During December 2008, the European Parliament took a major step towards ratification of the Cape Town Convention and its Aircraft Protocol. The Legal Affairs Committee approved the text of both instruments which are now before the Council for endorsement.
The Cape Town Convention and its Aircraft Protocol together create a cross-border legal framework in respect of international interests in high value mobile assets such as aircraft and aircraft engines. This includes the creation of an international register to record such rights. The registration system provides that registration gives priority over later registered interests and over unregistered interests. The right is created when an asset (such as an airframe or engine) is used as security in a leasing or other similar financial transaction. In most cases, this right, once registered, has priority over any local title interests or claims.
The Convention also provides remedies that allow creditors to repossess assets in the case of a debtor defaulting or becoming insolvent. It, therefore, allows lenders both to secure their interest by registration and to enforce their rights in the event of default. Depending on the particular option taken at the time of ratification, this may include a right, equivalent to the US Bankruptcy Code section 1110, to immediate repossession. This is provided for in Article XI option A. Option B calls for 'speedy judicial relief' for a creditor, but continues to require access to the national court system.
The Convention entered into force on 1 March 2006 in the 10 countries including the United States that had then ratified or acceded to the treaty. When it came into force, the American Export-Import Bank moved to offer international buyers that had ratified the Convention up to a one-third reduction on its exposure fee charged for aircraft export financing of new US manufactured large commercial aircraft (provided that the other country opts for option A in Article XI). Ethiopia, Pakistan, Panama and Oman are some of the international buyers who have benefited.
Banks and airframe manufacturers alike have been pushing for the Cape Town Convention to be ratified in Europe. Unfortunately, ratification in Europe has been held up by two issues, one political and one technical. Firstly, for some years there has existed an issue between Spain and the United Kingdom relating to the Gibraltar authorities in the context of so-called mixed agreements (ones concerning both community and member state competence). That dispute was finally resolved in December 2007. The second issue is a technical one. EU ratification of the Convention is required for two areas within the competence of the EU: jurisdiction and insolvency. However, member states have long considered that the EU has competence only with respect to insolvency mechanisms but not substantive insolvency and bankruptcy laws themselves. That view was not accepted by the Commission. The agreed compromise is that the EU will not make a decision on the Article XI options, by opting out of the provision altogether. It will, therefore, be open to member states to include the relevant option as part of their domestic law.
With the recent ratification by Kazakhstan, the Convention has now been ratified by 27 states. A full list is available at: www.unidroit.org/english/implement/i-2001-convention.pdf.
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