroek NV Herbst Kinsky Rechtsanwälte Kim & Chang Maciel, Norman & Asociados McCann FitzGerald Meyer Avocats Patton, Moreno & Asvat Russin Vecchi & Heredia Bonetti Stephenson Harwood AARPI Verhaegen Walravens

2 CONTENTS Aviation Finance & Leasing 2014 Contributing editor: Mark Bisset 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 for his assistance in devising and editing this volume. Getting the Deal Through London June 2014 Global Overview 3 Mark Bisset Aircraft Mortgages - English Law or New York Law? 6 Thomas A Zimmer and Dominic Pearson 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 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 McCann FitzGerald 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: Law Business Research Ltd 2014 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 2 Getting the Deal Through Aviation Finance & Leasing 2014

4 AIRCRAFT MORTGAGES Aircraft Mortgages English Law or New York Law? Thomas A Zimmer and Dominic Pearson Aircraft mortgages: English law or New York law? When taking a mortgage over an aircraft, financiers will often be faced with a choice between expressing the document to be governed by either English or New York law. Both are equally popular, but while a validly created and properly filed mortgage governed by either law will provide financiers with broadly similar remedies, the validity and filing requirements themselves under the laws of each jurisdiction can vary significantly. Financiers may not always be aware of these differences and what cost implications may flow from them. This article explores and highlights some of those differences and the bumps in the road that exist when granting a valid mortgage in each jurisdiction. Validity Looking first to validity requirements, provided that the amount secured by a New York law governed mortgage against an aircraft (a New York aircraft mortgage) is more than US$250,000, a court located in New York will give effect to the selection of New York law to govern the enforceability of the contractual terms between the borrower and the financier. The vast majority of New York aircraft mortgages will easily meet this threshold. However, New York law and federal law impose certain requirements for the valid grant of a mortgage. New York law requires that the document granting the mortgage must be in writing not a difficult requirement. Additional requirements are imposed by US federal law, and treaties that pre-empt New York law in certain circumstances, in order for a New York aircraft mortgage to be valid. Firstly, if the aircraft is registered in the United States, the validity of the mortgage is governed by the laws of the place where the document granting the New York aircraft mortgage is delivered, even though the contractual relations between the borrower and the financier remain governed by New York law. In this way, federal law distinguishes between the validity of the New York aircraft mortgage in other words the creation of the rights the financier has in the aircraft (a security interest ) and the contractual rights the parties have against each other. In practice, this only becomes an issue for US-registered aircraft if the document granting the New York aircraft mortgage is delivered outside the State of New York, which the lawyers can usually manage without much difficulty. Secondly, if the aircraft is registered in a country which, like the United States, has adopted the Convention on the International Recognition of Rights in Aircraft signed in Geneva on 19 June 1948 (the Geneva Convention), then there is a risk that a New York aircraft mortgage may not be valid under New York law unless it is also valid under the laws of that other country. As a practical matter such a formality represents additional costs, as it creates a requirement to engage foreign lawyers licensed in that other state to advise what additional steps, if any, are needed to ensure the New York aircraft mortgage is properly constituted in that country and is therefore valid as a matter of US federal and New York law. An English law-governed mortgage against an aircraft (an English aircraft mortgage) may be granted orally without a written contract, although customarily and for evidentiary reasons it is executed and delivered as a deed a special form of written contract, allowing the financier to take advantage of additional legal protections. The selection of English law to govern the contractual relations between the borrower and the financier under the English aircraft mortgage will be given effect by the English courts. Unlike a New York aircraft mortgage, there is no interplay between different tiers of laws such as state law, federal law and international treaties. Under English law, a mortgage is more than just a contract. It actually works by transferring ownership of the aircraft to the financier on the condition that it will be transferred back again when the debt it secures is paid off. It therefore creates for the financier property rights known as a proprietary interest in the aircraft. While it is this proprietary right that gives rise to powerful remedies exercisable by the financier, this legal concept also gives rise to a serious drawback, the lex situs problem. Put simply, English law requires that the law of the place where the aircraft was situated at the time the English aircraft mortgage was granted also recognise the validity of the mortgage. If it does not, then the financier will not have a valid mortgage even though it may still have a valid contract with the borrower to grant a mortgage. The difference is important: a valid mortgage means the financier is treated in much the same way as an owner and therefore has property rights in the aircraft enforceable against a third party. In contrast, a valid contract means the financier has no rights to the aircraft as against third parties and may resort only to enforce the contract against the borrower. As a result, it may not have priority in the assets of the borrower ahead of other unsecured creditors. The lex situs problem is potentially a very costly one in practice due to the inconvenience involved. At the time the mortgage is granted, the aircraft must be physically located in a jurisdiction whose domestic law recognises the validity of the English aircraft mortgage. This may require that the aircraft be flown into or over the airspace of a qualifying jurisdiction at the time of closing or that the grant of the English Aircraft Mortgage be delayed until such time that the aircraft is located in a qualifying jurisdiction. Both English and New York law impose one additional formality. Where an aircraft mortgage is granted by a foreign corporation or other foreign entity not being an individual (which will often be the case), the person executing it on behalf of that foreign entity must be authorised to do so in accordance with the law of that entity s jurisdiction of incorporation. Enforceability and priority against third parties A New York aircraft mortgage and an English aircraft mortgage also impose different filing requirements to ensure they are enforceable or take priority against third parties (such as a bankruptcy trustee, or competing creditors of the borrower). An important observation here is that while certain filings may be strictly required to ensure 6 Getting the Deal Through Aviation Finance & Leasing 2014 Law Business Research Ltd 2014

5 AIRCRAFT MORTGAGES the mortgage is enforceable or takes priority against third parties in the courts of the jurisdiction of its governing law, other filings may be desirable to make sure it is enforceable or takes priority against third parties, either directly or pursuant to an English or New York law judgment, in such other jurisdictions as the aircraft may be situated or registered. While the costs of making all filings mentioned below are relatively low, in practice the making of such filings can present a bureaucratic and logistical hassle and can often require the assistance of specialised lawyers. A New York aircraft mortgage must be filed in one or more of three different places, depending on the circumstances, to ensure it is enforceable or takes priority against third parties as a matter of New York law, as pre-empted by federal law and treaties. In respect of aircraft registered in the United States, the document granting the mortgage must be filed with the Federal Aviation Administration (FAA) in order to be enforceable against any third party who does not have notice of it. The United States has adopted the Convention on International Interests in Mobile Equipment and the associated Protocol to the Convention on Matters Specific to Aircraft Equipment signed on 1 March 2006 (the Cape Town Convention). The Cape Town Convention established an international registry where certain interests in aircraft, including mortgages, could be registered. If the aircraft mortgaged by a New York aircraft mortgage is registered in the United States or in any other Cape Town Convention contracting state, or if the borrower is situated in the United States or in any other Cape Town Convention contracting state, then the New York aircraft mortgage must be registered at the international registry as an international interest, in order to take priority over any unregistered interests or any subsequent registered interests. If the aircraft is registered in the United States, the New York aircraft mortgage must first be filed with the FAA before a filing can be made with the international registry. Where a New York aircraft mortgage has been granted and the aircraft is neither registered nor the borrower situated in a Cape Town Convention contracting state, no filings are required at either the FAA or the international registry. If the aircraft is registered in a country that has adopted the Geneva Convention, the laws of such country should be examined to determine whether the New York aircraft mortgage is valid, and whether any filing in such country is necessary. Otherwise, a filing must be made in the applicable state or in Washington DC pursuant to article 9 of the Uniform Commercial Code (UCC) as implemented in New York, to ensure that the New York aircraft mortgage is enforceable as against third parties without notice. UCC filings need to be renewed every five years. In practice, precautionary UCC filings for New York aircraft mortgages are made even though filings elsewhere may be sufficient. This practice also helps to establish imputed notice of the existence of the mortgage, which may be useful in foreign jurisdictions at the enforcement stage. No filings need be made for an English aircraft mortgage to ensure it is enforceable in the English courts as a matter of English law, except in two circumstances. Firstly, for aircraft registered in the United Kingdom the document granting the mortgage must be registered with the Civil Aviation Authority (the CAA, the UK equivalent of the FAA) to ensure that it gains priority ahead of any subsequently registered mortgages and against any unregistered mortgages given in favour of third party creditors, and to ensure that it is enforceable against a bankruptcy trustee of the borrower. Secondly, where the borrower is a UK company or a UK-registered limited liability partnership, and whether or not the aircraft is registered with the CAA, the document granting the mortgage must be registered with UK Companies House within 21 days of the date of execution of the mortgage, otherwise it will be void as against a bankruptcy trustee or competing creditor of the borrower. Finally, even though the Cape Town Convention does not have any legal force or effect under English law, due to the likelihood of needing to enforce an English aircraft mortgage in other jurisdictions, either directly or pursuant to an English law judgment, lawyers will ensure that the English aircraft mortgage is registered with the international registry where the English aircraft mortgage qualifies for registration under the Cape Town Convention. For both New York aircraft mortgages and English aircraft mortgages, lawyers will also seek to make any filings necessary and desirable in the country of registration of the aircraft and in the country of incorporation of the borrower, to ensure the mortgage is enforceable in such places to the greatest extent possible. Which to choose? So, given the issues outlined in this article, should financiers choose one law over the other to govern the terms of an aircraft mortgage? As demonstrated, each jurisdiction has its own pitfalls, with the lex situs problem of an English aircraft mortgage arguably presenting bigger problems on validity requirements. However, should the UK ratify and bring into law the Cape Town Convention, some lawyers are of the opinion that this may overcome the lex situs problem. Others are skeptical. While beyond the scope of this article, other considerations might include litigation costs, choice of forum or venue for resolving disputes, and the relative likelihood of enforcing a judgment rendered by the court of one jurisdiction over the other in the country of registration or habitual base of the aircraft. Whatever the relative benefits of one governing law over the other, it is likely that financiers will continue to rely on either an English aircraft mortgage or a New York aircraft mortgage as the predominant and most valuable form of security in aircraft finance transactions, as supplemented by any available local law security instruments. Thomas A Zimmer Dominic E Pearson [email protected] [email protected] Four Embarcadero Center, 22nd Floor Tel: San Francisco, CA Fax: United States Law Business Research Ltd 2014

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