Security

Security document (mortgage) form and content

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

Security over an aircraft typically takes the form of either a charge or a pledge, depending on the type of legal entity granting such security. There is no limitation on entering into a security document in English provided that in the case of security created by an Israeli company, a certified Hebrew translation of the security document must be provided to the Companies’ Registrar for registration.

There is no specified form for the applicable security documents, however such documents are normally drafted to reflect the commercial understanding between the parties but at minimum should contain the following:

  • the details of the parties;
  • the assets being secured;
  • the type of security being granted;
  • the amount being secured (whether fixed or unlimited amount); and
  • any limitations on the grant of additional security over the same asset, or on the disposition of the asset.

There is no legal requirement to record the economic terms of the underlying transaction in the security document.

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 are no particular documentary formalities when creating a charge or pledge over an aircraft other than in relation to the filing of the relevant charge or pledge with the appropriate public authority (see question 17). There are currently no stamp or other documentary costs as such, other than nominal registration fees.

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.

In the case of an Israeli company, the security document must be in the form of a debenture and registered with the Companies’ Registrar within 21 days of its creation, otherwise it may have no effect against a liquidator or other creditors. In the case of a foreign entity or an Israeli individual or partnership, the security document should take the form of a pledge and be filed with one of the pledge registration offices based on the residence of the pledgor so as to be valid and effective against other creditors.

The registration process varies somewhat depending on the person or entity creating such interest; however, it does generally require the completion of a prescribed form containing the basic terms of the relevant security interest together with the underlying security document (in case of filings to the Companies’ Registrar). There are no costs for filing a charge with the Companies’ Registrar; however, filing a pledge with the Pledges Registrar needs to be accompanied by the payment of a nominal fee depending on the term of the pledge. The registration of a charge remains in effect until it is expressly released; however, the registration of a pledge is for a limited amount of time and must be renewed accordingly.

Once filed the relevant authority issues a certificate evidencing the registration of the security interest and registers such interests within its records. The certificate of pledge is normally issued immediately upon filing, while the issuance of a certificate of charge typically takes longer.

Once the pledge or charge is duly registered it is recommended that such security interest be noted in the Registry with such security interest endorsed by the Registrar upon the aircraft’s certificate of registration. A person wishing to note such security interest in the Registry must submit a true certified copy of sufficient proof of a pledge or charge, which may take one of the following:

  • a pledge notice filed in accordance with the applicable Pledges Regulations;
  • a certificate, duly signed by the Companies Registrar, reflecting the registration of the charge;
  • a certificate, duly signed by a registrar authorised by statute, reflecting the registration of a pledge or charge;
  • an order reflecting the imposition of a pledge, charge or attachment issued by a court, a tribunal or the chief execution officer (the head of the execution office, which is part of the enforcement and collection authority);
  • a receipt for the payment of the applicable registration fees;
  • the certificate of registration of the aircraft (if in the possession of such person); and
  • if the request to register a pledge or charge is made by an agent or representative of the applicant, the Registrar may require the presentation of a notarised power of attorney complying with the formalities applicable to powers of attorney as addressed in question 8.

Once a security interest is noted in the Registry by the Registrar, the Registrar will refrain from making any change to the registration of the aircraft without the consent of the secured party or by court order (see more details in question 12).

Registration of security

How is registration of a security interest certified?

The Pledges Registrar and Companies Registrar issue certificates evidencing the registration of the relevant security. Such certificates do not state the rank or priority of the relevant security interest.

Effect of registration of a security interest

What is the effect of registration as to third parties?

As noted, a charge over an aircraft must be filed within 21 days of its creation for it to have any effect against a liquidator or other creditors. Once a certificate is issued following registration, it serves as conclusive evidence that all requirements for registration are met. Should the security interest be registered with the Pledges Registrar, the pledge shall be effective upon other creditors only upon registration thereof. Third parties may generally rely upon the accuracy of such public registrations. As noted in question 17, it is recommended that such a security interest also be noted in the Registry (see more details in questions 12 and 24).

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?

Security over aircraft is typically structured by creating a specific charge over the aircraft and identifiable engines, parts and equipment (including identifiable spare engines and spare parts) and a separate floating charge over any other parts of the aircraft not covered by the fixed charge or that did not exist at the time of the creation of the fixed charge. The logic of the floating charge element is to defeat any claims that the fixed charge does not cover any item that was not attached to the aircraft or did not exist or could not otherwise be identified at the time of the creation and filing of the original fixed charge. Security over future lease payments can be registered as an assignment by way of charge over the rights of the lessor to receive lease payments from the lessee.

The concept of a security trustee is generally recognised in Israel and used in granting of security depending on the particular circumstances. In such cases the relevant security is granted in favour of the security trustee on behalf of the relevant beneficiaries or in the name of the security trustee alone. In circumstances where security is granted for the benefit of a security trustee, the security trustee is considered the holder of the security and may exercise any rights associated therewith. In such circumstances the security would be registered in the name of the security trustee without naming the underlying syndicate so that variation of the relevant beneficiaries would not normally require amendment of the actual security. Should the beneficiaries be named as additional grantees in the original registration of the security, any change of beneficiary may require an amendment to the registration of the security or re-registration thereof, which may impact priority.

Security over spare engines

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

Security over a clearly identifiable and distinguishable spare engine may take the form of an independent fixed charge or a pledge over the spare engine itself in a similar manner as security over the aircraft itself would be created, as noted above. If the spare engine is not identifiable at the time of creation of the relevant security interest over the aircraft it is possible for Israeli companies to register a floating charge that expressly covers spare engines. However, once the spare engine is identifiable, it is recommended to either register an independent fixed charge or pledge, as the case may be, over such engine, or to amend the initial charge or pledge over the aircraft to include such engine. In both cases, once registered, the relevant charging or pledging of the spare engine would create security over such engine.

Separate security over a financed engine that is installed on a financed host aircraft would normally be treated as separate independent security and would remain in effect even if removed from the aircraft, and in such circumstances, it is recommended that the owner, operator or financing party of the host aircraft acknowledges the separate interest and security of the financier of such spare engine.