Cayman Islands: Cape Town Convention now in force
Last Updated: 15 April 2016 Article by Walkers Global FromWalkers
Cayman Islands special purpose vehicles are commonly used as borrower vehicles for bankruptcy remote financing structures for both commercial and private aircraft. Such vehicles are also used as issuers in capital markets transactions (including wrapped bonds, ABS and EETC deals) and for a wide range of investments in the aviation sector. Until recently the Cayman Islands did not offer as part of its legal framework the protections for creditors provided by the Cape Town Convention (the Convention on International Interests in Mobile Equipment concluded in Cape Town, South Africa on 16 November 2001). The Cayman Islands is a British Overseas Territory and as a result implementation of the Convention in the Cayman Islands required the Convention to be ratified by the United Kingdom. On 1 November 2015 the Convention came into force in the United Kingdom and – pursuant to the declaration made by the United Kingdom in respect of Article 52 of the Convention – in the Cayman Islands.
The Cayman Islands is not itself a Contracting State within the meaning of the Convention and is instead a territorial unit of a Contracting State (the United Kingdom). Article 52(5) of the Convention (Territorial Units) and Article XXIX(5) of the Protocol (Territorial Units) provide that a company, which is a debtor (such as a lessee under a lease or the chargor under a security agreement), and which is incorporated in the Cayman Islands, is considered to be situated in a Contracting State for all purposes of the Convention.
DECLARATIONS
Article 52 of the Convention provides that a Contracting State may make declarations permitted under the Convention in respect of its territorial units that are different from the declarations made regarding that Contracting State itself and/or the declarations made regarding any other territorial unit of that state.
The declarations permitted by the Convention that have been made with respect to the Cayman Islands include:
Declarations pursuant to Article 39 of the Convention
A declaration has been made under Article 39(1)(a) of the Convention that as a matter of Cayman Islands law all categories of non-consensual rights or interests which, under the laws of the Cayman Islands have priority over an interest in an aircraft object equivalent to that of the holder of a registered international interest shall, to that extent have priority over a registered international interest, whether in or outside insolvency proceedings.
A declaration has also been made under Article 39(4) of the Convention with the effect that a right or interest of a category covered by the declaration made under Article 39(1)(a) of the Convention shall have priority over an international interest registered prior to the date of deposit of United Kingdom’s instrument of ratification.
No declaration pursuant to Article 40 of the Convention
A declaration has not been made with respect to Article 40 (Registrable non-consensual rights or interests) which means no categories of registrable non-consensual rights or interests are provided for under Cayman Islands law.
Declaration pursuant to Article 60 of the Convention
A declaration has not been made with respect to Article 60(1) of the Convention and therefore the Cape Town Convention does not apply to a pre-existing right or interest, which retains the priority it enjoyed under applicable law before 1 November 2015.
Declaration pursuant to Article XXX(3) of the Aircraft Protocol
Alternative A under Article XI of the Protocol applies to the Cayman Islands in its entirety to all types of all insolvency proceedings and that the waiting period for the purposes of Article XI(3) of that alternative is sixty (60) calendar days.
AMENDMENTS TO LEGISLATION
The International Interests in Mobile Equipment (Cape Town Convention) Law, 2015 provides that the Convention and the aircraft protocol have the force of law in the Cayman Islands from 1 November 2015. The law also repeals the Cape Town Convention Law, 2009 and stipulates that the Convention does not prejudice rights or interests that existed prior to that commencement date.
Certain other legislative changes and updates have been made to support the introduction of the Convention, including (a) the Mortgaging of Aircraft Regulations, 1979 (which addresses the registration of and priority of mortgages over aircraft registered in the Cayman Islands) was repealed and has been replaced with the Mortgaging of Aircraft Regulations, 2015 which regulates the priority of aircraft mortgages made after 1 November 2015 and (b) the Air Navigation (Overseas Territories) Order 2013 (as amended) was amended on 1 November 2015 by the Air Navigation (Overseas Territories) (Amendment No.2) Order 2014 to address, amongst other things, recognition of the rights of an IDERA holder.
IMPACT OF THE CONVENTION
The implementation of the Convention means that a Cayman Islands special purpose vehicle can now be used for transactions for which the parties require the Convention to be applicable law in the jurisdiction of the special purpose vehicle. A point of distinction between the Cayman Islands and other jurisdictions in which such vehicles are established has been removed and should mean that the selection of the jurisdiction / structure can be made on the basis of factors other than the Convention such as the broader legal framework (including flexibility of Cayman Islands corporate law), tax neutrality, cost and expertise.
Previously published in Airline Economics Aviation Law Yearbook 2016
