The UK ratification of the Convention on International Interests in Mobile Equipment and the Protocol thereto on matters specific to Aircraft Equipment (the Cape Town Convention) – and its extension to the Cayman Islands – has been greatly anticipated.
The United Kingdom has now confirmed that the Cape Town Convention will come into force on November 1 2015. On that date the Cayman Islands will gain the status of a territorial unit of a convention state, with the benefit of the declarations made on its behalf by the United Kingdom.
In anticipation, Cayman authorities have been preparing the legislation necessary to bring the Cape Town Convention into force so that it interacts harmoniously with existing Cayman registration regimes. The key new statute is the International Interests in Mobile Equipment (Cape Town Convention) Law 2015 (the Enabling Law).
The Cape Town Convention is not a one-size-fits-all proposition. Convention states can opt in and out of its provisions by depositing declarations with the International Institute for the Unification of Private Law. As a territorial unit, the Cayman Islands requested that the United Kingdom make various declarations on its behalf, which are detailed in Schedule 3 to the Enabling Law. The most important of these are as follows:
- Existing and future non-consensual rights and interests (eg, airport authority liens) will take priority over registered international interests, in an insolvency scenario or otherwise;
- Remedies available to creditors under the Cape Town Convention that do not expressly require application to the court may be exercised without the leave of the court;
- Regarding the application of Article XII of the protocol, the Cayman courts will cooperate with foreign courts and insolvency administrators in carrying out the insolvency remedies set out in the protocol;
- Relief must be granted within 10 working days by the Cayman courts to creditors applying for immobilisation or possession orders; and
- In an insolvency scenario, the waiting period for a creditor seeking to take immediate possession of an aircraft object is 60 calendar days.
The Cayman Islands has long been a jurisdiction of choice for aircraft financing transactions. In 2009 it enacted the Cape Town Convention Law, which gave domestic effect to certain provisions of the Cape Town Convention. In particular, the Cape Town Convention Law applies when an agreement is concluded that provides for an international interest and the debtor either is situated in a convention state or is a Cayman company that has opted in to the domestic legislation.
This allows registrations to be made in the international registry on behalf of, for example, Cayman aircraft owners providing security over the aircraft to their financiers. Until the Cape Town Convention is implemented in the Cayman Islands, the Cape Town Convention Law will continue to apply. Even afterwards, the enabling law provides that any right or interest pre-dating the promulgation of the Cape Town Convention will retain the priority it enjoyed under the Cape Town Convention Law.
The already sophisticated Cayman aircraft finance industry has widely welcomed the extension of the Cape Town Convention to the territory. Parties in other non-convention states dealing with Cayman entities will now have a Cape Town Convention nexus for their transactions. The impact of this, in turn, may include:
- additional comfort for lenders seeking to use the extended range of remedies available under the Cape Town Convention;
- potential reduction of risk in transactions, leading to better rates for borrowers or lessees;
- access to the 'Cape Town discount' from export credit agencies;
- access to the Cape Town Convention dispute resolution framework;
- more straightforward and efficient documentation of aircraft financing transactions; and
- greater certainty around insolvency treatment of debtors and cross-border insolvency cooperation.
Impact on local registrations
The local register will continue to be relevant for mortgages over aircraft that do not meet the specification of the Cape Town Convention (and where an aircraft is registered in the Cayman Islands, but there is no international interest), although it will now be administered by the Civil Aviation Authority of the Cayman Islands (CAA) rather than the governor. The CAA has issued the Mortgaging of Aircraft Regulations 2015, which broadly preserve the priority of existing aircraft mortgages on the local register, but provide that priority conflicts where there is an international interest will be determined in accordance with the Cape Town Convention.
Financiers and lessors should continue to make a local registration with the CAA; that local registration, if coupled with an international interest, will have the priority under Cayman law granted to it under the Cape Town Convention.
For further information on this topic please contact Ellie Crespi-McCarthy at Harney Westwood & Riegels' Hong Kong office by telephone (+852 3195 7214) or email (firstname.lastname@example.org). Alternatively, contact Louise Groom at Harney Westwood & Riegels' Tortola office by telephone (+1 345 949 8599) or email (email@example.com). The Harneys website can be accessed at www.harneys.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.