The Australian Government announced that it would sign up to the Cape Town Convention. It is expected to become part of domestic law by 2014.
This is a positive development in the Australian aircraft sector which if implemented correctly, will have benefits for financiers, lessors and airlines.
What is the Cape Town Convention (“Convention”)?
The Convention helps to facilitate aircraft financing by providing financiers with an international standard for the protection of ownership rights and security interests in movable assets. It is used by major airlines, lessors and financiers across the world.
The Convention establishes:
- an “international interest” in aircraft equipment (such as airframes, aircraft engines and certain helicopters);
- an electronic registration system for perfection and priority of “international interests”; and
- default rights and remedies to enforce such international interests.
Advantages of the Convention
Under the OECD’s Aircraft Sector Understanding, Australian airlines will have the benefit of reduced premiums in export credit financing arrangements. To apply, the OECD will need to be satisfied that the Convention and its qualifying declarations have been adequately implemented into national law.
Financiers and lessors also stand to benefit for all transactions (not just export credit transactions), as the Convention brings speed and certainty to the repossession process, which should significantly reduce the risk of lending or leasing to Australian airlines.
Current regime for registration - PPSA
In Australia, security interests arising under aircraft financing transactions are currently registered under the PPSA regime.
The commencement of the Personal Property Securities Act 2009 (“PPSA”) on 30 January 2012 (“RCT”) in Australia introduced a new system for the creation, registration and enforcement of security interests in assets, which replaced the previous registration of company charges at ASIC. The PPSA contains transitional provisions which affect security interests created before the RCT. These transitional security interests enjoy temporary perfection until 30 January 2014 unless registered before this date. Absent any current detail on the implementation of the Convention, registration of these security interests should continue under the PPSA.
It is unclear how the Government intends to deal with the registration of interests under the Convention and PPSA following the implementation of Cape Town in 2014. In our view, it is essential that there is no duplication of registrations systems or registration costs for parties to aircraft financing transactions. If not implemented efficiently, parties may need to register under Cape Town and under the PPSA.
Interaction with PPSA
We are speaking to the Government about the best way of moulding the systems moving forward. We need to ensure that there is consistent interplay between the PPSA and the Convention to avoid any duplication of registration and costs for parties under the two regimes.
We made submissions to the Government in 2010 in support of the implementation of the Convention into Australia provided that it ties in with the PPSA.