Security

Security document (mortgage) form and content

What is the typical form of a security document over the aircraft and what must it contain?

The Law on Mortgages No. 2654-XII was enacted on 2 October 1992. It makes provision for non-possessory mortgages. The aircraft may be mortgaged by its owner only. The mortgage should contain the essence, amount and term of the secured obligation performance, a description of the aircraft as well as other terms agreed by the borrower and creditor. The Law states that mortgage of the aircraft is made in notarial written form either at the place of the aircraft registration or at the place of incorporation of one of its parties. The Ukrainian notary certifies the mortgage if the aircraft owner provides him or her with the certificate of aircraft registration at the Aircraft Register, and a notarised and apostilled bill of sale (or its notarised and apostilled copy). The mortgage is made in Ukrainian and may be accompanied with a translation into a foreign (English) language. Aircraft mortgages are registered in the Mortgage Register established under Law No. 830 on Security of Creditors’ Claims and Encumbering Registration under Procedure adopted by the Cabinet of Ministers dated 5 July 2004. The Mortgage Register contains information on the borrower and the creditor, a description of the aircraft, reference to the secured obligation, its maximum amount and maturity 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?

To execute the mortgage before the Ukrainian notary, stamp duty equal to 0.01 per cent of the value of the aircraft should be paid (the execution fee). A registration fee of 34 hryvnas (corresponding to approximately US$1.5) (the registration fee) is also payable:

  • to register a foreign mortgage; or
  • to amend a mortgage registration.

Each representative of the parties to the mortgage should confirm its authority for mortgage execution as well as the party’s good standing. Good standing is proved by an extract from a company register. If it is out of a foreign register, it should be apostilled and accompanied by a certified translation into Ukrainian.

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.

A security agreement is effective against the debtor if made in a form prescribed by law at the place of its execution. To be effective against third parties the mortgage should be perfected according to the requirements of the law at the place of its execution.

If the aircraft is registered in the Aircraft Register, the execution of the mortgage is usually made before the Ukrainian notary who records it in the Mortgage Register. If the aircraft is registered abroad, it is mortgaged abroad as well and, in such case, only an application on foreign executed mortgage is submitted to either a Ukrainian notary who makes the corresponding entry at the Mortgage Register or to the Mortgage Register directly. If a foreign executed mortgage is registered within 30 days of the aircraft import to the Ukrainian territory, the foreign executed mortgage is treated as perfected in Ukraine from the moment of the mortgage execution abroad.

The recordation of the mortgage is made under the application in a prescribed form to be submitted to the Mortgage Register. The mortgage itself is not recorded. In fact, only information about the mortgage is recorded on the Mortgage Register. The application is recorded if submitted by the mortgagee or its representative, who should sign it and identify himself or herself or prove the due authority under which he or she acts. Third parties are treated as notified from the moment of the mortgage recordation in the Mortgage Register on the same day of submission. Registration of the aircraft mortgage is treated as effective for the third parties from the date and time at which the corresponding entry is noted in the Mortgage Register. The effectiveness of this registration will continue up to the time of the satisfaction of the mortgagee.

Amendments to the details contained in the Mortgage Register will be effected by submitting an application (in the prescribed form) to the Mortgage Register. It should contain the following information:

  • entry code and controlled sum of the original registration of the mortgage;
  • reason for seeking the amendment of the Mortgage Register;
  • information on the mortgagor, the mortgagee and the mortgage debt;
  • the name, and address, of any assignee - if the mortgage has been assigned; and
  • information on the termination or cancellation of the mortgage.

A person who submits the application for the amendment of the registered details of a mortgage must identify him or herself and his or her power to act. The fee to amend the Mortgage Register is indicated in question 16.

The mortgagee has the right to submit to the Mortgage Register an application (in the prescribed form) seeking the cancellation of the mortgage entry at any time. Once the debt secured by the mortgage has been satisfied, the mortgagee must notify the relevant registrar as to the satisfaction of the mortgage and seek its cancellation (deletion) from the Mortgage Register. This notification should be submitted within five days of the satisfaction of the main obligation. The notification should contain details of the original registration entry in respect of the mortgage.

A Ukrainian court under request of the borrower may order the cancellation of an aircraft mortgage from the Mortgage Register, if the mortgagee fails to do this. The judgment will refer to the original registration entry of the mortgage.

The cancellation (deletion) of the aircraft mortgage from the Mortgage Register will be made free of charge. An extract from the Mortgage Register confirms the cancellation.

Registration of security

How is registration of a security interest certified?

The registration of the security interest is certified by an extract from the Mortgage Registry that is issued immediately, or the next day, after an application submission. It contains information on the date and time of the mortgage perfection, names of the mortgagor and mortgagee, a description of the aircraft, maximum secured amount and maturity date. The registration of the aircraft mortgage on the Mortgage Register will accord the mortgagee priority over other creditors over the aircraft. In the case where more than one mortgage over the same aircraft is registered on the Mortgage Register, their order of priority will be determined in accordance with their respective dates and times of registration.

The Law on Mortgages permits the creation of more than one mortgage over the same asset providing any prior registered mortgagees have given their consent, and the terms of the prior registered mortgage permit this.

Effect of registration of a security interest

What is the effect of registration as to third parties?

The effect of the registration of an aircraft mortgage on the Mortgage Register is to accord priority of the creditor over subsequent security interests. Any person may rely on the accuracy of the public registration of the security interest as recorded in the extract from the Mortgage Register.

Security structure and alteration

How is security over aircraft and leases typically structured? What are the consequences of changes to the security or its beneficiaries?

As Ukrainian tax legislation gives tax incentives to operative leases only, leases are traditionally structured as operative ones. Security over aircraft is given in the form of mortgage that is treated as a right in rem, thus a change of its beneficiaries does not influence the mortgage. Change of the security is possible only with the permission of the creditor. Ukrainian legislation does not know the concept of the trust, but it is recognised if established abroad over aircraft to be used in Ukraine. The security agent trustee can continue to hold the security for a changing group of beneficiaries (ie, new lenders) without it being necessary to amend the record on the security. In the case of classic novation, the record on security should be amended to the name of the new lender.

Security over spare engines

What form does security over spare engines typically take and how does it operate?

Ukrainian legislation has no special rules on security over spare engines and their treatment as an adjunct or main object. So, the Law on Mortgages should be applied and mortgage is established over the engine if it is in Ukraine. As there is no special rule, the debtor and the creditor should clearly define the destiny of the spare engine if installed on a host aircraft. The general rule of Ukrainian law is that an adjunct follows the destiny of the main object. At the same time, the Cape Town Convention, valid in Ukraine since 2012, treats aircraft engines as separate objects but not adjunct. So, in a transaction with foreign elements the rules of the Cape Town Convention may be applied. We consider that effective security interest created over an engine will survive irrespective of its removal or installation on another aircraft.