SecuritySecurity document (mortgage) form and content
What is the typical form of a security document over the aircraft and what must it contain?
An aircraft mortgage is the usual form of security over a French-registered aircraft. Generally, it is recommended that a French law mortgage be entered into by the parties. In accordance with article L6122-2 of the Transport Code (the Code), the mortgage must be in writing or will otherwise be void. Article L6122-3 provides that the mortgage covers the entire aircraft, its engines, components and spare parts that belong to the aircraft and that are intended to be part of the aircraft whether they are incorporated thereon or temporarily separated. Further, to be effective as against third parties, the mortgage must be registered with the Register in accordance with article L6122-8 of the Code.
Although the mortgage must be in writing and specify the items to which it is intended to apply, there is no prescribed form. Generally, a French mortgage will be in French, and if required by the parties, will be accompanied by an English translation. The mortgage must usually state the principal amount and the interest and, according to the provisions of article L6122-12 of the Code, the registration of the mortgage secures, with the same priority as the capital, the payment of interest for the year in which enforcement proceedings with respect to the mortgage are commenced, and the amount of interest for the three years that preceded such year.
In accordance with article L6122-1 et seq of the Code, where there is more than one recorded mortgage, ranking will be determined by the order of the dates of registration. A recorded mortgage is generally valid for 10 years from the date of its recordation with the French Civil Aviation Authority (DGAC), and must otherwise be renewed in order to continue after that date.Security documentary requirements and costs
What are the documentary formalities for creation of an enforceable security over an aircraft? What are the documentary costs?
There is no requirement for a security document such as a mortgage to be notarised, legalised, consularised or apostilled for it to be registered with the DGAC. The mortgage must be registered to be valid against third parties, but there are no other required formalities. The cost of registration of the mortgage is a minimal fee. It is not based on the amount of the secured obligation.Security registration requirements
Must the security document be filed with the aviation authority or any other registry as a condition to its effective creation or perfection against the debtor and third parties? Summarise the process to register a mortgagee interest.
An aircraft mortgage must be filed with the DGAC for it to be effective against third parties in France. The mortgage should be registered with the DGAC along with the other necessary documents as set out below. To complete the registration of the mortgage, the following documents would need to be lodged with the DGAC:
- an original of the mortgage agreement;
- an original of the necessary power of attorney to the individual effecting registration on behalf of the mortgagee;
- evidence of the authority of each of the signatories to the mortgage agreement; and
- the relevant French government administrative form for the registration of the mortgage at the DGAC.
It is neither possible nor necessary to register other forms of security assignments such as an assignment rights under a lease agreement. However, it should be noted that under French private international law, any assignment of rights, other than an assignment that is limited to receivables (créances) only, must be perfected as regards the assigned debtor in accordance with the governing law of the relevant assigned rights, and as regards third parties in accordance with the laws of the state in which the assigned debtor is domiciled. An assignment of rights that relates either to rights arising under a contract governed by French law, or to rights against an entity domiciled in France, will therefore only be fully enforceable in France if notified to the assigned debtor by a French bailiff or process server in accordance with French procedural rules. It should be noted that French law does not provide a time limit to effect such notification. On the basis of these rules, an assignment of a lease by a lessor where the lessee is a French entity would only be enforceable in France against the lessee once it has been notified to the lessee in accordance with such procedural rules.Registration of security
How is registration of a security interest certified?
A registered security interest, such as an aircraft mortgage that is a lien on the aircraft, would be recorded with the DGAC and reflected on the certificate of registration issued by the DGAC. In addition, following the registration, the DGAC can issue an extract of information regarding the status of the registration of the aircraft, which would reflect all registered liens against the aircraft. Any security interests registered would be reflected immediately upon registration. Although the extract would not necessarily state the rank or priority, in accordance with article L6122-10 of the Transport Code, if there is more than one mortgage filed in respect of an aircraft, their rank will be determined by the order of the date of registration. Therefore, it would be possible to determine the rank of any mortgages filed against an aircraft through the public records available at the DGAC.Effect of registration of a security interest
What is the effect of registration as to third parties?
As a general rule under French law the order of priority is conferred by the order in which such interests are registered. Registration of a security interest would be valid against third parties. There are, however, certain rights and interests that would have priority over prior recorded liens, and such liens or interests may not be reflected in the Register.
The following statutory liens can be attached to an aircraft with respect to compensation due:
- for court costs incurred in the forced sale of an aircraft;
- for the salvage of an aircraft; and
- for expenses necessary for preservation of the aircraft, which would have priority over other security interests and the right to proceeds following the enforcement of a mortgage.
How is security over aircraft and leases typically structured? What are the consequences of changes to the security or its beneficiaries?
Although French law has, in recent years, introduced the concept of a ‘trust’, as is common with most other civil law jurisdictions, the concept is not analogous to the concept of a trust as they operate in common law jurisdictions. Generally, they are not used as a means of granting security; however, the concept of a security agent, acting on behalf of lenders, is a common mechanism for granting security on behalf of a syndicate of lenders for mortgages, bank account pledges and charges over other assets.
However, French courts will most likely give limited recognition to foreign trusts in the sense that a validly constituted foreign trustee, who is considered by the law applicable to the trust to be the legal owner of the right in question (such as the lease rights to an aircraft as assigned), should be recognised under French law as having the right to enforce in its name the assigned right. There is no clear jurisprudence on this point, but the generally accepted view is that a validly constituted foreign trust that does not have the effect of avoiding a rule of French public policy (eg, if the trust could be deemed to alter the rights of succession under French family law or if the trust related to immovable property located in France) will be recognised in France.
If there were a change in the security agent, then generally, an amendment to the mortgage to reflect the new beneficiary would need to be registered with the DGAC. In addition, if there is only one lender who is also the beneficiary of the mortgage, then a transfer of the lender’s interest in the loan and the security documents to another lender would also require the filing of an amendment to the registered mortgage. On the other hand, if there is only a transfer of interest in a loan by one or more lenders in a syndicate, but the security agent or registered beneficiary does not change, while it may be recommended to reflect the change in lenders in the form of an amendment to the mortgage (to the extent such a transfer is not anticipated under the mortgage), it would not be necessary to file each such transfer or amendment to the loan or mortgage agreement unless the interest of each lender under the mortgage has also been registered and is reflected in the Register.
A mortgage in France (including an aircraft mortgage) is considered to be a right in rem rather than in personam as it attaches to the asset itself.Security over spare engines
What form does security over spare engines typically take and how does it operate?
There is no separate engine register in France, and it is not possible to take a mortgage over an engine separate from the aircraft or over a spare engine that is leased in France. Generally, the engines form a part of the aircraft, and the registration of the aircraft and any mortgage granted in respect thereof would also cover the engines. However, where there is a separate engine lease, it would be prudent to record the lease with the commercial court of the jurisdiction of the lessee that provides notice to third parties (including an eventual bankruptcy trustee of the lessee) that the property is not owned by the lessee. In the context of a separate engine lease this is particularly important, as the ownership right in the engine is not otherwise recorded with the DGAC. An aircraft mortgage would make reference to the separate engines and would be effective to create a security interest over an engine that is not installed on the aircraft at the time of creation (assuming that the non-installed engine is also in France or is in a jurisdiction that would recognise the creation of the security interest in France).