ENGLAND AND WALES
2
Law and Practice
Contributed by:
Debra Erni
Pillsbury Winthrop Shaw Pittman LLP see p.15
Contents
1. Aircra and Engine Purchase and Sale p.120
1.1 Sales Agreements p.120
1.2 Transfer of Ownership p.120
2. Aircra and Engine Leasing p.121
2.1 Overview p.121
2.2 Lease Terms p.121
2.3 Lease Registration p.121
2.4 Lessor’s Liabilities p.122
2.5 Insurance and Reinsurance p.123
2.6 Lease Enforcement p.123
2.7 Lease Assignment/Novation p.124
2.8 Aircra Deregistration and Export p.125
2.9 Insolvency Proceedings p.126
2.10 Cape Town Convention and Others p.127
3. Aircra Debt Finance p.127
3.1 Structuring p.127
3.2 Security p.128
3.3 Liens p.129
3.4 Enforcement p.130
4. Other Issues of Note p.130
4.1 Issues Relevant to Domestic Purchase, Sale,
Lease or Debt Finance of Aircra p.130
4.2 Current Legislative Proposals p.131
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1. Aircra and Engine Purchase and
Sale
1.1 Sales Agreements
1.1.1 Taxes/Duties Payable upon Execution of the Sales
Agreement
ere are no stamp taxes or duties that arise solely by virtue of
the execution of a sale agreement while the subject asset of that
sale agreement is located in England; however, a domestic party
may be liable to pay value-added tax in connection with the sale
or purchase of an aircra or engine upon transfer of title and
may also incur tax liabilities in connection with the importation
of an aircra or engine into the United Kingdom.
1.1.2 Enforceability against Domestic Parties
Certication, notarisation, and legalisation are not required for
an English law-governed contract to be enforceable against a
domestic party.
ere is no requirement for a foreign language contract to be
translated into English in order to be enforceable against a
domestic party; however, if there is a risk of misunderstanding
between the parties as to the agreed terms, it is advisable to have
the parties also execute an English translation of the relevant
agreement. at said, in practice it would be highly unusual
for a domestic party to enter into a sale agreement that was not
prepared in the English language.
1.2 Transfer of Ownership
1.2.1 Transferring Title
A transfer of title is typically constituted by way of a dated bill
of sale which has been signed and released by a duly authorised
signatory of the seller of the asset.
e bill of sale should state that title to the aircra and/or engine
is being transferred together with all parts, equipment, installed
devices and relevant documentation, including technical
records and manuals. A generic reference to “all parts” will typi-
cally encompass the auxiliary power unit (APU). For the sake of
clarity, the manufacturer’s serial numbers of the airframe and all
engines should be expressly stated. Title may also be transferred
by simple physical delivery of the relevant asset; however, a bill
of sale is the more common form of title-transfer mechanism as
future purchasers will expect to be provided with a continuous
chain of title documentation back to the manufacturer. Failure
to provide evidence of an uninterrupted chain of title may nega-
tively impact upon the commercial value of the asset.
Provided that the entity in question holds both legal and ben-
ecial title to the asset, the sale of an ownership interest in a
company that owns an aircra or engine will eectively be rec-
ognised as a sale of that aircra or engine. It is recommended
that parties always obtain specic tax advice in respect of such
a “non-metal” transfer.
1.2.2 Sales Governed by English or New York Law
Under English law a bill of sale may be governed by the law
chosen by the parties thereto, provided the selection is su-
ciently clear from the circumstances of the case or expressly
stated on the face of the document. It is typical for bills of sale
for aircra and engines to contain an express governing law
clause. e position of the English courts is that in relation
to the proprietorial aspects of the title transfer, this must be
eected in accordance with the domestic laws of the jurisdiction
where the relevant asset is situated (the “lex situs”) when the bill
of sale is executed (ie, signed and delivered). If an aircra or
engine is physically located in England at the time of delivery,
title of transfer under an English law governed bill of sale will
be recognised.
e bill of sale must be duly executed (ie, signed and delivered)
and it should be in writing, both for the purpose of certainty and
for the purpose of maintaining a documented chain of title. As
a matter of both contract and property law, the bill of sale must
contain on the part of the title-holder an obligation to bind itself
to transfer title to the designated transferee.
1.2.3 Enforceability against Domestic Parties
ere are no specic requirements in this regard.
1.2.4 Registration, Filing and/or Consent from Government
Entities
ere are no local law consent, ling or registration require-
ments for English law-governed bills of sale. If the aircra con-
stituting the subject of the sale is UK-registered, it is advisable to
inform the United Kingdom Civil Aviation Authority (the CAA)
of a change in ownership by ling a Form CA1.
1.2.5 Taxes/Duties Payable upon Execution of a Bill of Sale
ere is no stamp duty payable in England on the sale of an
aircra or engine located in England, over international waters
or en route to or from England. A fee of USD100 is payable for
the registration of a transfer of title constituting a sale under
the Cape Town Convention. A domestic party may incur cor-
poration tax liabilities on the sale of an aircra and VAT may
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be charged on the sale or supply of an aircra, although com-
mercial aircra are generally zero-rated for VAT.
2. Aircra and Engine Leasing
2.1 Overview
2.1.1 Non-permissible Leases
e parties are generally free to select whatever terms they wish
and to determine their respective rights and obligations.
2.1.2 Application of Foreign Laws
e parties are generally free to select the governing law of the
lease, but the choice should be either expressly stated in the
document or easily ascertainable by the circumstances of the
case. If the choice is not clear the governing law will default to
the law of the country with which the lease is most closely con-
nected. In practice, the governing law selected for cross-border
leasing of commercial aircra is typically English or New York
law. ere are certain limited circumstances in which the par-
ties’ chosen law may be overridden, such as:
• where the remaining elements of the contract are located in
a country that is not the country of the governing law and
that country’s laws cannot be derogated from; or
• where there are overriding mandatory provisions in the law
of the country where the contractual obligations are to be
performed and those overriding provisions would render
the contract unlawful; or
• where the parties’ chosen law is incompatible with the
public policy of the forum in which claims or disputes are to
be heard.
2.1.3 Restrictions Concerning Payments in US Dollars
ere are no such restrictions.
2.1.4 Exchange Controls
Other than in relation to sanctions’ legislation, there are no
foreign exchange controls in operation or restrictions on the
transfer of proceeds or rent payments.
2.1.5 Taxes/Duties Payable for Physical Execution of a Lease
ere are no fees, charges or stamp duties payable in respect
of the execution of a lease in England or on a domestic party
to a lease as a result of an original or copy of that lease being
brought into England.
2.1.6 Licensing/Qualication of Lessors
ere are no specic requirements for a lessor to be licensed or
qualied in England in order to lease an aircra or engine to
an English lessee. However, this should not be confused with
any wider analysis of what general licences or authorisations a
lessor may need in its own jurisdiction to carry out its business.
2.2 Lease Terms
2.2.1 Mandatory Terms for Leases Governed by English or
New York Law
ere are no such mandatory terms required.
2.2.2 Tax and Withholding Gross-Up Provisions
As a general rule, such provisions are permissible and enforce-
able.
2.2.3 Parts Installed or Replaced Aer a Lease’s Execution
In the case of replacements, it would be typical for a lease to
specify that such parts must be unencumbered and of the same
or equivalent type, value, condition and utilisation or modica-
tion status as the parts being replaced. In the case of temporary
substitutions, it would be commonplace for the lease to provide
that parts can only substituted without the prior written consent
of the lessor when this is done pursuant to a pooling or inter-
change arrangement customary within the airline industry and
that removed parts may not be removed or pooled in such a
manner that a loss of title to that part occurs.
2.2.4 Risk of Title Annexation
Although there is no specic English case law on this point,
it is generally thought that, because engines are identiable as
distinct from an airframe and can be removed from an airframe
and replaced, the degree of annexation is negligible. Engine-
owners and mortgage-holders will typically require lessees to
attach identication plates to engines in order to notify third
parties of their interests.
2.2.5 Recognition of the Concepts of Trust/Trustee
Trusts and owner trustee concepts are recognised in lease agree-
ments.
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2.3 Lease Registration
2.3.1 Notation of Owner’s/Lessor’s Interests on Aircra
Register
Registration on the United Kingdom Civil Aviation Register
may be made in either the name of the owner or the operator
of the aircra, provided that the person is a “qualied person”.
e UK Civil Aviation Register is not a register of ownership
and accordingly registration does not constitute proof of owner-
ship of an aircra. It is typical for an aircra-operator to register
as a “charterer by demise” and for the Certicate of Registration
issued by the CAA to record that status without the name of
the owner of the aircra appearing on the Certicate. In such a
case, the CAA will retain the name of the owner on le but will
not make it available to the public. Ownership and leasehold
interests that fall within the Cape Town Convention may be
registered against an aircra object at the International Registry.
2.3.2 Registration if the Owner is Dierent from the
Operator
See 2.3.1 Notation of Owner’s/Lessor’s Interests on Aircra
Register.
2.3.3 Aircra/Engine-Specic Registers
ere is no specic register at the CAA or any other domestic
register, such as Companies House; however, a lease constituting
an “international interest” in a Cape Town Convention aircra
object is registrable on the International Registry.
2.3.4 Registration of Leases with the Domestic Aircra
Registry
It is not possible to register or le a lease with the CAA and
leases are not subject to the consent of any domestic govern-
ment entities.
2.3.5 Requirements for a Lease to be Valid and Registrable
is is not applicable in England and Wales.
2.3.6 Taxes/Duties Payable for Registering a Lease
is is not applicable in England and Wales.
2.3.7 Registration of Aircra in Alternative Countries
e United Kingdom is not party to any ICAO 83-bis arrange-
ments.
2.3.8 Requirements for Documents Concerning Registration
A Form CA1 must be submitted by either the owner of the air-
cra or the charterer by demise eligible to register the aircra.
Full guidance can be obtained on the CAA website.
2.4 Lessor’s Liabilities
2.4.1 Tax Requirements for a Foreign Lessor
e lessor will not be required to make any such payments.
2.4.2 Eects of Leasing on the Residence of a Foreign Lessor
e circumstances of being a party to, or enforcement of, the
lease will not result in the lessor being deemed resident, domi-
ciled, carrying on business or subject to taxes in the United
Kingdom.
2.4.3 Engine Maintenance and Operations
Generally, no liabilities in respect of aircra or engine main-
tenance and operations can be imposed on a foreign lessor
under a lease as a result of its being a party to that lease. Under
section 76(2) of the Civil Aviation Act 1982, an aircra-owner
has strict liability for loss and damage caused by an aircra to
third persons and property; however, by section 76(4) of the
same Act, liability will transfer to a charterer by demise where
the aircra is chartered for a period of more than 14 days. It
is also commonplace to exclude or restrict such liability by an
appropriate contractual provision and to require an indemnity
from the lessee.
2.4.4 Damage or Loss Caused by an Asset
See 2.4.3 Engine Maintenance and Operations.
2.4.5 Attachment by Creditors
See 2.4.6 Priority of ird Parties’ Rights.
2.4.6 Priority of ird Parties’ Rights
ere are third parties’ rights that will take priority over a les-
sor’s rights under an aircra or engine lease, whether or not
that lease/lessor is registered in the national aircra register,
for example:
• mechanics and repairers’ liens for unpaid labour;
• rights of airport authorities and Eurocontrol for unpaid
landing fees and/or air navigation charges;
• rights of customs and tax authorities for unpaid duties and
contravention of tax laws;
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• rights of the Secretary of State for unpaid European Union
Emissions Trading Scheme penalties;
• various public authorities for noise and emissions contra-
ventions.
2.5 Insurance and Reinsurance
2.5.1 Requirement to Engage Domestic Insurance
Companies
ere is no domestic or captive insurance regime in the United
Kingdom applicable to aviation assets.
2.5.2 Mandatory Insurance Coverage Requirements
Any aircra ying in the United Kingdom must carry the mini-
mum amount of liability insurance as required by EU Regula-
tion EC785/2004. Further details on EU limits can be found by
visiting the CAA website. Hull insurance policies are generally
arranged on an agreed-value basis.
2.5.3 Placement of Insurances outside of Jurisdiction
Reinsurances can be placed outside England and Wales up to
100% coverage, although given the global pre-eminence of the
Lloyd’s of London insurance market, this would be unusual in
practice.
2.5.4 Enforceability of “Cut-rough” Clauses
Despite limited case law in this eld, such clauses are generally
considered eective as a matter of English law.
2.5.5 Assignment of Insurance/Reinsurance
Assignments of insurances/reinsurances are permitted; how-
ever, they are more typical in instances where the relevant cut-
through clause is not enforceable and accordingly are not always
used in transactions with English lessees.
2.6 Lease Enforcement
2.6.1 Restrictions on Lessors’ Abilities
Outside of bankruptcy and subject to other applicable laws and
the quiet-enjoyment terms applicable under a specic lease,
there are no specic limitations on the ability to exercise rem-
edies. e aircra need not be physically located in the United
Kingdom; however, if it is located in a third country, the proce-
dural local laws of that country will typically govern the exercise
of remedies.
2.6.2 Lessor Taking Possession of the Aircra
Provided the relevant lease accords such rights (and as a matter
of practice they invariably do) English law will permit a lessor to
exercise self-help remedies without the need for a court order, to
the extent that the lessor is able to do so peaceably and lawfully.
In circumstances where the lessee does not co-operate with the
lessor’s exercise of such rights, it is common practice for a lessor
to apply for a possession order.
2.6.3 Specic Courts for Aviation Disputes
ere are no specically designated courts per se; however,
aviation disputes are most commonly heard before the Com-
mercial Court of the Queen’s Bench Division of the High Court
in London.
2.6.4 Summary Judgment or Other Relief
A lessor can obtain a summary judgment, or equitable or other
injunctive relief, pending nal resolution of judicial proceedings
to enforce an aircra lease under a highly accelerated process. In
some limited circumstances, this will require that the claimant
post a security or bond to secure the defendant against damage
that it might suer if the seizure is found to have been unfound-
ed, although this is oen dealt with by way of the claimant pro-
viding an indemnity for damages. e court may be reluctant to
grant injunctive relief if the defendant would be likely to suer,
as a result of disruption to its business through the seizure of
an aircra, unquantiable damage for which it could not be
adequately compensated if the claimant’s case were to fail.
2.6.5 Domestic Courts’ Approach to Foreign Laws and
Judgments
In practice, the governing law of cross-border aircra lease
agreements is commonly expressly stated in the lease agree-
ment as English or New York law. English courts will uphold
the law chosen by the parties to govern the lease; however, the
Rome I Regulation (EC) No 593/2008 and Rome II Regulation
(EC) No 864/2007 permit the parties’ choice of law to be over-
ridden in certain limited circumstances, such as where all the
other elements of the lease agreement are located in a country
which is not the country of the selected governing law and that
country’s laws cannot be derogated from.
2.6.6 Domestic Courts’ Recognition of Foreign Judgments/
Awards
is depends entirely on which foreign court or arbitral panel
issued the judgment or award. For several countries, statutory
provisions allow for the enforcement of a judgment in England
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and where no Regulation or Act is applicable, a foreign judg-
ment may be enforced under common law.
2.6.7 Judgments in Foreign Currencies
A lessor under an aircra lease can obtain a judgment in a for-
eign currency, provided that the debt accruing under the aircra
lease is expressed in that currency. e sum will be converted
to sterling on the date that the court authorises enforcement of
the judgment.
2.6.8 Limitations on Lessors’ Actions Following Termination
As a general rule, there are no such limitations, provided that
the level of default interest or additional rent is not so extor-
tionate as to be categorised as a penalty. Case law on penalties
continues to evolve and it is not possible to state denitively the
boundaries of penalty territory; however, a secondary obligation
which imposes a detriment on the contract-breaker out of all
proportion to any legitimate interest of the innocent party in the
enforcement of the primary obligation is likely to be construed
as a penalty.
2.6.9 Lessor’s Requirement to Pay Taxes/Fees
Other than the security described in 2.6.4 Summary Judgment
or Other Relief, which may apply in the event of injunctive
relief being claimed, generally, a lessor under an aircra lease
is not required to pay taxes or fees in a signicant (ie, non-
nominal) amount in connection with the enforcement of a lease.
2.6.10 Mandatory Notice Periods
ere are no mandatory notice periods with which a lessor must
comply if it terminates an aircra lease which relates to an air-
cra operated domestically or which is leased by a domestic
operator.
2.6.11 Lessees’ Entitlement to Claim Immunity
Sovereign immunity can generally be waived and may not even
be applicable in relation to purely commercial activity. Lease
agreements oen feature such waivers.
2.6.12 Enforcement of Foreign Arbitral Decisions
e United Kingdom acceded to the New York Convention on
23 December 1975. e procedure for an enforcement of an
award under the New York Convention is the same as for a
domestic award and there are certain limited grounds where a
domestic court may refuse to enforce the award, such as where,
in doing so, it would be contrary to public policy.
2.6.13 Other Relevant Issues
ere are no other relevant issues that a lessor should be aware
of in relation to the enforcement of its rights that we wish to
raise.
2.7 Lease Assignment/Novation
2.7.1 Recognition of the Concepts of Contractual
Assignment and Novation
e concepts of contractual assignment and novation are recog-
nised, although it should be noted that English law recognises
the assignment of rights only and not obligations. It should fur-
ther be noted that obligations are not assigned under a novation;
they are replaced.
2.7.2 Assignment/Novation of Leases under Foreign Laws
e lessee’s consent is not required as a matter of English law
in order for a novation agreement or deed to be held valid by a
domestic court; however, typically, a lease will provide that any
transfer or assignment of the lessor’s interest is subject to certain
requirements - the most common of which being that the lessee
will not suer any increased obligations or diminution of its
rights as a result of the novation or assignment. Accordingly, it
is standard practice to add the lessee as a party to the novation
or assignment as a means to remove any doubt as to whether or
not those requirements have been satised. ere are no manda-
tory terms that need to be included in an English law-governed
novation or assignment; however, these documents are regularly
draed in the form of a deed in order to circumvent any possible
argument regarding failure of consideration.
2.7.3 Enforceability of Lease Assignments/Novations
e lease assignment or novation need not be certied, notarised
or legalised to be enforceable against a domestic party. In prac-
tice, these documents are invariably prepared in the English
language when there is a domestic party.
2.7.4 Filing/Registration of Lease Assignments/Novations
ere is no local law ling or registration requirement; however,
it is advisable to inform the CAA of any change in ownership by
ling a Form CA1. It is further recommended that all interna-
tional interests that arise in respect of UK-registered aircra be
registered on the International Registry following the discharge
of any obsolete registrations.
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2.7.5 Taxes/Duties Payable on Assignment/Novation
ere are no taxes or duties payable in respect of an assignment
and assumption/novation agreement, or as a consequence of
an original or copy of any such agreement being brought into
England and Wales, either physically or electronically.
2.7.6 Recognition of Transfer of Ownership Interests
In general, where there is no assignment or novation of the
actual lease it would not require lessee consent or participa-
tion. In practice, however, new insurance, tax certications and
nancing consents are usually required.
2.8 Aircra Deregistration and Export
2.8.1 Deregistering Aircra in this Jurisdiction
e operator of the aircra as the registered owner (or “charter-
er by demise”) is the only party who can request deregistration
of an aircra from the UK aircra register unless an irrevocable
deregistration and export request authorisation (IDERA) has
been led in favour of an authorised party such as a mortgagee
or lessor. Deregistration is typically carried out within three
working days, although it can be expedited on a same-day basis
for an additional fee.
2.8.2 Lessee’s/Operator’s Consent
Deregistration of an aircra pursuant to the request of the
authorised party named in the IDERA does not require the con-
sent of the registered owner (or “charterer by demise”) noted on
the CAA aircra register.
2.8.3 Required Documentation
A Form CA54 will need to be completed and submitted by the
party in whose favour the IDERA has been issued (the “author-
ised party”). No fee is payable unless a same-day expedited ser-
vice is requested.
2.8.4 Duration of Deregistration Process
Typically, the deregistration process will take three working
days unless the same-day service is requested.
2.8.5 Aviation Authority’s Assurances
As a matter of law, the CAA is required to co-operate with the
authorised party in the IDERA and carry out its functions pur-
suant to the Civil Aviation Act 1982 in an expeditious manner. It
must cancel the registration of the aircra named in the record-
ed IDERA as soon as is reasonably practicable if it is satised
that the authorised party is entitled to request deregistration.
2.8.6 Costs, Fees and Taxes Relating to Deregistration
No, there are no signicant costs/fees/taxes chargeable with
regard to the deregistration per se, which is construed as dis-
tinct from the certication required for the export of an aircra.
2.8.7 Deregistration Power of Attorney
As a matter of practice, deregistration powers of attorney have
now largely been superseded by the use of IDERAs. ere is no
guarantee that the CAA will recognise a deregistration power
of attorney; however, in order for a deregistration power of
attorney to be eective in English law, it must be executed as
a deed. In the case of an IDERA, the lessee must complete a
Form CA50 and submit it to the CAA for issue and recordation
of the IDERA, together with the requisite ling fee of GBP108.
2.8.8 Documents Required to Enforce Deregistration Power
of Attorney
No further documents are needed in addition to the IDERA.
2.8.9 Choice of Laws Governing Deregistration Power of
Attorney
It is not a requirement for a deregistration power of attorney to
be governed by the laws of England and Wales.
2.8.10 Revocation of a Deregistration Power of Attorney
A deregistration power of attorney may be revoked by the
authorised party, who may also designate a replacement author-
ised party as its certied designee.
2.8.11 Owner’s/Lessor’s Consent
In the case of an aircra subject to a charter by demise, the
CAA may agree to notify the lessee before the deregistration is
aected, but it has no legal obligation to do so and does not need
to obtain the consent of the lessee before eecting the deregis-
tration. e authorised party named in the IDERA will need to
revoke the IDERA before the aircra can be deregistered and
exported.
2.8.12 Aircra Export Permits/Licences
An Export Certicate of Airworthiness conrming the aircra
conforms to the type certicate data sheet and is in a condition
for safe operation will be needed, together with a valid certicate
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of airworthiness, permit to y or other airworthiness document.
e CAA “Service Standard” for the processing of instructions
for an application is 15 working days from receipt of the cor-
rectly completed application and clearance of the required fee.
2.8.13 Costs, Fees and Taxes Concerning Export of Aircra
e costs of the certicates described in 2.8.12 Aircra Export
Permits/Licences are not insignicant and are levied by refer-
ence to the weight of the subject aircra. Full details can be seen
on the CAA website.
2.8.14 Practical Issues Related to Deregistration of Aircra
e CAA might refuse to grant the mortgagee or lessor the nec-
essary operating licence, certicate of airworthiness or other
consents needed for the continued ight or export of the air-
cra. Under English law, statutory rights of detention may also
apply to the aircra in respect of unpaid taxes, airport and air
navigation charges, and in connection with crimes such as drug
tracking, terrorism and breach of UN sanctions.
2.9 Insolvency Proceedings
2.9.1 Eect of Lessee’s Insolvency on a Deregistration Power
of Attorney
As a matter of English law, an IDERA (which is expressed to
be irrevocable) and which secures a proprietary interest of the
authorised party or the performance of an obligation owed to
the authorised party will not be revoked by the dissolution or
winding-up of the grantor, provided that the authorised party
still holds the proprietary interest or the obligation remains
unperformed.
2.9.2 Other Eects of a Lessee’s Insolvency
e lease may be set aside if it is found to have been entered into
at an undervalue, in circumstances where it has been entered
into no later than two years preceding the onset of the insol-
vency and the lessee was unable to pay its debts at the time of
execution or became unable to pay its debts as a consequence
of its entry into the lease. In the case of an administrative order,
the lessor may no longer have the right to continue to receive
rent, as this will fall to the discretion of the English courts and/
or the administrator. e lessor will be prevented from repos-
sessing the aircra in the absence of the express consent of the
administrator or the permission of the court. In the case of a liq-
uidation, the liquidation will not have the eect of terminating
the lease and if the liquidator chooses not to perform the lessee’s
obligations, the lessor will be entitled to rely on its contrac-
tual remedies. If the liquidator disclaims the lease, it will forfeit
entitlement to possession of the aircra and the lessor will be
entitled to claim damages resulting from that disclaimer. Where
a winding-up order is made, and provided that no court action
is necessary, the lessor will be able to repossess the aircra. If
the lease involves an international interest over the aircra, the
lessor will likely have the benet of creditor protections under
the UK Cape Town Convention Regulations, which provide that
upon an “insolvency-related event” occurring, the debtor must
either return the asset to the creditor prior to the expiry of a
60-day waiting period or cure the breach and agree to perform
all future obligations under the relevant agreement within the
60-day waiting period. Failing this, the creditor may exercise
self-help remedies in order to repossess the relevant asset.
2.9.3 Risks for a Lender if a Borrower, Guarantor or Security
Provider Becomes Insolvent
e obvious risk for an unsecured creditor is that of non-pay-
ment and little chance of recovery of any portion of the loan.
Remedies available to a lender will dier signicantly, depend-
ing on the relevant insolvency procedure, which under English
law spans administrative receivership, administration and liq-
uidation through to various schemes of arrangement.
2.9.4 Imposition of Moratoria in Connection with
Insolvency Proceedings
Under the recently enacted Corporate Insolvency and Govern-
ance Act 2020, companies other than those subject to: (i) to for-
mal insolvency proceedings; or (ii) to a moratorium, company
voluntary arrangement or administration in the prior 12 months,
may request a moratorium, which will initially last 20 business
days (subject to extension by an extra 20 business days (without
creditor consent)) and up to one year (with creditor consent),
or as approved by a court order, on creditor action where the
company is, or is likely to become, unable to pay its debts, and the
moratorium would result in the rescue of the company as a going
concern. Importantly for lessors and lenders, however, two such
exceptions are lease rent due, and amounts for goods and services
supplied, during the moratorium – these sums must continue to
be paid otherwise the moratorium will be brought to an end. In
addition, where a creditor has a registered “international interest”
the moratorium will not apply aer the 60-day waiting period
referenced in 2.9.2 Other Eects of a Lessee’s Insolvency.
2.9.5 Liquidation of Domestic Lessees
A compulsory liquidation may be achieved by a court order initi-
ated by a petition submitted by the company’s directors, share-
holders or creditors. A voluntary liquidation may be achieved by
a resolution of its members, with the creditors able to nominate
a liquidator. Administration may be achieved by the company’s
directors or creditors applying to the courts for an administration
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order. An out-of-court procedure is also available to the compa-
ny’s directors and qualifying oating charge-holders to initiate an
administration by ling notice of an appointment of an adminis-
trator with the court and prior qualifying oating charge-holders.
2.9.6 Ipso Facto Defaults
Leases are commonly draed in such a way that the mere cir-
cumstance of lessee insolvency proceedings (subject to the
expiry of certain grace periods) will confer a contractual enti-
tlement on the lessor to terminate the leasing of the relevant
asset and repossess it.
2.9.7 Impact of Domestic Lessees’ Winding-Up
If a winding-up order is made against the lessee, the lessor will
be able to repossess the aircra, provided that no court action
is necessary. at said, a court would in all likelihood grant per-
mission to a lessor to commence proceedings to repossess the
aircra. e provisions of the Insolvency Act 1986 may serve to
impede the return of a security deposit or maintenance reserves
if the relevant payment was made two years or less in advance
of the lessee entering into insolvency.
2.10 Cape Town Convention and Others
2.10.1 Conventions in Force
Both the Convention on International Interests in Mobile
Equipment (the Convention) and the related Protocol on Mat-
ters specic to Aircra Equipment (the Protocol) came into
force domestically on 1 November 2015. AEP codes are not
required and lessors are able to attend to lings themselves.
2.10.2 Declarations Made Concerning Conventions
In England and Wales, the declarations made under the Con-
vention or the Protocol are Cape Town Convention Articles: 39
(1) (a)-(b), 39(4), 52 (1), 53, 54 (2) and Articles XXIX, XXX(1).
VIII, XXX(1). XII, XXX(1). XIII, XXX(2) and XXX(3) of the
Protocol.
2.10.3 Application of Article XIII of the Protocol on Matters
Specic to Aircra Equipment
See 2.8.7 Deregistration Power of Attorney.
2.10.4 Enforcement of Conventions
ere is no known recent case law in the English courts enforc-
ing the Convention or the Protocol.
2.10.5 Other Conventions
e United Kingdom is a signatory to both the Geneva Conven-
tion and the Rome Convention, but has not ratied or acceded
to either and consequently their terms do not apply under Eng-
lish domestic law.
3. Aircra Debt Finance
3.1 Structuring
3.1.1 Restrictions on Lending and Borrowing
ere are no restrictions on foreign lenders nancing an aircra
locally; however, withholding taxes may apply in the absence of
an available exemption under an applicable tax treaty. Domes-
tic borrowers are subject to all applicable English laws, but no
additional restrictions apply to the use of loan proceeds from
foreign lenders.
3.1.2 Eect of Exchange Controls or Government Consents
ere are no such consents or controls requiring compliance.
3.1.3 Granting of Security to Foreign Lenders
Borrowers are permitted to grant security to foreign lenders.
3.1.4 Downstream, Upstream and Cross-Stream Guarantees
All such guarantees are permitted, and adequate considera-
tion is a requirement for all such guarantees. As guarantees are
typically provided by the parent or another party related to the
borrower, the benet of the loan being disbursed to the bor-
rower is typically the consideration referenced in the guarantee.
Particular care should be given to consideration for upstream
guarantees, as courts will look to see what benet the subsidiary
received in guaranteeing its parent’s debt, such as the amount
of debt proceeds which were contributed to the subsidiary. If a
bankruptcy court determines that the guarantor did not receive
adequate consideration for its guarantee, the court may void the
guarantee as a fraudulent conveyance.
3.1.5 Lenders’ Share in Security over Domestic SPVs
It is advisable for a lender to take share security over a domestic
special-purpose vehicle that owns the nanced aircra, however
it would be unusual to rely only on a share charge and not also
take security over the aircra by way of a mortgage.
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3.1.6 Negative Pledges
Negative pledges are recognised under English law.
3.1.7 Intercreditor Arrangements
ere are no such restrictions or requirements.
3.1.8 Syndicated Loans
e concept of agency and the role of an agent (such as the facil-
ity agent) under a syndicated loan is a well-established concept
under English law.
3.1.9 Debt Subordination
Contractual and structural methods of debt subordination (the
latter achieved by way of the junior lender issuing a loan to a
holding company of the senior lender’s borrower) are permis-
sible and recognised.
3.1.10 Transfer/Assignment of Debts Under Foreign Laws
Secondary debt trading in the aviation market is well-estab-
lished in England and Wales, and such transfers and assign-
ments of all or part of an outstanding debt are commonplace.
3.1.11 Usury/Interest-Limitation Laws
ere are no usury laws in eect in England. Excessive default
interest may be construed as a penalty and therefore unenforce-
able in circumstances where the requirement to pay it consti-
tutes a secondary obligation which imposes a detriment on the
contract-breaker out of all proportion to any legitimate interest of
the innocent party in the enforcement of the primary obligation.
3.2 Security
3.2.1 Typical Forms of Security and Recourse
Typical forms of security and recourse granted in an aviation
nance transaction domestically would be a share charge over
the borrower, a mortgage over the aircra, assignments of
airframe and engine warranties, a lease security assignment,
parent guarantees, assignments of insurances, account charges
over lease rental, security deposit and maintenance reserves
accounts.
3.2.2 Types of Security Not Available
All types of security are recognised and typically enforceable
under English law.
3.2.3 Trust/Trustee Concepts
Trusts and security trustees are recognised and are well-estab-
lished concepts under English law.
3.2.4 Assignment of Rights to an Aircra by a Borrower to a
Security Trustee
It is permissible and commonplace for a borrower to assign to
a security trustee, pursuant to a security assignment or a mort-
gage, its rights to the aircra or under an aircra lease, including
in relation to insurances.
3.2.5 Assignment of Rights and Benets without Attendant
Obligations
It is possible to assign the rights and benets of the lessor under
an aircra lease pursuant to an assignment. It is not possible to
assign obligations as a matter of English law; this could only be
achieved by way of a novation.
3.2.6 Choice of Foreign Law
A security assignment or a guarantee need not be governed by
domestic law to be enforceable, provided that the law of the
stipulated jurisdiction recognises the valid creation of the rel-
evant security interest.
3.2.7 Formalities/Mandatory Terms to Create and Perfect
Security Assignments
A security assignment granted by a company incorporated in
England must be registered at Companies House within 21 days
of its creation or it will be void against other creditors, liquida-
tors and administrators of the company. Under s 136 of e Law
of Property Act 1925, notice of the assignment must also be
provided to the contract counterparty. While it is good practice
to request an acknowledgment of receipt of that notice from
the counterparty, this is not a prerequisite for perfection. ere
is no legal requirement for a security assignment to be trans-
lated, certied, notarised or legalised to be enforceable against
a domestic counterparty.
3.2.8 Domestic Law Security Instruments
ere are no additional security instruments that are required
and no domestic instruments or local law lings that are neces-
sary as a prerequisite to making a Cape Town ling.
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3.2.9 Domestic Registration of Security Assignments
Governed by Foreign Laws
In theory, a New York law-governed security assignment could
be registered domestically if issued by an English company,
although it would be commonplace to see an English law-gov-
erned assignment.
3.2.10 Transfer of Security Interests over Aircra/Engines
e transfer of security interests over an aircra and/or engines
is recognised, provided that this is in accordance with the trans-
fer provisions set forth in the underlying security instrument.
3.2.11 Eect of Changes in the Identity of Secured Parties
To the extent that a security trustee is used as the assignee and
the security assignment contemplates that the secured parties
may change from time to time, security interests will not be
jeopardised.
3.2.12 “Parallel Debt” Structures
Parallel debt structures are not commonly used in England.
3.2.13 Eect of Security Assignments on Residence of
Secured Parties
e secured party would not be deemed resident, domiciled,
carrying on business or subject to taxes in the United Kingdom
by virtue of its being party to, or enforcing, a security assign-
ment.
3.2.14 Perfection of Domestic Law Mortgages
For an English law aircra mortgage to be recognised as eec-
tive by an English court, the aircra must be physically located
in England (or airspace over England), or another jurisdiction
where the domestic laws of that other jurisdiction would recog-
nise an English law mortgage as an eective means by which to
create such security at the time that the security is created (lex
situs rule). Any mortgage of a UK-registered aircra may be
registered in the Aircra Mortgages Register maintained by the
CAA as evidence of the mortgage, although this is not required
for the purposes of perfection. ere is no separate mortgage
register maintained in respect of engines or spare parts. If the
mortgagor is a company registered in England, it will also be
necessary to register the mortgage at Companies House within
21 days of its creation.
3.2.15 Dierences between Security over Aircra and Spare
Engines
ere are no material dierences between the form of security
(or perfection) taken over an aircra and that taken over spare
engines.
3.2.16 Form and Perfection of Security over Bank Accounts
Security over a bank account is perfected by the secured party
obtaining “control” over the relevant account. In practice, this
is typically done in two ways. First, by having the secured party
be the bank with which the bank account is maintained and
including appropriate provisions in relation to the account
in the security agreement. Second, by entering into a tripar-
tite account pledge agreement or account control agreement
between the account bank, the borrower/account holder and
the secured party, pursuant to which the account bank agrees
to grant the secured party control over the account following
notication of the occurrence of an event of default under the
related security agreement.
3.3 Liens
3.3.1 ird-Party Liens
ird-party liens are recognised and may take priority over air-
cra ownership or security interests. e amount claimed must
be due and payable. Fleet liens are recognised in England. Local
authorities which own or manage UK airports, the CAA, and
HMRC, amongst numerous other agencies, all have the right to
seize, detain and sell aircra for unpaid debts. e priority of
such rights is also retained under the Cape Town Convention
as applied in the United Kingdom, without the need for any
registrations on the International Registry.
3.3.2 Timeframe to Discharge a Lien or Mortgage
It is impossible to state any average; however, it is possible to
discharge a lien or mortgage on a same-day basis.
3.3.3 Register of Mortgages and Charges
e interests of a mortgagee over a UK-registered aircra may
be noted on the Aircra Mortgage Register maintained by the
CAA. A mortgage so registered will take priority over all other
mortgages and charges over the aircra registered earlier in
time.
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3.3.4 Statutory Rights of Detention or Non-consensual
Preferential Liens
Statutory rights of detention or non-consensual preferential
liens can arise over an aircra and/or on a “eet-wide” basis As
just one example, the Secretary of State has the ability to detain
and sell any aircra operated by a lessee defaulting on its EU
Emission Trading Scheme payment obligations.
3.3.5 Verication of an Aircra’s Freedom from
Encumbrances
A potential purchaser of an aircra could search the CAA Air-
cra Mortgage Register and the Cape Town International Reg-
istry to verify that an aircra is free of encumbrances.
3.4 Enforcement
3.4.1 Dierences between Enforcing Security Assignments,
Loans and Guarantees
e type of security interest a lender holds will determine how
it can enforce its security and whether it can do so without a
court order. Certain methods of enforcement are only available
to the holders of specic types of security interest, although, in
some cases, this can be varied by terms agreed in the security
document creating the security interest.
3.4.2 Security Trustees’ Enforcement of their Rights
Security assignments usually contain specic and oen highly
negotiated provisions on when the debt becomes payable and
when security can be enforced by the secured party. ese pro-
visions will determine when the right to enforce arises. Even if
defaults (including non-payment defaults) have occurred under
the related lease or facility agreement, additional steps may need
to be taken by the lessor or lender (such as the giving of a notice,
expiry of a grace period or the exercise of discretion) before the
debt can be accelerated or security enforced.
If not otherwise governed by express terms, the secured party
can enforce rights arising by operation of law. ese include an
application to the court for a foreclosure order, an exercise of
a power of sale and an exercise of a right to appoint a receiver
of income.
3.4.3 Application of Foreign Laws
Generally, domestic courts will uphold a foreign law as the gov-
erning law of a nance or security document, and the submis-
sion to a foreign jurisdiction, except where, for example, this
would be incompatible with public policy in England and where
the elements of the contract to be performed are located in a
country other than England and that country’s laws cannot be
derogated from by contract.
3.4.4 Recognition and Enforcement of Foreign Judgments
and Arbitral Awards
See 2.6.6 Domestic Courts’ Recognition of Foreign Judg-
ments/Awards, which applies equally here.
3.4.5 Secured Parties’ Right to Take Possession of Aircra
A secured party can take physical possession of the aircra to
enforce a security agreement/aircra mortgage without the les-
see’s or operator’s consent, provided that power is set out in the
relevant agreement and the security party is able to do so peace-
fully. However, a court order will oen be sought as a means to
circumvent any argument by the lessee as to trespass or breach
of the lessee’s right to quiet enjoyment of the aircra in circum-
stances where the lessee opposes the repossession.
3.4.6 Domestic Courts Competent to Decide on
Enforcement Actions
See 2.6.3 Specic Courts for Aviation Disputes, which applies
equally here.
3.4.7 Summary Judgments or Other Relief
All of these options are available via the English courts. Default
judgment is typically available where the mortgagor fails to
acknowledge the mortgagee’s claim form by issuing notice of
an intention to defend. Summary judgment would be available
where the mortgagor has no material prospect of defending the
claim. Injunctions may be appropriate where there is a possibil-
ity that the aircra will be removed from England or dealt with
in such a manner as to impair its value. See 2.6.4 Summary
Judgment or Other Relief which applies equally here.
3.4.8 Judgments in Foreign Currencies
See 2.6.7 Judgments in Foreign Currencies which applies
equally here.
3.4.9 Taxes/Fees Payable
Other than counsel fees, a secured party is not typically required
to pay taxes or fees in a non-nominal amount in connection
with the enforcement of a security agreement/aircra mortgage.
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3.4.10 Other Relevant Issues
ere are no other relevant issues that a lender should be aware
of in relation to the enforcement of its rights.
4. Other Issues of Note
4.1 Issues Relevant to Domestic Purchase, Sale,
Lease or Debt Finance of Aircra
ere are no other relevant issues that we wish to raise.
4.2 Current Legislative Proposals
ere are no new legislative proposals that we are currently
aware of.
ENGLAND AND WALES LAW AND PRACTICE
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Pillsbury Winthrop Shaw Pittman LLP is powered by a team
of dedicated aviation nance lawyers in the US, Europe and
Asia. e 30-member global aviation nance team at Pillsbury
has ranked consistently as one of the world’s nest over dec-
ades. Over the last ve years alone, the rm has helped a di-
verse range of market participants get or keep more than 1,500
commercial aircra ying, reecting an aggregate asset value
of more than USD75 billion. e rm serves as a trusted advis-
er to the most established names in aviation, as well as emerg-
ing players, including airlines, lessors, nancial institutions
and other investors. Whichever side is represented, the rm
understands the unique dynamics between, and interests of,
the parties involved. Clients and counterparties know the rm
for its in-depth substantive knowledge, commercial awareness,
user-friendly service and ability to power the ecient execu-
tion of transactions. In addition, members of the team are also
known as a long-range capable force to be reckoned with when
it comes to the prosecution (and defence) of related enforce-
ment actions and disputes.
Author
Debra Erni serves as the managing
partner of Pillsbury’s London oce. With
substantial client followings in California,
Japan and Ireland, Debra has for several
years represented the most globally
signicant aircra and engine leasing
companies, nanciers, airlines, equity
investors and manufacturers in connection with the sale and
purchase of new and used aviation assets, ECA-supported and
other secured debt nancings, all manner of leasing and
related restructuring, repossession and dispute advisory work,
and aviation platform M&A. Formerly resident in Japan for
nearly a decade, Debra speaks and reads Japanese uently and
is familiar with Japanese corporate structures and many other
aspects of Japanese law. She also spent time on secondment at
AerCap in the early stages of her career.
Pillsbury Winthrop Shaw Pittman LLP
Tower 42, Level 21
25 Old Broad Street
London,
EC2N 1HQ
Tel: +44.20.7847.9595
Email: debra.erni@pillsburylaw.com
Web: www.pillsburylaw.com
