Following the enactment of 'The Aircraft Registration Act' in 2010 which is designed to regulate the registration of aircraft and aircraft mortgages in Malta and also to implement the Convention on International Interests in Mobile Equipment and Protocol thereto on Matters Specific to Aircraft Equipment there has been a rapid growth in the number of aircraft registered in Malta. In fact it was recently reported that in 2011 there was a 21 per cent increase in the number of aircraft registered in Malta when compared to 2010, with a total of 104 aircraft now on the aviation register. So what is it about the relatively new legislation that has encouraged air operating companies to flock to Malta?
Despite being a registry in its infancy, it can undoubtedly draw on the wealth of experience of its sister registry in the Merchant Shipping Directorate. A complete restructuring of the civil aviation directorate, the recruitment of highly specialised personnel and the tireless effort of the private industry service providers has been fundamental. Furthermore, the Act is to be construed consistently with Regulation EC No 1008/2008 of the European Parliament and of the Council of 24 September 2008 on common rules for the operation of air services in the Community, providing an additional level of comfort to stakeholders.
Drawing on all the years of experience within the Maltese Ship Registry, the Maltese Government was well aware that if adequate protection to financial institutions was not awarded, the Maltese aircraft registry would never take off. Therefore, mortgagees could rest assured that their interests are going to be fully protected and that the process has even been further streamlined within the National Aircraft Registry.
By means of a mortgage executed by the mortgagor in favour of the mortgagee and subject to the formalities of the Act, a registered aircraft or a share therein may be made security of any debt or other obligation. Such mortgage is indivisible notwithstanding the divisibility of the underlying debt or other obligation which it may secure. A registered mortgage shall attach to the aircraft or share therein in respect of which it is registered until it is discharged.
It is also permissible for a mortgage to be executed and registered in favour of a security trustee and such security trustee shall be recognised as the mortgagee of the particular mortgage and entitled to exercise all the rights in relation to that mortgage. Given that multiple financiers are often involved due to the costs involved in aircraft financing, the role of security trustee becomes a beneficial tool whereby the various financiers could appoint a security trustee rather than each enforcing its own security interest individually.
Mortgages shall be recorded in the order of time in which they are produced to the Director General of the National Aircraft Register and where it is stated in the mortgage deed that it is prohibited to create further mortgages on an aircraft and/or transfer the aircraft without prior written consent of the mortgagee a note shall be made to this effect and will be adhered to. Therefore, where more than one mortgage is registered in respect of the same aircraft or share, the mortgagees shall be entitled in priority according to the date and time at which each mortgage was recorded in the Register.
In the event of a mortgagor defaulting on the mortgage payments, financiers can put their mind at rest as the Maltese mortgage laws have been tried and tested and shown their worth. So there is plenty of case law that would be drawn upon by both practitioners and the courts to ensure smooth and uniform application of mortgage laws within the aeronautical realm.
Maltese law allows the mortgagee, in the case of default of any term or condition of a registered mortgage or of any document or agreement referred to therein, upon notifying the debtor in writing to:
- Take possession of the aircraft or share;
- Sell the aircraft or share;
- Apply for any extensions, pay fees, receive certificates and generally do all such things in the name of the owner or registrant as may be required in order to maintain the status and validity of the registration of the aircraft;
- Lease the aircraft so as to generate income;
- Receive any payment of the price, lease payments and any other income which may be generated from the management of the aircraft.
The duty to notify will be satisfied if the mortgagee or holder of any security interest gives notice by means of an electronic communication or any other such manner agreed to between the parties.
The law offers a great deal of protection to the mortgagee and explicitly states that the above rights can be exercised without the need of any court intervention. Should the mortgagee be hindered by anyone in the course of enforcing his rights, support of the court could be sought by the mortgagee and in this respect the court should render full support as expeditiously as possible. Furthermore, subject to any possessory lien that a party may have, the debtor and person in possession of the aircraft are obliged to co-operate fully with the mortgagee when enforcing his rights, including but not limited to, the surrendering and submitting of all data, manuals, technical records, parts, accessories and appurtenances belonging to the aircraft.
In addition a mortgage is an "executive title" which means that the mortgagee can proceed directly with enforcement without the need of commencing any form of action. This is fundamental as it allows a mortgagee to proceed directly to the Maltese courts for a judicial sale of the aircraft.
However, the law does not stop here. The Court Approved Private Sale, which has been put to the test for the first time very recently in the maritime sphere, enhances further these advantages. By application to the courts and subject to certain procedures being followed, in case of default, a mortgagee may sell the aircraft to a private buyer, thereby being able to fetch the most reasonable price (as would be the case in a private sale) but also allowing the buyer to benefit from purchasing the vessel free and unencumbered (as in a judicial sale by auction).
Needless to say there are many other advantages why an aircraft operator should select the Maltese aircraft registry which are beyond the scope of this article but suffice to say that the above factors alone already justify the exponential growth experienced.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
