The Cayman Islands Aircraft Registry A first class experience
From Mourant Ozannes
Danielle Roman and Tracey Forbes examine how the CAACI has embraced the requirements and spirit of the Cape Town Convention, which has fortified the Cayman Islands’ position as an offshore market leader in both commercial and corporate jet financing and as an aircraft registry of choice
The Cayman Islands has long been recognised as a leading jurisdiction for cross-border aircraft financing. The efficient framework within the Cayman Islands for the registration of aircraft and aircraft mortgages, with a longstanding history of effective safety oversight which adhere to international standards of compliance, aircraft maintenance and airworthiness, is underpinned by the jurisdiction’s political stability and its highly developed, flexible, English-based legal system.
The extension of the Cape Town Convention on International Interests in Mobile Equipment and the associated Protocol on matters specific to Aircraft Equipment (the Cape Town Convention) to the Cayman Islands on 1 November 2015 has symbolised the Cayman Islands’ commitment to the aviation industry and has solidified the Cayman Islands aircraft registry’s position as a first class aircraft registry.
Joining the club – what is the Cape Town Convention and why is it so important?
Prior to the Cape Town Convention, there was no internationally accepted framework to govern the rights of creditors and debtors over an aircraft. The mobile nature of an aircraft made it challenging to determine the true risk of a sale or financing of aircraft, resulting in difficulty in acquiring affordable financing and certainty of protection of interests. In an event of a default, there was no consistent set of internationally recognized remedies that could be sought by creditors and lessors, as regulations governing default and repossession of aircraft would differ from country to country.
The Cape Town Convention established an international legal framework for the creation and registration of international interests in helicopters, airframes and aircraft engines which fall within the meaning of ‘aircraft objects’ under the Cape Town Convention. Creditors and other third parties with an ‘international interest’ in an aircraft object can register each separate interest on the International Registry to guarantee their priority of claim against other parties. They also have the comfort of an internationally recognized set of rights in the event of a debtor default or insolvency, as well as a framework for resolving disputes arising under the Cape Town Convention.
With the extension of the Cape Town Convention, Cayman Islands entities no longer have to ‘opt-in’ to legislation in order for the Cape Town Convention to be applicable, as was required under the previous legislative regime. This allows the Cayman Islands to offer creditors and lessors the protections provided under the Cape Town Convention which were not previously available.
The Cape Town Convention applies to a transaction where (i) there is an ‘aircraft object’ which meets the size requirements set out in the Cape Town Convention, (ii) there is an international interest capable of registration under the Cape Town Convention and (iii) the debtor is located in and/or the aircraft is registered in a Contracting State (which would include the Cayman Islands).
What does this mean for the Cayman Islands aviation industry?
The implementation of the Cape Town Convention has been a welcome addition to the jurisdiction’s sophisticated aircraft finance regime. The advantages both owners and creditors have perceived over the last six months since implementation of the Cape Town Convention in the Cayman Islands include:
• additional comfort to financiers who are able to rely on international standards governing priority of their security and the range of remedies available under the Cape Town Convention in an event of default under finance documents;
• reduced costs to airlines through the ‘Cape Town discount’ from export credit agencies under OECD guidelines and The Export-Import Bank of the United States offering improved financing terms for buyers in countries which have ratified the Cape Town Convention; and
• beneficial owners in non-Contracting States (eg. Hong Kong) owning or leasing an aircraft through a Cayman Islands entity, as well as financiers and lessors seeking to lend or lease to those entities, may now be able to benefit from the advantages of the Cape Town Convention.
Creditor friendly declarations
There are certain provisions of the Cape Town Convention which only apply in respect of a Contracting State if it makes an opt-in declaration or an opt-out declaration to that effect. The UK government has made a number of declarations on behalf of the Cayman Islands, including: • Non-consensual rights: existing and future non- consensual rights and interests (eg. a lien of an airport authority in respect of unpaid taxes) will have priority over all international interests, including those registered prior to 1 November 2015.
- Remedies: all remedies available to creditors and lessors under the Cape Town Convention which are not expressed to require application to the court may be exercised without leave of the court.
- Cooperation with foreign courts: the Cayman Islands courts will co-operate to the maximum extent possible with foreign courts and foreign insolvency administrators in carrying out insolvency remedies set out in the Protocol.
- Speedy relief pending final determination: the
Cayman Islands courts will grant interim relief within 10 working days to creditors applying for preservation, possession or immobilization of an aircraft, pending a final determination.
- Alternative A: on the occurrence of an insolvency related event, the debtor (or insolvency administrator) shall (subject to certain conditions) give possession of the aircraft no later than at the end of a 60 calendar day waiting period.
These creditor friendly provisions provide greater certainty around the treatment of debtors in an insolvency scenario, including cross-border insolvency cooperation between Contracting States.
CACCI’s first class service – what is the role of CAACI?
The Civil Aviation Authority of the Cayman Islands (CAACI) is the statutory body responsible for aviation regulatory oversight in the Cayman Islands and maintaining the Cayman Islands aircraft register (the Aircraft Register). CAACI has a reputation of being one of the most highly respected, user- friendly and recognised aircraft registries across the aviation industry, providing high quality support through a mission of ‘safety first’ with a dedicated team of professionals for over 30 years.
“The potential cost savings and protections afforded by the Cape Town Convention has fortified the Cayman Islands’ position as an offshore market leader in both commercial and corporate jet financing and as an aircraft registry of choice”
CAACI is the registry of choice for many multinational corporate and high net-worth individual beneficial owners, with registered aircraft based globally in countries throughout Europe, Middle East, South America, Asia, North America and South Africa. CAACI has over 230 aircraft registered on the Aircraft Register from some of the world’s leading business aviation manufacturers, including Gulfstream, Boeing Business Jet, Airbus Corporate Jet, Embraer, Dassault Falcon, Cessna Citation and Bombardier Global Express.
The Cayman Islands facilitates a dual registration system for aircraft mortgages. Registrations can be made on the International Registry under the Cape Town Convention, as well as domestically on the register of aircraft mortgages (the Mortgage Register) maintained by CAACI. When the Cape Town Convention applies, CAACI advise parties to continue to make registrations on the Mortgage Register with CAACI as an additional layer of protection if, for example:
- if it transpired that the Cape Town Convention did not actually apply to the aircraft mortgage;
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- the debtor refused consent to registration with the International Registry (whereas the debtor’s consent is not necessary to register an aircraft mortgage on the Mortgage Register); or
- the creditor or lessor wishes to have available to it additional remedies which may be available under domestic Cayman Islands law but not under the Cape Town Convention.there is a likelihood that the aircraft may need to be repossessed in a non-Cape Town Contracting State (which may not recognize the concept of an ‘international interest’ but will recognize the concept of a registered mortgage);
The domestic registrations on the Mortgage Register remain relevant for mortgages over aircraft objects that do not meet the requirements under the Cape Town Convention.
- From a practical perspective, CAACI has embraced the requirements and spirit of the Cape Town Convention. For example, the Cape Town Convention allows lenders and lessors to register an Irrevocable De-registration and Export Request Authorisation (IDERA), which facilitates the exercise of one of the remedies a creditor may exercise in the case of a default. CAACI readily accepts filings of IDERAs with the Aircraft Registry for Cayman Islands registered aircraft.
Up, up and away…
The much anticipated extension of the Cape Town Convention to the Cayman Islands has been welcomed with open arms by financiers, lessors and aircraft owners. The potential cost savings and protections afforded by the Cape Town Convention has fortified the Cayman Islands’ position as an offshore market leader in both commercial and corporate jet financing and as an aircraft registry of choice. We expect that the jurisdiction will go from strength to strength as an aircraft finance industry leader and continue to set the pace as a first class aircraft registry. ■
ABOUT THE AUTHORS
Danielle Roman is a partner at Mourant Ozannes, and is an experienced banking and finance specialist, advising on a broad spectrum of transactions, including asset finance (in particular aircraft and shipping), acquisition and leveraged finance, debt restructurings, project finance, real estate finance, securitisation and general corporate lending.
Tracey Forbes is an associate (registered with the Hong Kong law society as a Legal Assistant) in Mourant Ozannes’ Hong Kong office. Tracey has a broad range of experience in banking and finance matters.
Mourant Ozannes has an international reputation as having one of the leading offshore aircraft finance practices, advising on the laws of the Cayman Islands, BVI, Jersey and Guernsey.
