Registering Security Interests Over Aircraft

Under the Aircraft Registration Act (Chapter 503 Laws of Malta), aircraft are a particular class of movables separate and distinct from the assets and estates of their owners. A mortgage can be registered in the Aircraft Register as security for the payment of a debt. In such a case, should there be bankruptcy or insolvency proceedings for the owner, the aircraft and all actions and claims to which the aircraft may be subject shall have preference over all other debts of the owner’s estate. By means of a registered mortgage, an executive title is created whereby the secured debt is certain, liquidated, and due, or where the maximum secured sum is expressly stated in the mortgage instrument and recorded in the register.

Before registering a mortgage, a creditor can register his privilege on any part, appurtenance, or accessory of an aircraft. A seller reserving ownership rights on an aircraft, or any part of such aircraft, may also register his interest in the Aircraft Register. An aircraft is considered to include the airframe, equipment, engines, and replacement engines. However, in cases where the engine attached to the airframe is not owned by the same owner, the security does not cover such an engine.

When registered, a mortgage entitles the mortgagee to a set of remedies which can be executed in the event of default on the part of the mortgagor, upon giving notice in writing to the debtor and without the need to initiate any court proceeding. The mortgagee may:

• Take possession of the aircraft;
• Sell the aircraft or any share of it on which the mortgage is registered;
• Do all things in the name of the owner to maintain the status and validity of the aircraft registration;
• Receive payment of the price, lease payments, and any other income generated from the operation and management of the aircraft;
• Secure the de-registration of the aircraft; and
• Procure the export and physical transfer of the aircraft from the territory where it is situated.

Furthermore, a foreign mortgage may be recognized under Maltese law as a mortgage with the status and all the rights and powers specified, subject to certain conditions.

Special Privileges on Aircraft

The following debts enjoy priority on an aircraft without the need for registration, in the ranking listed below, and any debts secured by a mortgage shall rank after such debts:

• Judicial costs incurred in respect of the sale of the aircraft and the distribution of the proceeds thereof pursuant to the enforcement of any mortgage or other executive title;
• Fees and other charges due to the Director General arising under the applicable law of Malta in respect of the aircraft;
• Wages due to crew in respect of their employment on the aircraft;
• Any debt due to the holder of a possessory lien for the repair or preservation of the aircraft to the extent of the service performed on and value added to the aircraft;
• The expenses incurred for the repair or preservation of the aircraft to the extent of the service performed on and value added to the aircraft; and
• Wages and expenses for salvage in respect of the aircraft.

A person in possession of an aircraft and enjoying a possessory lien shall not be forced to release the aircraft until all sums due to him are unconditionally discharged or otherwise secured to his satisfaction. In any such case, he shall rank first on such security as may be granted.

The two debts listed below are considered registrable privileges as they enjoy preference and the status of such right in relation to the aircraft once registered in the International Registry, and only if a claim is created by the owner of the aircraft:

• Taxes, duties, and/or levies due to the Government of Malta in respect of the aircraft; and
• Wages and expenses for assistance or recovery in respect of the aircraft.

Irrevocable De-registration and Export Request Authorisations (IDERAs)

Under Maltese aviation law, Irrevocable De-registration and Export Request Authorisations (IDERAs) are legal instruments that allow parties holding an interest in an aircraft, such as lenders or lessors, to request its de-registration and export from the Malta Aircraft Register in cases of default or specified conditions. The purpose of an IDERA is to protect the rights of these parties by enabling swift action to recover assets without the aircraft owner’s consent, offering security to financial institutions involved in aircraft financing or leasing.

De-registration Power of Attorney (DPOA)

The De-registration Power of Attorney (DPOA) is another crucial legal instrument in the Maltese aviation industry that allows a party with an interest in an aircraft, such as a lender or lessor, to designate another party to request the de-registration of the aircraft from the Malta Aircraft Register. This mechanism is typically used in cases of default or insolvency, ensuring that creditors can swiftly take action to protect their assets without the owner’s consent. The DPOA must be recorded in the Malta Aircraft Register, where only one DPOA can be in effect per aircraft, ensuring clarity and streamlined enforcement.

DPOAs in Malta are aligned with international standards, particularly the Cape Town Convention, and provide an added layer of security in aircraft financing and leasing transactions. By establishing a regulated process for recording and executing DPOAs, Malta reinforces its position as a leading jurisdiction for aircraft registration and legal enforcement, offering transparency and protection to both aircraft owners and creditors.

Prohibitory Notice Clauses

In Maltese aviation law, prohibitory notice clauses serve as a legal mechanism to prevent certain actions, such as the de-registration or export of an aircraft, pending the resolution of a dispute or the enforcement of a claim. These clauses are commonly used in cases where an aircraft owner or another interested party seeks to block the execution of actions related to an aircraft’s registration, typically in the context of unpaid debts, breach of contract, or other contractual disputes. The prohibitory notice, once issued, prevents any changes to the aircraft’s registration status or its removal from the Malta Aircraft Register without prior court approval or resolution of the underlying issue.

The procedure for issuing a prohibitory notice in Malta is outlined under the Aircraft Registration Act. In practice, a party seeking to prevent the de-registration or export of an aircraft must file a request with the court, providing evidence of their claim and the potential harm they may suffer if the action is not stopped. If the court finds merit in the application, it may issue a prohibitory notice to halt the de-registration process until the matter is resolved, ensuring that the rights of the claimant are protected.

However, the effectiveness of a prohibitory notice is not unlimited. In the case IDERAs, which are granted to creditors or lessors, the enforceability of such notices can be limited. As seen in recent Maltese case law, such as the Air X Charter and Hi Fly rulings, the court has upheld the enforceability of IDERAs even when a prohibitory notice is in place, emphasizing the special status of IDERAs under international conventions like the Cape Town Convention. This ensures that creditors’ rights to de-register aircraft for non-payment or other breaches are not easily obstructed by prohibitory notices, maintaining a balance between protecting the rights of the parties involved and ensuring the swift resolution of disputes.

International Interests

Malta’s implementation of the Cape Town Convention means that Malta has accepted the creation of International Interests registered in the International Registry, which are recognized by all contracting states to the Convention. Under the Convention, interests or privileges in aircraft, aircraft engines, or helicopters may be registered in the International Registry, and International Interests enjoy priority ranking over national security interests, irrespective of the date of registration.

International Interests in airframes, helicopters, or aircraft engines which are…

• granted by the chargor under a security agreement;
• vested in a person who is the conditional seller under a title reservation agreement; or
• vested in a person who is the lessor under a leasing agreement;

…may be registered in the International Registry and shall be regulated by the First Schedule to the Malta Aircraft Registration Act.

Since International Interests take priority over national security interests registered in the National Aircraft Register, and since such International Interests have full legal force in Malta, it is not necessary to re-register them in the Maltese National Aircraft Register. Additionally, once an International Interest has been registered in the International Registry, a prohibitory notice can be filed in the National Aircraft Register, effectively prohibiting the registration of security interests in the national register without the express consent of the creditor in question.

For further information regarding aircraft registration, mortgages, and international interests, contact us at info@vaialegal.com.

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