SecuritySecurity document (mortgage) form and content
What is the typical form of a security document over the aircraft and what must it contain?
Security rights in an aircraft are created by way of a mortgage agreement. The agreement may be prepared in English or South Korean, but registration must be in South Korean. There is no specified form of agreement; parties may be as inclusive as they want in terms of detail. However, the agreement must include at a minimum:
- the amount of underlying debt;
- the name and address of the debtor;
- the repayment period;
- any interest;
- the interest accrual date and payment period; and
- the maximum secured amount.
Annex 1 of the Act on Mortgage on Vehicles and Other Specific Movables Enforcement Decree is the prescribed form of application. In order to register the mortgage over the aircraft, the mortgagor and mortgagee or their agent(s) must submit the application form in person to the Ministry of Land, Infrastructure and Transport (MOLIT) (Article 2(1) of the enforcement decree).Security documentary requirements and costs
What are the documentary formalities for creation of an enforceable security over an aircraft? What are the documentary costs?
An aircraft security becomes effective when:
- the parties execute the mortgage agreement and submit an application to register the mortgage to the MOLIT; and
- such registration is recorded on the aircraft register.
The registration fee is W8,200 regardless of the value of security. Payment may be made by attaching a revenue stamp to the application.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.
An aircraft mortgage must be registered with the MOLIT and recorded on the aircraft register in order to be effective against third parties. The creation of security over an aircraft and deregistration, modification or transfer of the same can be effected through:
- executing the relevant security agreement;
- registering the creation, modification, transfer or termination of the security right with the MOLIT (including the relevant agreement and certificates of seal); and
- updating the aircraft register accordingly.
How is registration of a security interest certified?
An aircraft mortgage becomes effective from the moment that it is recorded in the aircraft register. Any interested party will be able to access the records to verify the status of charges.Effect of registration of a security interest
What is the effect of registration as to third parties?
Security interest that is properly registered will be effective against third parties. Once registered, the ranking of the security (mortgage) becomes fixed. Priority is established in accordance with the order of registration. The value of the mortgage, the creditor and the ranking will be set out in the aircraft register, and the mortgagee can make its claims based on this information.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?
When a loan is secured by security over the aircraft, the aircraft mortgage must be registered on the aircraft register to establish a security right in the aircraft. Once registered, aircraft mortgages are effective not just between the parties to the mortgage agreement, but also against third parties. As a real right, a registered mortgage will be effective against an assignee of the aircraft ownership rights, successor mortgagees and other third parties seeking to make claims on the aircraft.
Security over aircraft and leases cannot be structured as trusts if the trust structure is such that the lender retains the right of claim but a trustee or agent holds the mortgage right in its name. This is because an aircraft mortgage becomes effective only on registration, meaning that the lender must also be registered as the mortgagee in order for its security rights to be recognised. A trust structure in South Korea has the effect of separating the holder of the claim right (the lender) from the holder of the security interest (the trustee or agent), meaning that the trustee or agent holds the security interest without actually holding the claim right to which the security interest relates.
If the lender’s right of claim is assigned, the relevant mortgage must also be transferred and registered in accordance with Article 5 of the Act on Mortgage on Vehicles and Other Specific Movables Enforcement Decree in order to preserve the priority ranking afforded to the original lender.Security over spare engines
What form does security over spare engines typically take and how does it operate?
Spare engines are treated as movable assets independent from the aircraft. Therefore, security rights over spare engines must be created by way of a movable assets yangdo dambo (security by means of transfer) agreement and enforced as movables. The establishment of security interest in spare engines is typically notified by attaching a public notice (eg, a nameplate) on the collateral itself.
As South Korea is not a signatory to the Cape Town Convention, there is no method for registering spare engines that have been installed on aircraft. Engines that are installed on rotorcrafts are not considered to be objects independent of the aircraft and engines installed on fixed-wing aircraft are considered to be accessories to the main aircraft. Therefore, engines that are installed cannot be treated as independent objects. As such, where necessary, movable assets yangdo dambo agreements should include provisions prohibiting the installment of spare engines or subjecting such installment to consent and other protective measures.