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?

The 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 - see question 12). 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 uncooperating 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 in the Latvian Civil Code, self-help remedies are, generally, prohibited.

Enforcement of security

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

The mortgagee is entitled to take possession of the collateralised aircraft upon the obligor’s default (article 36(1) in the Latvian Commercial Pledge Law). In the case of a reluctant mortgagor, the mortgagee shall apply to a court for repossession in an expedited (summary) proceeding (article 36(2) in that Law). After implementing the repossession, the mortgagee is entitled to realise (sell) the collateralised aircraft upon giving written notice to the mortgagor and registering the realisation of the security on the Latvian commercial pledge registry (articles 42(1), 42(5) and 43(1) in the Law). The collateralised aircraft must be sold in a public auction (article 37(1) in the Law), unless the mortgagor and mortgagee 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) in the Law).

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

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?

With regard to the 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 in 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 repairmen’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) in 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 mortgagee). In practice, tax liens are, generally, considered as having 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.

Enforcement of foreign judgments and arbitral awards

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 state 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 No. 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.