Q&A: aircraft repossession and enforcement of security in Latvia

Enforcement measures

Outline the basic repossession procedures following lease termination. How may the lessee lawfully impede the owner’s rights to exercise default remedies?

This matter is dealt with in the terms and conditions of the relevant lease arrangement. In line with common practice internationally, the owner (lessor), upon occurrence of a non-cured (or non-curable) material default of a lessee, will normally seek to deregister the aircraft and take possession of the aircraft. The first item – the deregistration – will cause no issues (it is the owner’s (lessor’s) exclusive privilege to do so without any rights of intervention on behalf of the lessee). With regard to the repossession of the aircraft, the owners (lessors) frequently rely on the lessee’s issued deregistration and export powers of attorney; with such documentation at hand, it is the reluctant and uncooperative lessee that may find itself in a situation of allegedly having recourse to self-help remedies in hampering the owner’s (lessor’s) activity of repossession on grounds of ownership. Under article 1732 of the Latvian Civil Code, self-help remedies are, generally, prohibited.

For international aircraft-related transactions falling under the remit of the Cape Town Convention (2001) and its Aircraft Protocol (2001), the relevant provisions of these treaties apply.

Outline the basic measures to enforce a security interest. How may the owner lawfully impede the mortgagee’s right to enforce?

The chargee is entitled to take possession of the collateralised aircraft upon the obligor’s default (article 36(1) of the Latvian Commercial Pledge Law). In the case of a reluctant chargor, the chargee must apply to a court for repossession in an expedited (summary) proceeding (article 36(2) of the Latvian Commercial Pledge Law). After implementing the repossession, the chargee is entitled to realise (sell) the collateralised aircraft upon giving written notice to the chargor and registering the realisation of the security on the Latvian commercial pledge registry (articles 42(1), 42(5) and 43(1) of the Latvian Commercial Pledge Law). The collateralised aircraft must be sold in a public auction (article 37(1) of the Latvian Commercial Pledge Law) unless the chargor and chargee have agreed that private direct sale (without auction) is permissible and such an entry has been made in the commercial pledge registry (article 38(1) of the Latvian Commercial Pledge Law).

The opening of insolvency proceedings suspends the chargee’s rights to seek enforcement of security for two months after the insolvency proceedings against the chargor have been opened by the court (article 63(1)(4) of the Latvian Insolvency Law). Upon expiry of the waiting period, the chargee is entitled to request the estate administrator of the chargor to realise (sell) the collateral at a public auction, unless the estate administrator of the chargor consents to a private direct sale (articles 116(1) and 116(2) of the Latvian Insolvency Law).

For international aircraft-related transactions falling under the remit of the Cape Town Convention (2001) and its Aircraft Protocol (2001), the relevant provisions of these treaties apply.

Which liens and rights will have priority over aircraft ownership or an aircraft security interest? If an aircraft can be taken, seized or detained, is any form of compensation available to an owner or mortgagee?

With regard to aircraft or engines (as tangible movable property), there are only two statutory lien types in Latvia.

The first is a merchant’s statutory right to retain the asset until the owner settles its monetary debt (the mechanism is described in articles 399 and 400 of the Latvian Commercial Code). This statutory lien is not applicable if the relevant merchant is obliged to utilise (work or service upon) the asset in a certain way. In other words, there is a repairperson’s lien in Latvia. A valid example would be an aircraft hangar service provider that implements retention rights with respect to unpaid invoices for aircraft storage. This statutory lien ranks lower in priority to a properly established security (commercial pledge) over the aircraft – that is, the one registered in the commercial pledge registry.

The second mode of a statutory lien affecting the ownership interest is a tax lien imposed by the tax authority (article 26.1(1) of the Latvian Law on Taxes and Duties). Article 26.1(1)(4) of this law expressly authorises the tax authority to effectuate a statutory lien over an asset that is in the possession of a third party (such as the chargee). In practice, tax liens are, generally, considered to have priority over other security titles, yet the tax authority will normally consider the factual or financial impact of the intended tax lien on the interests of the third party.

For international aircraft-related transactions falling under the remit of the Cape Town Convention (2001) and its Aircraft Protocol (2001), the provisions of these treaties apply. In that regard, it is to be noted that Latvia has opted (through depositing subsequent declarations that entered into force on September 1, 2021) for (i) recognition of customary preferred non-consensual liens under Article 39(1)(a) of the Cape Town Convention (2001), namely, regarding outstanding airport, air navigation and similar charges, as well as the repairperson’s lien, and (ii) subjecting certain domestic non-consensual liens to the registration system, under Article 40 of the Cape Town Convention (2001) (such registrable non-consensual interests being any rights reflected in the civil aircraft registry pursuant to a lawful decision of an administrative or judicial body).

How are judgments of foreign courts enforced? Is your jurisdiction party to the 1958 New York Convention?

As of 13 July 1992, Latvia is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Accordingly, Latvia will recognise and enforce, according to the terms of this treaty, all relevant foreign rendered arbitral awards.

In terms of recognising and enforcing foreign judgments and decisions of courts of law, Latvia (by virtue of its membership of the European Union) will abide by the rules provided in Regulation (EU) No. 1215/2012 of the European Parliament and of the European Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.