Alternative A of the Cape Town Convention  now has the force of law in Ireland, following signing of an Order by the Irish Government on 10 May 2017.
The Cape Town Convention was designed to establish a uniform set of rules to provide greater certainty and predictability around the protection, prioritisation and enforcement of rights in aircraft and aircraft engines. The Convention has a commercial objective, namely to facilitate efficient forms of asset-based financing.
By choosing to adopt Alternative A, Ireland has given the force of law to a regime functionally equivalent to the well-established Section 1110 US Bankruptcy Code system. It will apply to leases, security agreements and conditional sale agreements registered on the international registry.
How does it work?
- Upon the occurrence of an insolvency event, the debtor (lessee, mortgagor or conditional purchaser) must give possession of the aircraft to the creditor on the earlier of:(a) expiry of the prescribed 60 day waiting period; or (b) the date on which the creditor would otherwise be entitled to possession of the aircraft if Alternative A did not apply, unless the debtor has cured all defaults and has agreed to perform all future obligations under the agreement (e.g. the lease, aircraft mortgage, loan or conditional sale agreement). A second waiting period shall not apply in respect of a default in the performance of such future obligations.
- Pending delivery of the aircraft to the creditor, the debtor is required to preserve the aircraft and to maintain it and its value in accordance with the relevant agreement.
- A creditor is entitled to apply for any other forms of interim relief available under applicable law.
- It requires the Irish aircraft registry authority and administrative authorities to make de-registration and export remedies available on an expedited basis.
- The advantages of Alternative A are automatic and require no affirmative action by a creditor.
- Demonstrates the Irish Government's continued support and desire to further develop Ireland as a leading jurisdiction for aircraft financing;
- Provides creditors and airlines with a clear timetable during which they can negotiate the return or retention of the aircraft;
- Enhances Ireland's attractiveness as a location for investor lending;
- Provides access to reduced cost of funding by enabling more accurate transaction risk pricing (e.g. discounted rates under the OECD Aircraft Sector Understanding); and
- Regime protections facilitate use of certain structured finance solutions (e.g. ABS, bond issuances).
With the introduction of Alternative A, Ireland now possesses all of the principal jurisdictional criteria for the successful execution of an enhanced equipment trust certificate ("EETC"), including:
- A favourable legal and fiscal framework;
- Stamp duty exemption introduced in the 2013 Finance Act; and
- Cape Town Contracting State with Alternative A adoption.
It is not just Irish operators/airlines that could benefit; operators from Europe, the Middle East and Asia may now wish to consider issuing their EETCs from Ireland.