On 14 May 2015, Australia acceded to the Convention on International Interest Mobile Equipment 2001 (the Convention) and the Aircraft Protocol (the Aviation Protocol) (together the Aviation Convention).

Australia joins a growing number of countries to apply the Convention, see http://www.unidroit.org/status-2001capetown for the list of ratifying countries of the Convention and see http://www.unidroit.org/status-2001capetown-aircraft for the list of ratifying countries of the Protocol.

Reminder – What is the Cape Town Convention?

Signed at Cape Town in November 2001, the Aviation Convention brings into force a framework for an international standard for the protection of ownership rights and security interests in aircraft.

The Aviation Convention commences on 1 September 2015.

The Aviation Convention establishes:

  • That an “international interest” in aircraft assets (such as airframes, aircraft engines and certain helicopters) arises in favour of: (a) the seller/conditional seller under a sale/title reservation agreement; (b) the lessor under a lease agreement; and (c) 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.

What provisions of the Aviation Convention did Australia apply?

The accession instruments set out and confirm the relevant provisions of the Aviation Convention that will apply to Australia. The relevant provisions are as follows:

  • Parties under a lease, security agreement or reservation of title agreement, related guarantee or subordination agreement, may agree freely on a choice of law which is to govern their contractual rights and obligations wholly or in part. This rule becomes part of our domestic law in relation to these contracts.
  • For insolvency related proceedings, Australia has adopted what is known as “Alternative A” in aviation industry speak. This alternative broadly applies so that an insolvency administrator or debtor on the occurrence of an insolvency related event will need to give possession of an aircraft to the owner, a lessor or mortgagee no later than the earlier of 60 calendar days and any other shorter period specified in Australian insolvency law. It is to be noted that our current insolvency law does not specify any period. However Section 443B of the Corporations Act applies that so that an administrator has to elect, within 5 business days, to give the owner or lessor a notice specifying that a company does not propose to exercise rights in relation to the aircraft. If an administrator does this the administrator becomes primarily liable for rent and other costs relating to an aircraft during the course of the administration. Whilst no period is stated, this provision often gives rise to consensual agreement that the possession of an aircraft be given back to a creditor earlier. It is noted that this provision will still apply, but in any event, the Aviation Convention now sets a maximum give back period of 60 calendar days.
  • Australia, in the case of a foreign aircraft situated in Australia, will cooperate to the maximum extent possible, with foreign courts and foreign insolvency administrators, in exercising remedies on insolvency laws adopted under the Aviation Convention by that foreign state.
  • With our IDERA rules having being legislated (see here), Australia has adopted the relevant provisions of the Aircraft Protocol relating to irrevocable deregistration and export request authorisations.
  • The Federal Court of Australia and Supreme Court of all states and territories, have jurisdiction in respect of the Aviation Convention. It is noted that all parties seeking to enforce the remedies under the Aviation Convention may apply to a court without need to exercise leave of the court.

Commentary

No doubt before 1 September 2015 there will be more analysis around the interaction of the Aviation Convention as to how it will interact with our domestic insolvency laws, in particular our administration laws under the Corporations Act and also security registration under the Personal Property Securities Act and the Corporations Act.

We will be working with banks, lessors and airlines to come to a common understanding around the impact of the Aviation Convention and what it means for aircraft leasing and financing transactions.