The Cape Town Convention allows for any state to designate an entity within its territory as the entry point through which information shall or may be transmitted to the International Registry. Where a contracting state has so designated such an entity, any registration made which seeks to circumvent the applicable entry point will be invalid. However, there is an important exception to this?rule.
The existing version of the regulations promulgated in connection with the Cape Town Convention allows for two categories of designated entry point. One is an 'authorising entry point', which authorises transmission of information required for registration under the Cape Town Convention to the International Registry. In this case, the entity designated as the authorising entry point would provide the party seeking registration with a unique authorisation code, which is required to be included with the information submitted to the International Registry in order to register an interest. The other type of entry point is a 'direct entry point'; in this scenario, the information related to an applicable interest is directly transmitted to the International Registry by the direct entry point as opposed to the registry user seeking such registration. Designated authorising entry points and direct entry points are not part of the International Registry and their operations are governed exclusively by national law.
As there exists a system of nationality of registration for airframes and helicopters, the declaration to use an entry point made by the applicable contracting state of registration is the relevant entry point for purposes of determining compliance with the aforementioned rules. As there is no system of nationality registration in respect of aircraft engines, the use of entry points cannot be made compulsory.
The countries that currently have an authorising entry point regime are Albania, Brazil, China, Mexico, Ukraine, the United Arab Emirates (which initially adopted the direct entry point regime), the United States and Vietnam. No country currently uses the direct entry point approach.
In practice, local counsel in the applicable authorising entry point contracting state will usually obtain the unique authorisation codes – partly because they have a direct and established working relationship with the national aviation authority (as the authorising entry point) and partly because they will be providing any required Cape Town legal opinion (and, as a result, will want to know that the authorising entry point procedure has been followed properly).
A good example of some of the potential issues that could arise in connection with the designation of an authorising entry point comes from the experiences in Brazil. When Brazil first ratified the Cape Town Convention, it made a declaration authorising the use of an authorising entry point for filing interests in respect of airframes and helicopters. Brazil designated the Brazilian Aeronautical Registry as its authorising entry point for purposes of issuing unique authorisation codes. However, nothing prohibits a contracting state from imposing its own requirements and restrictions to its entry point, and Brazil's rules may be the most restrictive in this regard. Brazil's regulations promulgated in connection with the issuance of unique authorisation codes require a potential registry user seeking to obtain a unique authorisation code to:
- provide personal information to the local registry authorities;
- provide a written undertaking not only to comply with applicable Brazilian authority rules and regulations, but also to comply generally with applicable law; and
- submit to criminal and civil liability for the misuse of any unique authorisation code.
Unique authorisation codes in Brazil were first made available in April 2014; however, Brazil's ratification of the Cape Town Convention pre-dated that date by several years. So what is the impact of having made a declaration to have an authorising entry point but not making unique authorisation codes available for a considerable period after that? Would any registration made without such a code during the period in which such codes were not made available nonetheless be invalid? Fortunately, the Cape Town Convention regulations provide some guidance here in that they explicitly provide that a registration is not invalid if, in the case of an authorising entry point, an authorisation code is not obtainable under its procedures based on the facts of the transaction to which it relates (which was clearly the case in Brazil).
Experience on a recent transaction serves as a further reminder as to the potential pitfalls involved in the authorising entry point process and the importance of effective management of that process.
The transaction in question involved the refinancing of a Mexican-registered aircraft that was (and still is) owned by a European lessor and required closing to happen on a fixed date – the date on which the original financing was due to be repaid in full (primarily via a new bank loan) at maturity. One of the conditions of the new financing was a requirement for the registration of prospective international interests in relation to the aircraft, which of course pre-supposed the availability of unique authorisation codes.
All parties were aware of the need both to obtain unique authorisation codes and to obtain them on time because of the hard-stop refinancing date. As such, an early request was made to Mexican counsel to obtain the unique authorisation codes from the Mexican aviation authority; but despite this, the unique authorisation codes were not produced by the refinancing date (for purposes of this update, it is assumed that the regulation referred to above in connection with the Brazilian experience would be inapplicable here in that the unique authorisation codes were available under the existing procedures). This caused significant stress and uncertainty on the transaction, closing delays and additional costs.
It is critical to consider the implications of any involvement of an entry point on a transaction, as such involvement could give rise to delays which may impede the parties' ability to close the subject transaction successfully. Transaction parties need to plan carefully for this process, including by:
- clearly communicating any hard deadlines to all parties, including local counsel;
- instructing local counsel that have experience of the entry point process and who know how to work successfully with the applicable authority;
- instructing local counsel early enough;
- communicating well with local counsel; and
- asking local counsel to advise of any applicable minimum time requirements for registration and/or production of the unique authorisation codes, and of any applicable local or national public holidays that might affect timing.
For further information on this topic please contact Gavin Hill or Lev Gantly at Vedder Price LLP by telephone (+44 20 3440 4680) or email (firstname.lastname@example.org or email@example.com). The Vedder Price website can be accessed at www.vedderprice.com.
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