Aviation Finance & Leasing 2020

Last Updated July 30, 2020

Guernsey

Law and Practice

Authors



Walkers is a leading international law firm that provides legal, corporate, fiduciary and compliance services to global corporations, financial institutions, capital markets participants and investment fund managers. Walkers has 118 partners and 918 staff, providing a 24/7 service to its clients. The firm's clients include Fortune 100 and FTSE 100 companies, as well as the most innovative firms and institutions across the financial markets. Walkers is experienced in all types of international and cross-border transactions, covering a broad range of sectors, with a particular focus on both contentious and non-contentious corporate and finance law, investment funds, private equity, structured products, capital markets, private capital and trusts. The firm delivers clear, practical advice based on an in-depth knowledge of the legal, regulatory and commercial environment in Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Jersey and Ireland from ten global offices.

Guernsey currently has no form of sales tax, capital gains tax, stamp duty, estate duty, inheritance or gift tax. There are no taxes or duties payable as a consequence of the execution of an aircraft or engine sale agreement (including for the sale of an ownership interest in an entity) where the asset is either located physically in Guernsey or owned by a domestic party.

There is no formal legal requirement under Guernsey law that a sale agreement must be translated, certified, notarised or legalised in order to be valid or enforceable against a domestic party; however, taking such steps is advisable in order to reduce the likelihood of an attempt to have the sale agreement set aside. To that end, at the least, witnessing of signatures is generally advisable.

The Guernsey legislation does not set out formalities for the transfer of title to an aircraft or engine. It is customary for a bill of sale to be used but this is not a Guernsey law requirement. Whether such a title transfer includes all installed parts (like an APU) would depend on the terms of the contract. 

If, following the sale of the relevant ownership interest, the entity owning the legal title remains the same, no sale of the physical asset would occur. It should be noted that, if the aircraft is registered on the Guernsey Aircraft Register (as defined in 1.2.4 Registration, Filing and/or Consent from Government Entities) any change in particulars of the aircraft (including any change in beneficial or legal ownership) furnished to the Registrar (as defined in 1.2.4 Registration, Filing and/or Consent from Government Entities) at the time of first registration should be notified to the Registrar.

There is no formal legal requirement under Guernsey law that a bill of sale needs to be governed by Guernsey law in order for the Guernsey courts to recognise the transfer of title. There are no known specific requirements other than the general requirements for any contract to be substantively valid as a contract.

There is no formal legal requirement under Guernsey law that the bill of sale must be translated, certified, notarised or legalised in order to be valid or enforceable against a domestic party; however, taking such steps will reduce the prospect of any subsequent challenge to the bill of sale.

There is no formal Guernsey law requirement to register or file a bill of sale with any Guernsey government entity or requirement to obtain consent from any government entity, other than that the bill of sale will need to be provided to the Guernsey Aircraft Registry (the Registry) in respect of an aircraft registered or to be registered on the Guernsey aircraft register (the Aircraft Register).

Registration commences by way of an initial application form that is completed via the Registry website. Thereafter, further information is provided to the Registry electronically and should include a copy of the bill of sale for the aircraft in favour of the registering owner.

For a change in ownership, if there is a change in ownership of a Guernsey-registered aircraft, that change must be notified to the Registry within 21 days and a copy of the bill of sale for the aircraft may be provided as evidence of that change in ownership.

In each case, once all information has been provided to the Registry, the Aircraft Register can often be updated during the same day.

If a document is not provided in English, a translation of it in English must be provided unless waived by the Registrar of Aircraft (the Registrar).

No government applications or consents are required as a pre-requisite to the execution and delivery of a bill of sale in relation to an aircraft or engine registered in Guernsey.

Assuming the bill of sale satisfies the requirements for registration as an "international interest" under the Cape Town Convention (as defined in 2.10 Cape Town Convention and Others) such filings can be made on the International Registry (IR). See 2.10 Cape Town Convention and Others with respect to the Cape Town Convention.

See 1.1.1 Taxes/Duties Payable upon Execution of the Sales Agreement. There are no taxes or duties payable for executing and/or delivering a bill of sale, or for consummating the sale of the ownership interest in an entity that owns an aircraft or engine, including where title to that aircraft or engine is transferred while it is (a) located in Guernsey, (b) over international waters or (c) in transit to/from Guernsey.

Subject to the general legal principles of contract law, there are no types of operating/wet/finance leases or leases concerning only engines or parts that are not permissible or recognised in Guernsey, as far as is known.

A lease involving either a domestic party or an asset situated in Guernsey can be governed by a foreign law. See 2.6.5 Domestic Courts' Approach to Foreign Laws and Judgments.

There are no restrictions imposed on domestic lessees making rent payments to foreign lessors in US dollars.

There are currently no exchange controls under Guernsey law.

No taxes/duties are payable for executing a lease physically in Guernsey, or as a consequence of an original or copy of a lease being brought into Guernsey either physically or electronically.

A lessor does not have to be licensed or otherwise qualified in order to do business with a domestic lessee.

There are no mandatory terms that a lease (or ancillary documents thereto) is required to contain under Guernsey law other than the general requirements for any contract to be substantively valid as a contract. Assuming the lease is effective to create, within the meaning of the Cape Town Convention, "international interests" vested in the lessor with respect to the airframe and engines, IR filings can be made in respect of those interests. See 2.10 Cape Town Convention and Others with respect to the Cape Town Convention.

Tax and other withholding gross-up provisions are permissible and enforceable in Guernsey provided such provisions are permissible and enforceable pursuant to the governing law of the lease.

There is no Guernsey reason why (i) the leasing of spare engines and other parts (including any such parts as may become attached to the aircraft in the future) may not be made a part of the aircraft lease and (ii) spare parts may not be the subject of a separate lease. No special formalities are required.

There is no known risk of title annexation specifically under Guernsey law; this will be a matter for the governing law of the lease and, potentially, the law of the place where the attachment of the engine to the airframe occurred if the two are different – conflicts of law principles would need to be applied to the particular circumstances.

The concept of a trust is recognised in Guernsey; however, a trust does not have separate legal personality, as might be the case in other jurisdictions, thus ownership would be through the Trustee.

The purpose of registration is solely to establish the aircraft's nationality, thus determining the jurisdiction to whose regulations the aircraft will be subject and the person who will be responsible for the airworthiness and maintenance of the aircraft. The registration of an aircraft does not establish title to the aircraft, and does not constitute actual notice or constructive notice of ownership.

The aircraft can be registered domestically in the name of the owner or, in the case of charter by demise, the name of the charterer.

There is no formal legal requirement for a lease to be registered with the Registry in relation to an aircraft registered in Guernsey. However, experience shows that in the case of an aircraft to be registered in the name of its "charterer by demise" the Registry will request a copy of the aircraft lease in support of the registration application.

The Registrar maintains an engines register (the Engines Register). Only engines that are installed in the registered aircraft can be registered on the Engines Register.

See 2.3.3 Aircraft/Engine-Specific Registers. Leases are not subject to any consent from any government entity.

An aircraft lease submitted to the Registry is not required to satisfy any formalities, although the Registry will ask for a lease in a language other than English to be accompanied by an English translation.

Any fees payable to the Registry are for registration of the aircraft, not the lease.

England is an alternative country for aircraft habitually based in Guernsey to be registered in.

If any document provided is not in English, the Registry will require an English translation.

There are no Guernsey income taxes, withholdings, levies, registration taxes, or other duties or similar taxes or charges payable in connection with the leasing of an aircraft or engine to a domestic lessee.

A foreign lessor that is not already resident in Guernsey prior to its entry into a lease would not be deemed to be resident, domiciled, or carrying on a business in Guernsey by reason only of the execution, delivery, performance or enforcement of that lease.

Aircraft or engine maintenance and operations will be governed by the contractual provisions of the lease agreement, responsibility for which will typically reside with the lessee. See 2.4.4 Damage or Loss Caused by an Asset and 2.4.6 Priority of Third Parties' Rights.

The owner of an aircraft could be subject to strict liability where material loss or damage is caused by a person in, or an article, animal or person falling from, the aircraft while in flight, taking off or landing, unless the loss or damage was caused by or contributed to by the negligence of the person by whom it was suffered. A passive owner will typically rely on the exemption to the effect that, if the owner has bona fide demised, let or hired out the aircraft for more than 14 days and no pilot, commander, navigator or operative member of the crew is employed by the owner, the liability is with the person to whom the aircraft has been demised, let or hired out.

In general terms, a lessor or financier would not otherwise be solely liable as a matter of Guernsey law.

See 2.4.6 Priority of Third Parties' Rights.

It is possible for third parties’ rights to take priority over a lessor’s rights under an aircraft or engine lease, regardless of whether that lease/lessor is registered in the Register.

Statutory Liens

Under the Aviation Registry (Guernsey) Law, 2013 as amended (Aviation Registry Law), preferred taxes and preferred liens have priority over all charges over an aircraft asset. For the purposes of the Aviation Registry Law, a preferred lien is a lien created under the Detention of Aircraft (Guernsey and Alderney) Law, 1994. Under the Detention of Aircraft (Guernsey and Alderney) Law, 1994, where default is made in the payment of airport fees incurred, in respect of an aircraft, at Guernsey Airport or Alderney Airport, the appropriate authority may, subject to the provisions of the law (a) detain, pending payment, the aircraft in respect of which the fees were incurred (whether or not incurred by the person who is the operator of the aircraft at the time when the detention begins) and (b) if the fees are not paid within 56 days of the date when the detention begins, sell with the leave of the court the aircraft in order to satisfy the fees.

Preferred taxes refers to any taxes, fees or dues owed to the States of Guernsey in respect of that aircraft asset.

Other Liens

Guernsey does not recognise equitable liens; however, a lien over an aircraft or engine created under a contract such as a lease would generally be recognised. The possibility that a court in Guernsey would order a sale of an aircraft in connection with proceedings that consider the rights of a lien-holder with respect to that aircraft (who is the holder of a contractual or statutory lien) will turn on the particular circumstances and facts and, if applicable, terms of any relevant contracts.

It is not mandatory that either all or part of the insurances be placed with domestic insurance companies.

There are no mandatory insurance coverage requirements imposed.

The question of insurance and reinsurance will depend on the requirements of the parties to the transaction and particular jurisdiction of the lessee where that lessee is not a domestic lessee.

Insurance documents are not usually governed by Guernsey law. There is no reason under Guernsey law why cut-through clauses should not be enforceable. 

Assignments of insurance/reinsurance are effective under Guernsey law, subject to general qualifications as to enforceability.

The Guernsey courts recognise self-help remedies and typically recognise and enforce contractual arrangements between the parties. However, it should be noted that in the majority of cases the aircraft will not be located in Guernsey and the governing law of the lease is unlikely to be governed by Guernsey law. The effectiveness of these actions will be therefore be determined by general principles of enforceability under the governing law of the lease and in the jurisdiction in which the aircraft is located. Any sale of the aircraft would be subject to there being no third-party liens in place. See further 2.4.6 Priorities of Third Parties' Rights in connection with any such third-party liens.

Enforcement will be determined by the provisions of the relevant lease agreement. If enforcement is contested, court proceedings may be required to resolve the dispute. Taking physical possession of the aircraft is permitted under Guernsey law and self-help remedies are permitted without the need to obtain a court order. However, it is open to the relevant enforcing party to seek a court order if it considers it necessary and, in those circumstances, the Guernsey courts would recognise the self-help remedies.

There are no specific courts in Guernsey for aviation disputes; however, the Royal Court of Guernsey is the first instance court and has unlimited jurisdiction, so is competent to hear aviation disputes. There have not been any reported cases of aviation disputes in Guernsey.

A lessor may be granted summary judgment and injunctive relief in Guernsey pending final resolution of judicial proceedings to enforce an aircraft lease. A Guernsey court would issue summary judgment if the lessee has no real prospect of successfully defending the proceedings and this can usually be sought and obtained within a few months. In respect of injunctive relief this can also be obtained in Guernsey and applications can be made on an urgent and ex parte basis in certain circumstances.

It is not possible to confirm exhaustively what conditions the Guernsey courts may impose on interlocutory relief; however, the courts may require security for costs or an undertaking to pay another party's damages.

See 2.1.2 Application of Foreign Laws and 2.6.11 Lessees' Entitlement to Claim Immunity.

Where a creditor obtains a money judgment in foreign proceedings, the Guernsey court can recognise and enforce that judgment, either under statute in the form of the Judgments (Reciprocal Enforcement) (Guernsey) Law 1957 or at common law. To enforce a judgment under the Judgments (Reciprocal Enforcement) (Guernsey) Law 1957, the judgment must be all of the following:

  • the judgment of a Superior Court of a reciprocating country (currently England and Wales, the Isle of Man, Israel, Jersey, the Netherlands, Netherlands Antilles, Northern Ireland, the Republic of Italy, Scotland and Surinam);
  • final and conclusive;
  • for a sum of money other than in respect of taxes, fines or penalties;
  • within the jurisdiction of the court of the reciprocating country to have granted; and
  • must have brought the application for recognition within six years of the date of the judgment.

Judgments granted by courts other than in reciprocating countries must be sued as a civil debt but, ordinarily, application for summary judgment can be made on the basis of the judgment, thus limited further examination of the matter will be required.

Guernsey will also recognise and enforce foreign arbitral awards without re-examining the case under the provisions of the Arbitration (Guernsey) Laws, 1982 and 2016, once the Guernsey court has verified that due process has been followed, the award is final and it would not be contrary to public policy to enforce the Award. Special provisions apply to enforcement of New York Arbitration Awards under the 2016 Law.

The Guernsey courts have jurisdiction to give judgment in a foreign currency. See 2.6.6 Domestic Courts' Recognition of Foreign Judgments/Awards regarding foreign judgments.

Any provision of the lease providing for the payment of additional monies consequent on the breach of any provision thereof, whether expressed by way of penalty, additional interest, liquidated damages or otherwise, may be unenforceable by the Guernsey courts or liable to be reduced if that additional payment were held to be excessive in so far as it unreasonably exceeds the maximum damages which the lessee could have suffered as a result of such a breach. However, ordinarily the Guernsey courts will respect the terms of the contractual documentation. After judgment, statutory judgment interest, which is currently 8%, will apply.

See 1.1.1 Taxes/Duties Payable upon Execution of the Sales Agreement with respect to taxes. If an aircraft registered on the Aircraft Register is to be deregistered, the aircraft account with the Registry will need to be settled and it is possible that there would also be unpaid charges payable to the Registry. The amount of these charges would depend on the specific facts and circumstances at the time. A lessor under an aircraft lease is not required to pay taxes or fees in a significant (ie, non-nominal) amount in connection with the recognition and enforcement of such a lease in Guernsey.

The procedure for the termination of a lease is a matter to be determined by the terms agreed between the parties in that lease.

Whether the lessee is entitled to claim any immunity from suit, execution, attachment or other legal process will depend on its actual identity. If the lessee is a sovereign body or other governmental organ (whether autonomous or quasi-autonomous), the lessee may be able to claim sovereign immunity and if it is to waive that immunity then this must be clearly expressed in the documentation.

The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) was extended to Guernsey by way of ratification by the United Kingdom on 19 April 1985.

The Arbitration (Guernsey) Law, 1982 and Arbitration (Guernsey) Law, 2016 provide the regime for enforcement of domestic awards, convention, non-convention awards and interim measures.

There are no other relevant issues of which a lessor should be aware in relation to the enforcement of its rights.

Guernsey law recognises the concept of novation and contractual assignment.

Where a lessor is transferring its rights under an aircraft lease by way of assignment or otherwise, the consent of the lessee would not typically be required in respect of a Guernsey law-governed lease as long as the lessee is notified thereof.

On the assumption that:

  • the assignment and assumption or novation agreement is in a customary form and on customary market terms for an assignment and assumption or novation of an aircraft lease which is governed by English law or New York law and is itself governed by the same law; and
  • that the agreement has been duly executed and delivered and, as a matter of the laws of all relevant jurisdictions, constitutes the legal, valid and binding obligations of each of the parties thereto enforceable in accordance with its terms and effective to achieve the intended novation;

the Guernsey courts will recognise and enforce that agreement in accordance with its terms.

There are no mandatory terms that Guernsey requires to be included in such agreements.

There is no formal legal requirement under Guernsey law that a lease assignment and assumption/novation agreement must be translated, certified, notarised or legalised in order to be valid and enforceable; however, doing so reduces the risk of later challenge and translations will be required in any litigation before the Guernsey courts.

A copy of the lease should have been submitted to the Registry at the time of registration of the aircraft if the registered owner is a "charterer by demise" and any assignment and assumption or novation of the lease, which results in a change to this information, must be conveyed to the Registry within 21 days of the change.

There are no specific formalities save that the Registry will ask for a document in a language other than English to be accompanied by an English translation.

There are no government applications or consents required as a pre-requisite to the execution and delivery of an aircraft and/or engine lease assignment and assumption/novation in relation to an aircraft registered domestically.

See 2.1.5 Taxes/Duties Payable for Physical Execution of a Lease and 2.3.6 Taxes/Duties Payable for Registering a Lease.

It is assumed that, if legal title to the aircraft were to remain with the same entity there would be no intention to novate/assign the lease. Note also that any change in ownership particulars previously notified to the Guernsey-registered aircraft should be notified to the Registry within 21 days of any such change (see also 1.2.1 Transferring Title and 2.7.4 Filing/Registration of Lease Assignments/Novations).

The registered owner or charterer by demise can apply in writing for the deregistration of the aircraft using the requisite form. The Registrar will not remove a registration unless all persons shown in the charges register (the Charges Register) have consented to the cancellation.

Where an irrevocable deregistration and export request authorisation (IDERA) has been lodged with the Registry, the "authorised party" specified in the IDERA or its certified designee can procure the deregistration of the aircraft.

The Registrar shall honour a request for de-registration and export of the aircraft if (i) the request is properly submitted by the debtor under the registered IDERA; and (ii) the authorised party (ie, creditor) certifies to the Registrar on request that all registered interests ranking in priority to that of the creditor have been discharged or that the holders of such interests have consented to the de-registration and export of the aircraft.

See 2.8.1 Deregistering Aircraft in this Jurisdiction.

In order to deregister an aircraft, the Registry must receive a completed aircraft deregistration application from the owner or lessor and all fees/invoices must be settled.

If an aircraft has a registered charge on the Charges Register then the chargee's consent to the deregistration will be required by the Registrar before deregistration is permitted.

From the Registry's perspective, where all parties are co-operating, deregistration can typically be effected within one business day, provided all documentation is in place and submitted within business hours. The time period for deregistration where there is no co-operation from the parties is not something that can be meaningfully helpful in this analysis.

See 2.8.4 Duration of Deregistration Process.

Deregistration fees are nominal; £150 for de-registration of an aircraft. In addition, the aircraft account must be settled with the Registrar before the aircraft can be deregistered. See also 2.8.12 Aircraft Export Permits/Licences.

There is no formal legal requirement under Guernsey law that in order for a deregistration power of attorney to be enforced against a domestic party, it needs be translated, certified, notarised, legalised or lodged in advance. Please note, however, that since the Cape Town Convention (defined below) came into force in Guernsey on 1 November 2015, the Registry typically receives and accepts IDERAs rather than deregistration powers of attorney.

See 2.8.1 Deregistering Aircraft in this Jurisdiction,2.8.3 Required Documentation and 2.8.7 Deregistration Power of Attorney.

A deregistration power of attorney does not have to be governed by the laws of Guernsey; however, a translation will always be required.

Under Guernsey law, a deregistration power of attorney granted to secure an obligation owed, typically to the finance parties, will be irrevocable until that obligation is discharged in accordance with its terms.

Aircraft registered on the Aircraft Register are usually located and operated outside of Guernsey. See also 2.8.1 Deregistering Aircraft in this Jurisdiction, noting that the lessee's consent is not required for deregistration.

See 2.8.1 Deregistering Aircraft in this Jurisdiction and 2.8.3 Required Documentation.

The Registry can issue an export certificate of airworthiness upon the applicant submitting the relevant application form. The aircraft has to be inspected before the issuance of an export certificate of airworthiness.

See 2.8.6 Costs, Fees and Taxes Relating to Deregistration. In addition, the fees payable to the Registry for an export certificate of airworthiness is GBP525. Additional fees for an airworthiness survey apply, which are calculated by reference to the weight of the aircraft.

Other than the points previously discussed in 2.8 Aircraft Deregistration and Export, there are no other known significant practical issues.

Assuming that a lessee has granted a deregistration power of attorney or IDERA to a lessor, owner or mortgagee of an aircraft, whether the liquidation of the lessee would make that power of attorney void or terminate it would depend on the laws of the lessee's jurisdiction and other relevant laws, such as the laws that govern the power of attorney. If the lessee is incorporated in Guernsey and the power of attorney is governed by Guernsey law, an irrevocable deregistration power of attorney (when granted to secure an obligation owed, typically to the finance parties) will not be automatically revoked by the winding-up or dissolution of the lessee. In practice, however, it would not be expected that deregistration powers of attorney would be governed by Guernsey law, but rather would have the same governing law as the other transaction documents (typically English, Irish or New York law).

Where a lessee has possession of the aircraft and is put into liquidation, or administration in the majority of cases, the lessee is not expected to be incorporated under the laws of Guernsey and therefore, it is unlikely the lessee would be subject to insolvency or administration proceedings in Guernsey. The local law in the lessee's jurisdiction of incorporation will govern any such proceedings.

Should the lease and the administration or insolvency proceedings be subject to Guernsey law, the following apply:

  • if the lessee is placed into administration or liquidation the lease would not be set aside automatically as a matter of Guernsey law. It may be terminated by either party if they are permitted to do so by the terms of the lease and the liquidator (pursuant to an amendment to the Companies (Guernsey) Law 2008, which is shortly to come into force) may elect not to continue the terms of the lease;
  • the Guernsey courts will typically recognise and enforce contractual arrangements such as lease-termination provisions (including those created under foreign laws) and self-help remedies by which the lessor may take possession of the aircraft (subject to enforceability considerations under the governing law, the lex situs and other relevant laws). Note that the Aviation Registry Law permits taking possession of the aircraft without leave of the court;
  • as a matter of Guernsey law, leases do not operate to transfer legal ownership from the lessor to the lessee, thus the aircraft will not be deemed to form part of the lessee's property upon termination of the lease, and the right of possession reverts to the owner. Provided there is no stay of proceedings against the lessee, there ought not to be any prevention or delay in obtaining possession in the ordinary course of events.

The main risk for a lender if a borrower, a guarantor or an entity providing security becomes insolvent is that the lender will not be repaid in full. The lender may also incur certain costs in connection with enforcement and there will be an inevitable delay in recovering funds (in whole or in part).

If the enforcement of security is not sufficient or the guarantor is unable to repay the liabilities owed to the lender in full, the lender would then need to claim as an unsecured creditor for the remaining portion in the insolvency proceedings of the borrower and/or the guarantor.

In certain circumstances, a moratorium (or similar stay) may be imposed in connection with insolvency proceedings.

A domestic lessee can be liquidated or placed in administration or receivership either through voluntary liquidation or pursuant to the Companies (Guernsey) Law 2008. An application may be made by the lessee company, any director, member or creditor, or any other interested party for the lessee to be wound up by the court and a liquidator appointed on the grounds that the company is unable to pay its debts. Under Guernsey law ability to pay debts is determined on a cash-flow basis (ie, the lessee is unable to pay its liabilities as they become due) and by proof of an unpaid debt (commonly evidenced by a statutory demand which has not been satisfied for 21 days).

There is no procedure available under Guernsey law to enable the Guernsey Courts to appoint a receiver of assets situated in Guernsey. As a result, receivership is a contractual self-help remedy only available to secured creditors on the terms set out in the relevant charge or security document and the appointment of a receiver must be made in accordance with the terms of the security document in order to be valid.

"Ipso facto" clauses are generally valid and enforceable under Guernsey law. In a contract governed by a foreign law, provided the clause was valid under the foreign governing law, Guernsey courts would be expected to give effect to the clause.

If the lessee is incorporated under the laws of Guernsey and enters into liquidation or administration proceedings in Guernsey, generally one would expect that the terms of the lease would provide for the procedure for repossession of the aircraft, remedies for loss of rent and provisions in respect of forfeit by the lessee of the security deposit and any maintenance reserves.

The Convention and the Protocol (together the Cape Town Convention) have been in force in Guernsey since 1 November 2015 pursuant to the Aviation Registry (Interests in Aircraft) (Guernsey) (Ordinance), 2015 (as amended) (the Aviation Registry Ordinance).

Guernsey is not designated as an "entry point" pursuant to Article XIX of the Protocol.

Practice and procedure with respect to the interpretation and applicability of the Aviation Registry Ordinance and Aviation Registry Law (Aviation Laws) are still developing. The statements set forth herein are based on our interpretation of the Cape Town Convention and the Aviation Laws as at the date hereof, without the benefit of any precedent or established custom and practice.

Declarations made under the Convention are in Articles 39(1), 39(4), 53 and 54(2).  Declarations made under the Protocol are in Articles XXX(1), XXX(2), XXX(3).

Where a debtor has issued an IDERA, substantially in the form annexed to the Protocol, it may be submitted by email copy to the Registry.

There is no known Guernsey case law enforcing the Cape Town Convention.

The priority and effectiveness of a right or interest created by any document that is capable of registration within the meaning of and to the extent provided by the Cape Town Convention will, if Guernsey law applies, be determined in accordance with the Cape Town Convention.

Guernsey is not a party to the 1948 Geneva Convention on the International Recognition of Rights in Aircraft nor to the 1933 Rome Convention on the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft.

There are no restrictions on foreign lenders financing an aircraft locally or on borrowers using the loan proceeds.

There are currently no foreign exchange controls or foreign exchange regulations under Guernsey law.

Borrowers are permitted to grant security to foreign lenders.

Such guarantees are permissible under Guernsey law, provided the company granting those guarantees is permitted to do so under its memorandum and articles of incorporation. It is important to note that the directors of a Guernsey company have a fiduciary duty to act in the best interests of the company and in doing so must have regard to the interests of the members collectively. It is considered good practice to obtain the consent of the members where there is any question as to the corporate benefit of such guarantees.

It is advisable for a lender to take share security over a domestic special-purpose vehicle which owns the financed aircraft. To create valid security over the shares of a Guernsey company, a Guernsey law security interest agreement that complies with the Security Interests (Guernsey) Law, 1993 must be entered into in respect of the shares.

Negative pledge provisions are typically included in the security interest agreement over the shares of a Guernsey company or other finance documents.

There are no material restrictions or requirements imposed on intercreditor agreements under Guernsey law. Typically, intercreditor agreements are governed by English or New York law, depending on the governing law of the other transaction documents.

Agency is a recognised concept under Guernsey law.

Subject to general qualifications as to enforceability, any method of subordination permitted by the transaction documents (usually governed by English or New York law) would be permissible and recognised under Guernsey law.

Subject to general qualifications as to enforceability, the Guernsey courts would recognise as effective a New York law-governed or an English law-governed assignment that is effective under that law.

Pursuant to legislation, a Guernsey court may reduce interest at a rate exceeding 10% where that rate is considered unreasonable in all the circumstances; however, that has rarely been pleaded in Guernsey and never in relation to a commercial arrangement since the legislation refers to a rate of interest which would "expose them and their families to misery" thus suggesting that this law is only for the benefit of individuals.

Aviation finance transactions would typically be governed by English or New York law and in most cases the aircraft-owning entity is not a Guernsey law entity. The security package tends to include a foreign law aircraft mortgage, security assignments in respect of the lease, warranties and insurance proceeds.

Foreign law mortgages that are compliant with the Convention and entered into after 1 November 2015 can be registered on the Charges Register in respect of a registered aircraft asset (registered aircraft and/or engine and spare parts) and therefore there is no need to enter into an additional Guernsey law charge. As a result, it is often the case that there is no Guernsey charge. To the extent that the aircraft entity is a Guernsey entity, Guernsey law security could be taken over the shares or other Guernsey situs assets of that entity by way of a Guernsey law security interest agreement. 

A charge for the purposes of the Aviation Registry Law is "a prospective or actual interest in an aircraft asset (which extends to the proceeds thereof) granted by the chargor over an aircraft asset under an agreement in writing and which may be subrogated, subordinated, assigned or otherwise transferred". In addition to a charge, a notice of intention to make an application to enter a charge of an aircraft asset in the Register, "a priority notice", may also be entered in the Charges Register. Upon registration of the aircraft on the Aircraft Register and the charge on the Charges Register, the charge shall be deemed to have been registered at the time of registration of the priority notice.

There are no known restrictions under Guernsey law. See 3.2.1 Typical Forms of Security and Recourse.

See 2.2.5 Recognition of the Concepts of Trust/Trustee.

Guernsey law does not restrict or prohibit any such assignment or mortgage.

A party may assign its rights and benefits under an agreement by way of security without entering into any arrangements to transfer its obligations under that agreement.

A security assignment or a guarantee may be governed by English or New York law. It does not have to be governed by Guernsey law in order to be fully enforceable. See 3.4.3 Application of Foreign Laws.

See 3.2.1 Typical Forms of Security and Recourse. As previously noted, the security generally tends to be governed by foreign law. In the case of a charge over a registered aircraft asset, the charge is registered on the Charges Register to ensure priority. Charges over a registered aircraft asset rank in priority as follows: (i) firstly, as to a registered charge and (ii) secondly, any unregistered charge and all other debts. Subject to any subordination agreement between the charges, registered charges between themselves rank in order of registration, with the first in time having priority. 

Other than the Charges Register, there is no other public register of charges for security granted over the shares, bank accounts or other moveable Guernsey situs assets of a Guernsey SPV.

No additional domestic law security instruments will be needed. With respect to IR filings, where the security assignment creates a registrable "international interest" under the Cape Town Convention, that international interest in respect of the aircraft may be recorded on the IR established under the Cape Town Convention. No additional registrations or filings are required to be made in relation to a security instrument in Guernsey, except as mentioned in 3.2.9 Domestic Registration of Security Assignments Governed by Foreign Laws.

There is no requirement to file the security assignment in any register in Guernsey. The only relevant register is the Register of Charges.

See 3.2.11 Effect of Changes in the Identity of Secured Parties.

This is a question to be determined as a matter of the governing law of the security assignment. As a matter of Guernsey law, and on the understanding that the security interest would be granted to a security trustee, in so far as the security trustee does not change, the security interest should not be discharged as a result of a change to the secured parties (other than the security trustee itself).

See 2.2.5 Recognition of the Concepts of Trust/Trustee and 3.2.3 Trust/Trustee Concepts.

A security trustee or other secured creditor that is not already resident in Guernsey prior to its entry into a security assignment would not be deemed resident, domiciled or carrying on business in Guernsey by reason only of the execution, delivery, performance or enforcement of such a security assignment.

See 3.2.1 Typical Forms of Security and Recourse. Typically, mortgages over aircraft are governed by English or New York law. To create effective security, a Guernsey-law mortgage would be entered on the Charges Register in accordance with the Aviation Registry Law. Once the mortgage is registered on the Charges Register, all persons shall at all times be taken to have express notice of all facts appearing in the Charges Register; however, the registration of a mortgage shall not be evidence of its validity. As previously noted, it is possible to file a priority notice with the Registry prior to the entry of the mortgage on the Charges Register.

Assuming that the mortgage satisfies the requirements for classification as an "international interest" pursuant to the Cape Town Convention, IR filings can be made in respect of that mortgage.

There is no difference between the form of security (or perfection) taken over an aircraft and that taken over spare engines.

An account charge would typically be taken over a bank account located outside of Guernsey.

If, however, security is required over a Guernsey bank account, a Guernsey law security interest agreement would need to be granted by the debtor over the bank account in compliance with the Security Interests (Guernsey) Law, 1993. To perfect such a security, notice must be given to the account bank. Acknowledgement of that notice by the account bank should be obtained as a matter of best practice but a failure to do so would not affect the perfection of the security.

See 2.4.6 Priority of Third Parties' Rights.

The effective time for the discharge will depend on the terms of the discharge document.

The cancellation of the registration of the mortgage on the Charges Register will be effective from the time the Registry confirms that the entry in respect of the mortgage has been removed from the Charges Register.

The Registry maintains a Charges Register. A registered charge is given statutory priority over subsequently registered charges and unregistered charges. 

See 2.4.6 Priority of Third Parties' Rights.

In order to verify that an aircraft is free of encumbrances, a potential purchaser of an aircraft can search the Charges Register maintained by the Registry for aircraft that are registered on the Aircraft Register. This can be done physically or by requesting an extract of the Charges Register for a fee.

Enforcement of a security assignment as opposed to a loan or a guarantee will depend on the terms of each of these instruments and any difficulties can be referred to the Guernsey courts.

Subject to certain limited qualifications, the courts of Guernsey should recognise as effective a foreign law-governed security assignment that is effective under that law to create an assignment by way of security of the relevant rights and benefits under a lease agreement.

Generally, the Guernsey courts will uphold a foreign law as the governing law of a finance or security document and also the submission to a foreign jurisdiction.

See 2.6.6 Domestic Courts' Recognition of Foreign Judgments/Awards with respect to foreign judgments.

See 2.6.12 Enforcement of Foreign Arbitral Decisions with respect to arbitral awards.

Enforcement will be determined by the provisions of the relevant security agreement. As per 2.6.2 Lessor Taking Possession of Aircraft, a Guernsey court will recognise self-help remedies for enforcement of security interests over the aircraft and/or enforcement of security interests over the shares in a Guernsey company claiming title to the aircraft. The Registry will also typically deal directly with the beneficiary of an IDERA to effect a deregistration. See also 2.6.3 Specific Courts for Aviation Disputes.

See 2.6.3 Specific Courts for Aviation Disputes.

See 2.6.4 Summary Judgment or Other Relief.

See 2.6.6 Domestic Courts' Recognition of Foreign Judgments/2.6.7 Judgments in Foreign Currencies.

A secured party is not required to pay taxes or fees in connection with the enforcement of a security agreement/aircraft mortgage other than the usual costs of, eg, court enforcement procedures.

There are no other relevant issues from a Guernsey law perspective of which a lender should be aware in relation to the enforcement of its rights.

There are no other material issues and/or any material court judgments that are relevant to the purchase, sale, lease or debt finance of an aircraft registered domestically and/or involving a domestic party.

There are no current proposals before the legislative relating to the foregoing items which would alter them or be worth noting.

Walkers

12-14 New Street
St Peter Port
Guernsey GY1 2PF

01481 723 723

Walkersglobal.com
Author Business Card

Law and Practice

Authors



Walkers is a leading international law firm that provides legal, corporate, fiduciary and compliance services to global corporations, financial institutions, capital markets participants and investment fund managers. Walkers has 118 partners and 918 staff, providing a 24/7 service to its clients. The firm's clients include Fortune 100 and FTSE 100 companies, as well as the most innovative firms and institutions across the financial markets. Walkers is experienced in all types of international and cross-border transactions, covering a broad range of sectors, with a particular focus on both contentious and non-contentious corporate and finance law, investment funds, private equity, structured products, capital markets, private capital and trusts. The firm delivers clear, practical advice based on an in-depth knowledge of the legal, regulatory and commercial environment in Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Jersey and Ireland from ten global offices.

Compare law and practice by selecting locations and topic(s)

{{searchBoxHeader}}

Select Topic(s)

loading ...
{{topic.title}}

Please select at least one chapter and one topic to use the compare functionality.