Practitioners will be aware that the United Kingdom Government is set to ratify the Convention on International Interests in Mobile Equipment and the Protocol thereto on matters specific to Aircraft Equipment (the Cape Town Convention). Extension of the Cape Town Convention to Cayman is now imminent.
In the meantime the Cayman Islands authorities have been busy preparing all necessary enabling legislation to bring the Cape Town Convention into force so that it interacts harmoniously with existing Cayman registration regimes. The key new statute is the International Interests in Mobile Equipment (Cape Town Convention) Law 2015 (the Enabling Law).
What does this mean?
Once extended to Cayman, the Cape Town Convention will directly apply to that jurisdiction, with Cayman gaining the status of a territorial unit of a Convention State. However, the Cape Town Convention is not a one-size-fits-all proposition. Convention States can opt in and out of the law by depositing declarations with the International Institute for the Unification of Private Law (UNIDROIT). As a territorial unit, Cayman has requested that the UK make various declarations (Declarations) on its behalf, which are detailed in Schedule 3 to the Enabling Law. The most important of these are:
- Existing and future non-consensual rights and interests (such as an airport authority lien) will take priority over registered international interests, in an insolvency scenario or otherwise;
- Remedies available to creditors under the Cape Town Convention that are not expressed to require application to the court may be exercised without the leave of the court;
- The application of Article XII of the protocol – the Cayman Islands courts will cooperate with foreign courts and insolvency administrators in carrying out the insolvency remedies set out in the Protocol;
- Relief must be granted within ten working days by the Cayman courts to creditors applying for immobilisation or possession orders; and
- In an insolvency scenario, the waiting period for a creditor wanting to take immediate possession of an aircraft object is 60 calendar days.
What about the Cayman Cape Town Law?
The Cayman Islands has long been a jurisdiction of choice for aircraft financing transactions and those familiar with structures involving Cayman entities will be aware that in 2009 Cayman enacted the Cape Town Convention Law 2009 (the Domestic Cape Town Law), which gave domestic effect in to certain provisions of the Cape Town Convention. In particular, the Domestic Cape Town Law applies when an agreement is concluded that provides for an international interest and the debtor is situated either in a Convention State or is a Cayman company that has "opted in" (a very simple procedure) to the domestic legislation. This allowed us to make registrations in the International Registry on behalf of, for example, Cayman aircraft owners providing security over the aircraft to their financiers. Until the Cape Town Convention is implemented in Cayman, the Domestic Cape Town Law will continue to apply, and even afterwards, the Enabling Law provides that any right or interest pre-dating the coming into force of the Cape Town Convention will retain the priority it enjoyed under the Domestic Cape Town Law.
How will implementation of the Cape Town Convention change aircraft finance transactions?
The industry is widely welcoming the extension of the Cape Town Convention to Cayman as a natural complement to the jurisdiction's already very sophisticated aircraft finance industry. Parties in other non-Convention States (for example Hong Kong) dealing with Cayman entities will now have a Cape Town Convention nexus for their transactions. The impact of this, in turn, may include:
- Additional comfort for lenders wanting to rely on the extended range of remedies available under the Cape Town Convention;
- Potential reduction of risk in transactions, leading to better rates for borrowers or lessees;
- Access to the "Cape Town discount" from export credit agencies;
- Access to the Cape Town Convention disputes framework;
- More straightforward and efficient documentation of aircraft financing transactions; and
- More certainty around insolvency treatment of debtors and cross border insolvency cooperation.
Impact on local registrations
The local register will continue to be relevant for mortgages over aircraft that do not meet the specification of the Cape Town Convention (and where an aircraft is registered in Cayman but there is no international interest) although it will now be administered by the Civil Aviation Authority of the Cayman Islands (CAA) rather than the Governor. The CAA has issued new regulations, the Mortgaging of Aircraft Regulations 2015, which, broadly speaking, preserve the priority of existing aircraft mortgages on the local register, but provide that priority conflicts where there is an international interest will be determined in accordance with the Cape Town Convention.
In our transactions with Cayman borrowers, we have previously made a local registration and an International Registry registration pursuant to the Domestic Cape Town Law. We recommend that financiers and lessors continue to make a local registration with the CAA; that local registration, if coupled with an international interest, will have the priority under Cayman law granted to it under the Cape Town Convention.
Stand by for take off...
We have set out below a summary of the key enabling legislation and dates. It remains unclear at the time of writing exactly when the Enabling Law will come into effect, but we will provide an update as soon as we have some visibility on this.
|Legislation||Effect||Date gazetted||Date brought into force|
|Civil Aviation Authority (Amendment) Law 2015||Bestows on the CAA the right to create and maintain a domestic mortgage register and make regulations||29 April 2015||6 May 2015|
|International Interests in Mobile Equipment (Cape Town Convention) Law 2015||Implements the Cape Town Convention in
Gives effect to the Declarations
Repeals and replaces Domestic Cape Town Law
|29 April 2015||Not yet in force; expected to be July-August 2015|
|Mortgaging of Aircraft Regulations 1979 (Revocation) Regulations 2015||Repeals the Mortgaging of Aircraft Regulations 1979 (disempowering the Governor from governing local registrations)||6 May 2015||Immediately after the Enabling Law comes into force|
|Mortgaging of Aircraft Regulations 2015||Takes into account the registration of international interests on the International Registry and defers to the Cape Town Convention to determine matters of priority||6 May 2015||Immediately after the Mortgaging of Aircraft Regulations 1979 (Revocation) Regulations 2015 come into force|
|Bills of Sale (Amendment) Law 2015||Extends the Bills of Sale Act (2000 Revision) to aircraft objects as defined in the Protocol to the Cape Town Convention||29 April 2015||Not yet in force|
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.