Security

Security document (mortgage) form and content

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

Typically, security is created over aircraft and engines by way of legal mortgages. These are usually documented in English being the language of Nigerian courts. There is no special form that such a mortgage must take but such agreements would usually contain a granting clause setting out the specifics of the aircraft and the security interest created over it as well as clauses relating to the registration, maintenance and operation of the aircraft, replacement of parts, substitution of engines, events of loss, insurance, defaults and remedies, term of the mortgage, terms of release of the mortgage, filings to be completed for the perfection of the mortgage, applicable law, dispute resolution and so on.

Whether or not the secured amount or the economic terms of the transaction would be stated in the mortgage agreement or in a separate loan document is entirely up to the parties. However, upon stamping of the mortgage agreement, registration with the NCAA and filing of same at CAC, the secured amount is required for assessing the applicable stamp duties, registration and filing fees.

Security documentary requirements and costs

What are the documentary formalities for creation of an enforceable security over an aircraft? What are the documentary costs?

A legal mortgage is required to be executed as a deed and subsequently stamped. Thereafter, the document is required to be noted by the NCAA. Where the mortgagee is empowered under the mortgage to deregister and export the mortgaged asset, a DPoA or an IDERA is also required to be filed with the NCAA.

If the mortgagor is a company registered in Nigeria, the charge created over the aircraft or engine, or both, being one of the assets of the company would also be registered at the CAC by filing a Form CAC 8 (Particulars of Charge) with additional information setting out a high-level description of the asset being charged, including such details as the manufacturer’s serial number and NCAA registration number of the charged asset.

In compliance with the CTC, most mortgages creating an international interest must also be registered at the International Registry.

The costs associated with the foregoing are calculated as follows:

  • stamping - 0.375 per cent of the mortgage value; and
  • registration with the NCAA:
    • on the first 100,000 naira of the secured sum, for each complete 10,000-500 naira;
    • on the next 900,000 naira, for each 100,000 naira or part thereof - 500 naira;
    • thereafter, for each 1 million naira or part thereof - 200 naira. However, the maximum charge for registration is capped at 150,000 naira;
  • registration at the CAC:
    • if the mortgagor is a private company - 10,000 naira for every 1 million naira or part thereof; and
    • if the mortgagor is a public company - 20,000 naira for every 1 million naira or part thereof; and
  • registration of an international interest with the International Registry - US$100.
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.

Yes, to effectively perfect the security against the debtor and third parties, the security document must be filed with the NCAA, CAC and the International Registry.

To register the security document at the NCAA, a cover letter requesting that the mortgage be registered as well as a copy of the deed of mortgage will be submitted to the NCAA. Thereafter, the applicable registration cost will be assessed and paid. Once the registration is complete, the NCAA will issue a letter stating that the interest has been noted in the Nigerian Civil Aircraft Register and the date on which it was entered.

At the CAC, the original stamped security document is required to be filed with a Form CAC 8 (Particulars of Charge). Once the filing fee has been assessed and paid, the CAC will issue a Certificate of Registration of a Charge setting out the secured sum, the date of creation of the charge and the person in whose favour the charge is created.

The registration of an international interest at the International Registry is completed on their dedicated website. Prior to the registration, the mortgagor and mortgagee must be registered as Transacting User Entities. The International Registry website provides a step-by-step guide on how an international interest can be registered.

For the respective applicable costs, see question 16.

Registration of security

How is registration of a security interest certified?

The certification of a security interest in a mobile asset depends on the authority with which it is registered. If the registration is done in accordance with the CTC at the International Registry, no certificate is issued. However, the status of the interests in the asset can be confirmed by conducting a confirmatory search on the asset at the International Registry. The International Registry will then issue a Priority Search Certificate setting out all the registrations completed in respect of the asset. This will state the type of each registration completed up to the date of the search, whether or not each interest created is fractional or partial and the person in whose favour each registration is made.

With respect to registrations at the NCAA, the NCAA will issue a letter stating that the interest has been noted in the Nigerian Civil Aircraft Register and the date on which same was entered. The issued letter does not state the rank or priority of the security interest registered. Subsequently, a search may be conducted on the Nigerian Civil Aircraft Register following which the NCAA will issue a Report of Search setting out the details of the asset, its registered owner and all interest holders in respect of the asset.

The CAC issues a Certificate of Registration of a Charge setting out the type of security document registered, the secured sum, the date of creation of the charge and the person in whose favour the charge is created. Subsequently, a search can be conducted on the file of the mortgagor at the CAC to confirm the status of the charge as well as to obtain certified copies of the security document.

All the foregoing can be accessed upon completion of the registration process at each registry.

Effect of registration of a security interest

What is the effect of registration as to third parties?

Registration at the International Registry confers priority over subsequent security interests in line with the terms of the CTC. Registration with the NCAA and the CAC serves as notice to third parties that a security interest has been created over the asset and stamping and registering the security document is the best way to establish priority under Nigerian law.

There is no priority notice system in place, but the effect of the various registrations is to put all third parties on notice as to the security interest created over the secured asset. Any subsequent charge created over the same asset would be subject to and rank second to the interest already created and registered.

Records kept of registrations by the NCAA, CAC and International Registry are largely reliable in confirming the status of assets sought to be secured.

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?

Syndicated aviation financing may utilise substantially the same structure as other types of syndicated financing. The concept of trust is recognised under Nigerian law and may be used in granting security over an aircraft by the appointment of a security trustee for the lenders in a transaction. How the trust will be managed, whether or not the security or the beneficiaries of same can be substituted or modified is largely dependent on the terms of the facility documents. Where the facility or security documents permit substitution of lenders or the inclusion of additional lenders, the security trustee may also be empowered to hold the security on behalf of the substituted or additional lenders.

Where a security trustee is appointed in syndicated financing, the registrations in respect of the security documents may be completed in the name of the security trustee. If this is the case, there would be no requirement to make changes where there are additional lenders or lender substitutions. However, when a loan is to be transferred to a new lender, filings of the change with the relevant authorities would be required.

Security over spare engines

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

Security over spare engines can also be created by legal mortgage whether or not any such engine is installed on an aircraft. The creation of security over an aircraft does not create an independent security over the installed engine except when expressly stated in the security document. Where a security interest is to be created over an aircraft and its installed engines, each of the aircraft and engines are listed as a separate secured asset. Where a security interest is created over an aircraft and the installed engines, the security document may make provision for how the installed engine may become unencumbered. The security document may provide for the substitution of engines under security where such engines are uninstalled and replaced or provide that the security over an engine subsists even after it is uninstalled from the charged aircraft.