Enforcement measures

Repossession following lease termination

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

There are no self-help remedies available to the owner or lessor. In order to repossess the aircraft, the owner or lessor must proceed in accordance with the German laws of debt enforcement. That necessitates obtaining an enforceable title (court order or judgment) for the repossession claim from the German civil court having jurisdiction. The title must contain the necessary enforcement clause and needs to be duly served on the debtor (lessee). The owner can then apply for the enforcement of the court order or judgment with a bailiff, who will put the owner in possession of the aircraft. However, as this procedure is usually rather lengthy, the lessor may request that the lessee submits itself already at the commencement of the leasing to immediate enforcement proceedings in case of default that has to be established by a notarial deed. Such notarial deed allows the owner to directly apply for enforcement of its repossession claim.

The lessee may lawfully impede an owner’s repossession claim if the lessee is able to substantiate and prove that it still has a right to possession of the aircraft (eg, the termination of the leasing is invalid).

Thus, if the lessee does not cooperate, respectively contests the owner’s right to repossession, the owner needs to seek assistance through judicial proceedings. However, ASD has ‘developed’ a ‘quasi-self-help remedy’, which is a mixture of law and practice. This remedy requires support from a German bailiff, the local aviation authorities and the police at the airport if the measure (after a landing of the aircraft at the respective airport), will be accomplished by serving (again) the termination notice on the pilot and requesting the handing over of the board documents so that it is not possible to fly the aircraft any more. This solution depends on the element of surprise and the cooperation of the respective local aviation authorities and needs to be adequately prepared.

Enforcement of security

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

To enforce an aircraft mortgage, the mortgagee is limited to execution according to statutory regulations (section 47(1) of the Act on Rights in Aircraft) and may not avail itself of any self-help remedies or similar private measures of enforcement (like a private sale) unless the owner consents thereto when the mortgage has become enforceable. The statutory enforcement procedure follows slightly modified provisions on immovables, which means a sale of the aircraft by public auction will be the enforcement measure (section 99(1) of the Act on Rights in Aircraft, together with sections 864(1) and 870a(1)(1) of the Code of Civil Procedure). Competent for any such public auction of an aircraft is the local court in Braunschweig (section 171b(1) of the Act on Enforced Auction and Receivership).

Initiating a public auction by the court (on request of the mortgagee) results in a seizure of the aircraft in favour of the mortgagee (section 20(1), together with section 171a(1) of the Act on Enforced Auction and Receivership). It encompasses all objects that are covered by the aircraft mortgage, for example, accessories such as the engines mounted on the aircraft (section 20(2) of the Act on Enforced Auction and Receivership , together with section 31 of the German Act on Rights in Aircraft; see question 21). The aircraft is then taken into custody by the bailiff and may no longer be operated; upon ordering the enforced auction the court shall concurrently order the custody and safekeeping of the aircraft (section 171c(2)(1) of the Act on Enforced Auction and Receivership). As this measure is usually very detrimental to a lessee of the aircraft, the mortgagee by statutory order legally replaces the previous owner or lessor of the aircraft and thus will have to grant the lessee further use of the aircraft for the time being, if the lessee was already in possession of the aircraft (sections 171f and 169 of the Act on Enforced Auction and Receivership , together with sections 578a(1), 567(1), 566(1) and 535(1)(1) of the German Civil Code). On the other hand, the lessee may not demand that the enforcement procedures (sale by public auction) be suspended.

The auction itself is organised by the court and follows common practice (see section 66 et seq of the Act on Enforced Auction and Receivership). The mortgagee is entitled to the proceeds according to the unpaid amount of its secured claim, but among other things certain costs will have to be settled first (section 10 of the Act on Enforced Auction and Receivership). The highest bidder obtains ownership of the aircraft through a public authority (section 90(1) of the Act on Enforced Auction and Receivership). Such bidder will automatically become party to an existing contract of lease (see above), but may terminate the lease agreement within the statutory notice period (section 57a of the Act on Enforced Auction and Receivership). All other rights resting on the aircraft expire upon the sale by public auction; however, they may continue in regard to the proceeds (sections 91(1) and 92(1) of the Act on Enforced Auction and Receivership). Loss of a right to possession of the aircraft based on a rental or leasing agreement of a duration of more than six months (compare section 3(1) of the Air Traffic Act; see question 7) due to the sale by public auction and the following termination of the rental or lease agreement shall be compensated by a payment corresponding to the contractual period as agreed upon (sections 171n and 92(2) of the Act on Enforced Auction and Receivership ).

If the debtor (aircraft owner) is insolvent, the (provisional) insolvency administrator may apply for a temporary stay of the enforcement measures (sale by public auction) under certain conditions (section 30d of the Act on Enforced Auction and Receivership). In turn, the mortgagee may apply for continuation of the enforcement procedures if the reason for suspension has ceased to exist or if the administrator or the debtor respectively assents to the continuation of such enforcement proceedings (section 30f of the Act on Enforced Auction and Receivership).

Anyone who will risk losing a right to the aircraft as a result of its sale by public auction (eg, the owner or even the party in possession of the aircraft) may prevent such sale by satisfying the claim of the mortgagee through payment, set-off or deposit (section 50 of the Act on Rights in Aircraft).

Priority liens and rights

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?

Any existing registered security interests because of salvage or inevitable maintenance measures by third parties will have priority (sections 75 and 76 of the Act on Rights in Aircraft). On the other hand, liens for repairs and comparable statutory pledges cannot be created on a German registered aircraft (section 9(1) of the German Act of Rights on Aircraft). An aircraft may be seized in an interim court proceeding when a creditor of the owner wants to enforce a private claim; however, to obtain such an arrest order by a court the party requesting it has to provide certain prima facie evidence of its claim and the need for the urgency of the measure. Moreover, the court may order the requesting party to provide some form of security prior to enforcing any such order issued in an interim court proceeding. In that regard it has to be noted that certain aircraft are protected from such seizure, in particular aircraft used for public transportation by an airline (section 1 of the Act on Inadmissibility of Seizure of Aircraft). If the aircraft is subject to a registered mortgage the owner may sell the aircraft only subject to that mortgage. A mortgagee may enforce its mortgage (in particular if it includes a submission to immediate enforcement) by requesting the court to take the aircraft into custody and sell it by public auction. The costs and expenses of the court in relation to conducting the auction of the aircraft will be satisfied first from the proceeds of the sale. Thereafter, the mortgagee will be satisfied out of the sales proceeds and if any balance is left thereafter that balance will be paid to the owner.

Enforcement of foreign judgments and arbitral awards

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

Judgments of any court of an EU country (thus currently also any judgment from an English court) are enforced pursuant to the Regulation (EU) 1215/2012 (as amended from time to time) without re-examination on its merits but subject to the provisions of that Regulation. Judgments from courts of other countries or states (such as New York) are enforced pursuant to the provisions of section 328 of the German Code of Civil Procedure. Thus such foreign judgment will be recognised unless:

  • the courts of the state to which the foreign court belongs do not have jurisdiction according to German law;
  • the defendant, who has not entered an appearance in the proceedings and who takes recourse to this fact, has not duly been served the document by which the proceedings were initiated, or not in such time to allow the defendant to defend itself;
  • the judgment is incompatible with a judgment delivered in Germany, or with an earlier judgment handed down abroad that is to be recognised, or if the proceedings on which such judgment is based are incompatible with proceedings that have become pending earlier in Germany;
  • the recognition of the judgment would lead to a result that is obviously incompatible with essential principles of German law, in particular if the recognition is not compatible with fundamental rights; or
  • reciprocity with the country of the foreign court has not been granted.

Germany is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards.