On 26 May 2015, Australia acceded to the Convention on International Interests in Mobile Equipment 2001(Cape Town Convention) and its related Protocol on Matters Specific to Aircraft Equipment (Aircraft Protocol) (together the Convention). The Convention is an international treaty designed to protect and enhance commercial ownership rights and security interests in aircraft objects.
Australia’s accession to the Convention completes a formal process which commenced with the passing of enabling legislation in 2013 and will take effect in Australia on 1 September 2015.
The Cape Town Convention
The Cape Town Convention facilitates the financing of aircraft by providing a standardised securities framework that regulates the interests of financiers in aircraft objects (as more fully defined below). The framework encompasses a set of basic remedies in the event of debtor default and an international register which creditors can use to protect and secure the priority of their interest against third parties.
The introduction of the Cape Town Convention has received a significant amount of industry support since the 2014 Australian Government call for feedback from key stakeholders.1 Supporters anticipate that Australia will derive both legal and economic advantages as a result of acceding to the Cape Town Convention, including:
- improved predictability of the enforceability of security, title reservation and leasing rights in respect of high value mobile equipment and aircraft objects;
- reduced risks for creditors and consequently borrowing costs for debtors, that will in turn facilitate the extension of credit for the acquisition of aircraft and aircraft engines in Australia; and
- the harmonisation of Australia’s aviation securities law in line with other participating countries.
Declarations made by Australia under the Convention
Australia made declarations under Articles 39(1)(a), 52, 54(2) and 55 of the Cape Town Convention and under Articles XXX(1) and XXX(3) of the Aircraft Protocol.
As a result of those declarations, the following key provisions will apply to Australia:
- Parties to an aircraft lease, security agreement or contract of sale will be free to choose the law which is to govern their contractual rights and obligations, wholly or in part.2
- There are a number of alternatives under the Convention and Australia has chosen to adopt what is known as ‘Alternative A’. Consequently, upon the occurrence of an insolvency related event, the insolvency administrator or debtor (as the case may be) must give possession of the aircraft object to the creditor no later than 60 calendar days, or if a shorter period applies under Australian insolvency law, within that shorter period. The insolvency administrator or debtor may retain possession of the aircraft object where, within the relevant time period following the insolvency event, it has cured all defaults (other than the default constituted by the commencement of insolvency proceedings) and has agreed to perform all future obligations under the agreement.3
- The Federal Court of Australia and Supreme Court of each Australian State and Territory will have jurisdiction in relation to the matters dealt with in the Convention.4
- Creditors will have the benefit of all remedies available under any provision of the Convention which are not already expressed under the relevant provision. International financiers and lessors will welcome the self-help remedies.5
- Australia has adopted the relevant provisions relating to de-registration and export request authorisations issued by the debtor. These provisions will prevent the debtor from revoking the authorisation without the consent of the recipient of the authorisation.6
- Provisions of the Cape Town Convention which allow a creditor to seek certain remedies pending determination of its claim to secured objects (such as preservation, immobilisation or custody of the relevant object) will not apply in Australia.7
The declarations made by Australia are consistent with the submissions made by Norton Rose Fulbright to the Australian Department of Infrastructure and Transport in October 2012 (here).
Interaction between the Cape Town Convention and the PPSA
Security interests in aircraft objects are currently regulated by the Personal Property Securities Act 2009(Cth)(PPSA). However, once the Convention takes effect, the Convention will prevail over the PPSA to the extent that there is any inconsistency between the two regimes.8
The Convention will only apply to aircraft objects which satisfy the capacity, power and use requirements of the Aircraft Protocol. Specifically, the Convention will apply to the purchase of aircraft, airframes, jet engines and helicopters, provided that:
- airframes can transport at least eight persons (including crew) or goods in excess of 2750 kilograms;
- helicopters can transport at least five persons (including crew) or goods in excess of 450 kilograms; and
- aircraft engines have at least 1750lb of thrust.9
Aircraft objects outside this scope of the Aircraft Protocol will fall outside the treaty rules and will continue to be regulated solely by the PPSA.
The PPSA also covers proceeds and therefore the continued registration on the Personal Property Securities Register should be considered for all transactions.
In light of the significant changes that come into force on 1 September 2015, we will be working with aviation financiers and related business to review their current financing structures of Australian operated aircraft, to ensure they are ready for the commencement of the Convention.