Background

On 20 June 2013 Parliament passed bills signing up Australia up to:

  • the Convention on International Interests in Mobile Equipment (Convention) ; and
  • the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (Protocol). 

Once the International Interests in Mobile Equipment (Cape Town Convention) Act 2013 (Act) receives royal asset, the Convention and Protocol will have the force of law in Australia.

As a result of the Act, the Personal Property Securities Act 2009 (PPSA) has been amended to ensure the Convention and Protocol prevails where there is an inconsistency. By not specifically excluding the PPSA, the PPSA will continue to apply in relation to aircraft equipment caught by the Convention and Protocol in certain circumstances.

The Air Services Act 1995 (Cth) will be amended to clarify that a statutory lien over an aircraft in favour of Airservices Australia under s.59 of that Act for unpaid service charges will prevail over a later registered interest in that aircraft under the Convention.

What are the Convention and Protocol?

The Convention and Protocol provides:

  • an international legal system to protect secured creditors of aircraft objects;
  • an International Register for creditors to register their security interests (an “international interest”) and thereby also attain a priority ranking; and
  • creates a set of basic remedies in the event of debtor default or insolvency.

What property is affected by the Protocol and Convention?

The Protocol and Convention applies to transactions involving an aircraft object:

1.  where the aircraft object meets specified size/power requirements;

2.  where an 'international interest' or prospective international interest is createdby the transaction; and

3.  when the transaction is concluded, the aircraft object is registered in or thedebtor is located on a Contracting State.

What are size/power requirements?

The minimum aircraft object size/power requirements are:

  1. Airframes that can transport:
    1. at least 8 persons (including crew); or
    2. goods in excess of 2750kgs;
  2. Helicopters that can transport:
    1. at least 5 persons (including crew); or
    2. goods in excess of 450kgs;
  3. Aircraft engines that have at least 1750lb of thrust.

The PPSA priority and enforcement rules will apply to all aircrafts that don’t meet these requirements.

What is the International Registry?

The impact of Australia signing up to the Convention and Protocol is that checks for registrations on both the Personal Property Securities Register (PPSR) and the International Registry of Mobile Assets will now be required.

Similar to the PPSR, the International Registry of Mobile Assets permits individuals and organisations to register financial interest in assets using the MSN (manufacturer’s serial number). Its role is to electronically record international interests in aircraft objects and establish priority of interests.

It provides for the registration and protection of ‘international interests’ that are recognised by all ratifying states, with priority being determined on a “first-to-file” basis.

How much does it cost register on the International Register?

At present, the price to register is US$300 ($200 user set up fee and $100 registration fee).

What enforcement remedies are available under the Convention and Protocol?

Remedies provided to a secured party by the Convention and Protocol include:

  • re-possession;
  • deregistration and export;
  • the sale of or grant of a lease over an asset; and
  • the rights to any proceeds derived from an asset with a security interest attached. 

Is it necessary to action by reference to the courts to enforce under the Convention and Protocol?

Under the Convention and Protocol a creditor can enforce ‘self-help’ without reference to the court in event of default, or insolvency event.  That is after a nominated waiting period (60 days), a creditor automatically gains the right to repossess the aircraft object. 

The courts have no powers to delay or prevent the enforcement of this remedy, however the Courts still continue to have jurisdiction in relation to other aspects of the securities matter, such as the validity of the claim over a security interest.

Under the act, the Australian courts are restrained from exercising jurisdiction in relation to securities remedies that are subject to the Convention, in favour of relevant ‘self-help’ provisions. 

What role does the Civil Aviation Safety Authority (CASA)?

To give effect to the remedy of self-help the regulations to the Act will be used to introduce a new function for the CASA – the recording of an IDERA.

Under the IDERA the borrower agrees to lodge an IDERA with CASA in favour of the lender.

In the event of a default, the lender will be able to exercise the IDERA to secure deregistration and export of an aircraft.  This ensures that an aircraft cannot legally be flown to another country to avoid recovery of the asset.

Where to from here?

Take steps to protect yourself – update your security documents to ensure you are compliant with the Convention and Protocol.