Aviation Finance & Leasing 2022

Last Updated June 28, 2022

Egypt

Law and Practice

Author



Rizkana & Partners , established in 2016, is a full-service law firm advising and supporting local, regional and international corporations, financial institutions and individual clients in Egypt, Africa and the MENA region. R&P brings together a team of highly qualified, internationally trained, experienced and ethically conscientious attorneys specialised in various legal fields. Our team provides clients with high-quality legal advice based on an in-depth knowledge of local laws and regulations, and international legal principles. The R&P team’s diverse experience makes it highly competent advising within the different business environments in which clients operate. R&P represents both Egyptian and multinational corporations operating in many fields and industries such as aviation, banking, construction, energy, financial services, hospitality, IT, manufacturing (including but not limited to the fields of automotive, aircraft, dairy products, food processing, pharmaceuticals and steel), media, mining, professional services, real estate, the sports industry and telecommunications, as well as some foreign embassies.

The mere execution of an aircraft or engine sale agreement does not entail the payment of taxes.

Whether it is advisable for an aircraft sale agreement to be translated, certified, notarised or legalised in order for it to be enforceable in Egypt against a domestic party depends on the asset subject to sale. It is also subject to the governing law and the dispute resolution mechanism. For instance, under a sale agreement regarding an Egyptian-registered aircraft, the bill of sale will be required to be (1) filed with the Egyptian Civil Aviation Authority (the “ECAA”) or (2) deposited with the ECAA after having it notarised and legalised up to the level of the Egyptian embassy/consulate in the country of issuance, to reflect the new owner. As to engines, such requirement does not exist unless the agreement will be presented to an Egyptian court. Moreover, if the agreement is subject to a foreign law and adjudicated outside of Egypt then it is not required to be translated. Please see 1.2.1 Transferring Title and 2.1.1 Non-permissible Leases.

The transfer of title to an aircraft registered in Egypt has to be done through (i) the filing of the sale agreement or the bill of sale with the ECAA; or (ii) depositing the bill of sale with the ECAA after having it notarised and legalised up to the level of the Egyptian embassy/consulate in the country of issuance.

As to an engine, since there is no regime that specifically governs engines in Egypt as opposed to aircraft, the transfer of title of an engine would follow the conventional procedures prescribed under Egyptian law. In addition, there are no perfection procedures prescribed for the sale of an engine. Please see 2.1.1 Non-permissible Leases

Under Egyptian law, the sale of the ownership interest in an entity that owns an aircraft or engine does not have an impact on such aircraft or engine itself.

The transfer of title to an aircraft or engine physically delivered in Egypt would be recognised if the bill of sale is governed by English or New York law assuming it is valid under the governing law.

Minimum substantive requirements for a sale to take place in Egypt include the transfer of title to the buyer for a consideration and that the description of the sold item is clearly identified in the sale contract. 

The above applies to bills of sale of aircraft that are registered in Egypt. In addition to that, either the said bill of sale needs to be filed for a filing fee or a notarised and legalised certified true copy up to the level of the Egyptian embassy/consulate at the country of issuance needs to be deposited with the ECAA.

Please see 1.2.2 Sales Governed by English or New York Law regarding the requirement to have a bill of sale of an aircraft either filed or deposited with the ECAA. Please see 2.3.4 Registration of Leases With the Domestic Aircraft Registry and 2.3.5 Requirements for a Lease to Be Valid and Registrable.

Either the bill of sale needs to be filed for a filing fee or a notarised and legalised certified trued copy up to the level of the Egyptian embassy/consulate at the country of issuance needs to be deposited with the ECAA.

An application needs to be submitted to the ECAA for filing purposes. The document will be reviewed by the ECAA prior to filing.

There are no government consents required.

If the seller does not have a permanent establishment in Egypt and the sale is not considered as part of its commercial activities, then no taxes should arise as a result of the sale. Otherwise, if the seller is based in Egypt, there could be an income tax imposed as a result of the capital gain regardless of the location of the aircraft or engine.

There are no specific restrictions on any types of operating/wet/finance leases or leases concerning only engines or parts in Egypt provided that the importation of any such engines or parts is in compliance with Egyptian laws and regulations.

It is important to note, however, that at present engines or spare parts are treated separately from an aircraft and any transactions relating to them are not filed with the ECAA. This is due to the fact that the register held by the ECAA is aircraft-based. For the avoidance of doubt, the ECAA, as per Egyptian laws and regulations, acts as the competent notarial office for all transactions relating to aircraft in Egypt. Nevertheless, it should be noted that it is envisaged that the relevant Egyptian laws will be amended so that transactions such as sales, leases or mortgages over engines will have to be filed with the ECAA as a result of the Egyptian ratification of the Cape Town Convention and its Aircraft Protocol.

A lease involving either a domestic party or an asset situated in Egypt may be governed by a foreign law provided that such law or legal provisions stipulated in the lease do not contravene or violate Egyptian public order.

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

There are no exchange controls that could prevent rent payments under a lease in Egypt or repatriation of proceeds in Egypt. However, Egyptian banks would require evidence from lessees for such payment, such as a contractual arrangement or an invoice.

To file a lease, which is obligatory in Egypt, there are certain governmental fees that need to be paid. Currently the said fees are EGP35,000. Certain governmental operators are exempt from the payment of such fees.

However, as a matter of practice since 2016, the ECAA only requires the amount of EGP35,000 for the entire package of documentation (excluding mortgages and bills of sale) if the registration of such documents is made on the same day. This application excludes mortgages. 

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

There are certain mandatory terms that are required to be in a lease in Egypt, such as the term of lease, the rental value, the aircraft registration marks and manufacturer’s serial number, the type of aircraft, the number of engines and their manufacturer’s serial number, the date of manufacture and the name and address of the manufacturer, together with the owner’s name, business and place of business, subleasing, insurance, applicable law and jurisdiction.

There are certain mandatory provisions that are not usually seen in English or New York law leases that need to be present for filing purposes in Egypt, such as that the sublease must include the name of the sublessee and the duration of such sublease. In practice, a standalone sublease consent letter is prepared that includes such information. 

Tax and other withholding gross-up provisions are permissible and enforceable in Egypt.

A lease can cover parts that are installed or replaced on an aircraft or engine after its execution in Egypt.

For an aircraft lease that is already in place and if there are any additional parts or engines are added to the aircraft, it is important to prepare an aircraft lease addendum/amendment/annex whereby such aircraft lease addendum/amendment/annex is filed with the ECAA as well for perfection purposes.

As to parts to be added or installed on an engine, it is also important to prepare an engine lease addendum/amendment/annex to include such parts. Please see 2.1.1 Non-permissible Leases.

There could be a risk of title annexation of aircraft engines installed on an airframe since the Egyptian register is aircraft-based. Please see 2.1.1 Non-permissible Leases.

However, to mitigate such risk, a form of agreement could be entered into with the relevant parties recognising the right, title and interest of the owner/lessor/secured party of an aircraft engine. Accordingly, such agreement may grant a certain level of protection by disclosing to third parties that the engine is not part of the aircraft in case enforcement over the said aircraft takes place. Such agreement could also include a bill of sale evidencing the ownership of the engine, both of which must be notarised and legalised as an original/certified true copy of same up to the level of the Egyptian embassy/consulate at the country of issuance. 

Egyptian law does not recognise the concept of a trust. Accordingly, in Egypt an owner trustee is treated as an owner prima facie as per the bill of sale.

The interests of the owner or a lessor of an aircraft in Egypt are noted in the Aircraft Register held by the ECAA.

All documents relating to aircraft in Egypt are registered with the ECAA, which acts as the notarial office with respect to any aircraft-related matters. Accordingly, it is necessary and desirable in order to ensure the priority, validity and enforceability of the obligations of the Egyptian lessee under a relevant document, such as a lease, a deregistration power of attorney, a security assignment or an irrevocable deregistration and export request authorisation (IDERA), for such document to be notarised, filed, registered and recorded with the ECAA.

The certificate of registration of an aircraft in Egypt specifies the name of the aircraft owner as an owner and the Egyptian lessee/operator as the possessor of the aircraft.

There is a specific register for leases concerning aircraft only.

There is no register for engines in Egypt.

It is important to note, however, that at present engines or spare parts are treated separately from an aircraft and any transactions relating to them are not filed with the ECAA. This is due to the fact that the register held by the ECAA is aircraft-based. For the avoidance of doubt, the ECAA, as per Egyptian laws and regulations, acts as the competent notarial office for all transactions relating to aircraft in Egypt. Nevertheless, it should be noted that it is envisaged that the relevant Egyptian laws will be amended so that transactions such as sales, leases or mortgages over engines will have to be filed with the ECAA.

Aircraft lease agreements must be registered with the ECAA. While leases are not subject to the consent of any government entity, the ECAA reviews the said leases before filing to provide its comments, if any. Also, the respective aircraft is inspected by the ECAA to check that it complies with applicable Egyptian laws and regulations. The filing process involves the presence of the relevant ECAA officers to validate the lease filing process.

In general, any document that is to be submitted to an Egyptian authority or court of law for purposes of filing, registering or enforcing them must first be translated into Arabic. Such translation may be done by the translation department of the Ministry of Justice or by the translation department of the Ministry of Foreign Affairs. In particular, any document that is submitted for notarisation, filing, registration or enforcement before the ECAA must be either in English or in Arabic; a document that is in any other language must first be translated into English or Arabic. As a matter of practice, however, the ECAA sometimes requests an Arabic translation, even of English documents, for guidance.

In general, where a document notarised by a notary outside of Egypt is required to be notarised for use in Egypt, the document needs to be legalised up to the level of the Egyptian consulate/embassy in the country of issuance of the document, followed by the authentication of the Egyptian consulate/embassy legalisation by an Egyptian Foreign Ministry office in Cairo. This does not apply to leases since they must be filed with the ECAA.

Egypt has not ratified the Hague Convention of 1961 Abolishing the Requirement of Legalisation for Public Documents.

Egyptian law and regulations provide an alternative to the above. The parties to a certain transaction could by virtue of powers of attorney appoint attorneys to represent them before the ECAA. In this case, such powers of attorney will be the only documents that need notarisation and legalisation up to the level of the Egyptian consulate/embassy at the country of issuance, followed by the authentication of the Egyptian consulate/embassy legalisation by an Egyptian Foreign Ministry office in Cairo. 

As a matter of practice, the operator/lessee submits the following:

  • application for reserving of the registration marks for an aircraft for a fee of EGP10,000; and
  • an application for the registration of the aircraft in the Aircraft Register for a fee of EGP25,000.

The operator/lessee or the owner representative in Egypt may submit the applications for the registration of the relevant lease and any accompanying documents. Governmental fees depend on what the requirements are, as they may vary.

As a prerequisite to filing any lease agreement, it is necessary to provide a notarised and legalised certified true copy (or original) bill of sale of the aircraft up to the level of the Egyptian consulate/embassy at the country of issuance or to have the bill of sale filed with the ECAA. 

Engines are not registered with the ECAA.

Any document that is submitted for notarisation, filing, registration or enforcement before the ECAA must be either in English or in Arabic; a document that is in any other language must first be translated into English or Arabic. As a matter of practice, however, the ECAA sometimes requests an Arabic translation, even of English documents, for guidance.

A governmental fee is payable, which is currently EGP35,000.

However, as a matter of practice since 2016, the ECAA only requires the amount of EGP35,000 for the entire package of documentation (excluding mortgages and bills of sale) if the registration of such documents is made on the same day.

Aircraft that are habitually based in Egypt are typically registered in Egypt. Anything to the contrary is dealt with on a case-by-case basis and subject to the approval of the Ministry of Civil Aviation/ECAA.

Any document that is submitted for notarisation, filing, registration or enforcement before the ECAA must be either in English or Arabic; a document that is in any other language must first be translated into English or Arabic. As a matter of practice, however, the ECAA sometimes requests an Arabic translation, even of English documents, for guidance.

The ECAA reviews any document before filing it.

A foreign lessor will not be required to pay any income or capital gains or other taxes upon leasing an aircraft or engine to a domestic lessee. The Egyptian lessee, however, is required by law to withhold certain amounts as a withholding tax, which shall be subject to the Egyptian tax law and/or any applicable double taxation treaty.

A foreign lessor should not be deemed to be resident, domiciled, carrying on business or subject to any taxes as a result of its being a party to, or its enforcement of, the lease.

There are no liabilities in respect of aircraft or engine maintenance and operations that are imposed on a foreign lessor under a lease. However, if the Egyptian lessee does not make the necessary payments due to the maintenance provider for example, the maintenance provider may exercise a maintenance lien.

A foreign owner of an aircraft or engine or a foreign lessor under a lease or a foreign financier financing the asset on lease shall not be liable under the doctrine of strict liability as a result of damage or a loss caused by the asset.

Creditors of a domestic lessee could attach an aircraft leased to it but owned by a different entity. The owner in this case would need to provide evidence to court of its ownership of the aircraft. A bill of sale that is notarised and legalised up to the level of the Egyptian embassy/consulate in the country of issuance would be sufficient proof in this case.

Under the laws of Egypt, the rights of a lessor will rank equally with other creditors of the same ranking but will have priority in all respects over the claims of all unsecured creditors of the lessee if the lease agreement is registered with the ECAA except for certain sovereign and preferred debts according to the applicable Egyptian laws. What constitute sovereign or preferred debts are, for example, amounts due to the public treasury, eg, judicial expenses, followed by taxes, followed by other third-party rights such as secured debts, followed by maintenance liens, followed by employees’ rights for the previous six months. 

It is mandatory under Egyptian law that all of the insurances over property be placed with domestic insurance companies.

There is no minimum requirement for insurance. However, industry norms follow.

Reinsurances can be placed outside of Egypt with foreign reinsurers.

“Cut-through” clauses are enforceable.

Assignments of insurances and reinsurances are permitted under Egyptian law. It is also advisable to perfect said assignments as per Egyptian laws and regulations for the benefit of the beneficiaries thereunder.

There are no restrictions on a lessor from terminating an aircraft lease, except that such termination is subject to the terms of the lease itself, so if the lease restricts such termination, then such restrictions shall be complied with.

There are no restrictions on the lessor from re-exporting the aircraft.

There are no restrictions on the lessor from selling the aircraft following termination, but it is important to note that the aircraft in this case will need to be deregistered from Aircraft Register as a lease termination is considered a reason for termination of registration under Egyptian law.

The aircraft does not need to be physically located in Egypt at the time of any of the above actions taking place.

So-called “self-help remedies” are not valid in Egypt.

A lessor can file a conventional deregistration power of attorney (“DPOA”) to repossess, deregister and export the aircraft.

If a DPOA is not used, then a court order will be needed, especially if the lessee is contesting the possession of the aircraft.

There are no specific courts that are competent to decide on aviation disputes. Nevertheless, if there is dispute with a governmental authority or body, it shall be adjudicated before the State Council.

A lessor can obtain a summary judgment or other injunctive relief. However, in practice, issuance of injunctions is very uncommon, and they are most of the time challenged by the other party. There are no special requirements or conditions. If such a court order is rendered, it is usually for a short period of time.

Domestic courts will uphold:

  • foreign law as the governing law of an aircraft lease;
  • the submission to a foreign jurisdiction; and
  • a waiver of immunity by the parties to such lease, provided that if the party issuing the waiver of immunity is a governmental authority or body, the courts may examine the issuance of consent for such waiver of immunity.

In order to enforce a foreign judgment in Egypt, a party must obtain an exequatur. To apply for an exequatur, the normal procedures for initiating a lawsuit must be followed and the following conditions must be met:

(i) Reciprocity: The country in which the judgment was obtained (the “Foreign Court”) must enforce judgments obtained in the courts of Egypt. If such reciprocal treatment is not offered by the Foreign Court, the Egyptian courts will re-examine the merits of the case in the same manner as that adopted by the Foreign Court.

(ii) Competence of the Foreign Court rendering the judgment: The courts of Egypt must not be exclusively competent to hear the dispute which constituted the object of the foreign judgment, and the Foreign Court must be shown to have been competent to hear the dispute in accordance with the laws applicable to it.

(iii) Due process: The parties to the dispute must have been duly notified and properly represented in the proceedings (ie, not in contravention of the rules of natural justice). Thus, Egyptian courts will not recognise an English default judgment and a full trial must have been conducted.

(iv) Final judgment: The judgment of the Foreign Court must be final, non-appealable and conclusive in accordance with the relevant law.

(v) Conflict: The judgment of the Foreign Court must not conflict with a prior Egyptian judgment on the same subject matter and must not be contrary to public order in Egypt.

We are not aware of any treaty between Egypt and the United Kingdom or the United States or of an Egyptian court decision which was enforced by the courts of the United Kingdom or the United States, which in either such case would satisfy the criteria set forth in paragraph (i) above. In practice, reciprocity is very difficult to prove and, consequently, the enforceability of a foreign judgment issued by jurisdictions that do not have treaties with Egypt is doubtful.

Egypt is a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Moreover, pursuant to the Egyptian Arbitration Law No. 27/1994, international arbitration awards are enforceable in Egypt and therefore any arbitral awards rendered will be enforced in Egypt. The following documents must accompany the application for enforcement:

  • the original award or a signed copy;
  • a copy of the arbitral agreement;
  • if the award was not issued in Arabic, an Arabic translation of the award authenticated by the competent authority;
  • a copy of the minutes evidencing the deposit of the award with the competent court in Egypt (usually the Cairo High Court of Appeals); and
  • a copy of the notification of the award to the party against which the award was made.

However, Egyptian law provides for an annulment procedure of arbitral awards in specific cases.

Egyptian courts may in their discretion render judgments for a monetary amount in a currency other than Egyptian pounds if they consider that it is the currency which most fairly expresses the plaintiff’s loss.

There are no limitations on the lessor’s ability to recover default interest. However, under Egyptian law, under a lease agreement, the interest due in any case requiring the payment of default interest cannot exceed 7% as such transaction is considered a commercial transaction. Any agreement to the contrary may be deemed void.

A lessor under an aircraft lease is not required to pay taxes in Egypt for the enforcement of the lease. However, there are other associated fees that could be incurred such as legal fees, experts’ fees or deregistration fees. This is in addition to other, minimal court charges that are assessed depending on the claim.

There are no mandatory notice periods; accordingly, such notice periods are subject to the lease agreement.

Lessees are not entitled to sovereign immunity. However, adding clauses of waiver of immunity as additional comfort is common practice.

It is to be noted that, assuming that the lessee is not a governmental authority and pursuant to the provisions of the Civil Code and the Commercial Code, the lessee would not be entitled to any right of immunity on the grounds of sovereign immunity.

Please see 2.6.6 Domestic Courts’ Recognition of Foreign Judgments/Awards.

For enforcement in Egypt, we recommend arbitration as the dispute resolution mechanism. As to foreign courts, we would only recommend courts in jurisdictions where there is a reciprocal enforcement of judgments treaty with Egypt.

Egypt recognises both concepts of contractual assignment and novation.

Both English and New York law assignments and novations would be held valid in Egypt. It is recommended that perfection of such rights under Egyptian law is to be taken into consideration and reflected in such documents, including obtaining the relevant notices and acknowledgements.

There is no need for an aircraft and/or engine lease assignment and novation to be translated unless presented to an Egyptian court. It is recommended that perfection of such rights under Egyptian law is to be taken into consideration and reflected in such documents. Please see 2.3.4 Registration of Leases With the Domestic Aircraft Registry.

An aircraft lease assignment and novation shall be registered or filed with the ECAA in Egypt.

The formalities for such action follow the same formalities as those set out in 2.3.4 Registration of Leases With the Domestic Aircraft Registry.

There are no governmental consents, but an application to file same must be filed with the ECAA and the ECAA must review the said documents before filing. 

Engine-related documents do not get filed with the ECAA so there is no obligation to file them anywhere. Nevertheless, it should be noted that it is envisaged that the relevant Egyptian laws will be amended so that transactions such as sales, leases or mortgages over engines will have to be filed with the ECAA.

Please see 2.1.5 Taxes/Duties Payable for Physical Execution of a Lease and 2.3.6 Taxes/Duties Payable for Registering a Lease as the same process applies.

There is no impact on the filing process before the ECAA if the ownership interest of the entity owning an aircraft is transferred with the legal title to the asset remaining with that entity. But if the aircraft ownership is transferred to another owner, then the ECAA will require evidence of transfer of title through a notarised and legalised bill of sale up to the level of the Egyptian consulate/embassy in the country of issuance or filing the bill of sale with the ECAA. It will also be obligatory to file a lease amendment or novation in the case reflecting the ownership of the aircraft by the new entity.

A beneficiary under a DPOA can deregister an aircraft. Accordingly, the owner of the aircraft, a sublessor, a security trustee/agent and/or a lessor with a DPOA issued by the lessee in its favour and registered with the ECAA will be entitled to use such power of attorney to deregister the aircraft.

An application is submitted to the ECAA with a copy of the filed DPOA is presented to the ECAA along with a copy of the notice of default and the grounding notice as evidence for lease termination. The ECAA reviews same and contacts all relevant parties.

In the event of a mutually consented termination, an early termination agreement needs to be filed with the ECAA. The same process identified in 2.1.5 Taxes/Duties Payable for Physical Execution of a Lease and 2.3.6 Taxes/Duties Payable for Registering a Lease must be followed.

An aircraft owner, mortgagee or lessor may apply for the deregistration of the aircraft without the lessee’s or operator’s consent.

In practice, the ECAA informs the lessee or operator of the deregistration request and requests comments from the lessee or operator prior to taking any deregistration actions. Customarily, the ECAA contacts Egyptian state-owned companies and authorities in the aviation industry to verify whether the lessee or operator has any dues outstanding to them. If the lessee is a solid one with no outstanding debts and has various aircraft in its fleet, the process is simple and deregistration may follow promptly. If not, then the ECAA may require the payment of all outstanding dues to state-owned companies and the process may be extended. 

A copy of the filed DPOA is presented to the ECAA along with a copy of the notice of default and the grounding notice as evidence for lease termination. Any additional documentation evidencing the lessee or operator default should be submitted as well.

In addition, the ECAA will require from the aircraft owner, mortgagee or lessor evidence of representation by company representative or local or international counsel in the form of a power of attorney to be presented.

If the lessee does not challenge the deregistration or if the reasons for deregistration are clear and free from doubts, deregistration may be effected within three weeks. Otherwise, the ECAA may request submission of a final judgment, settlement or evidence of default (such as default notices, grounding notices, etc) to deregister the aircraft. We note that, as a practical matter, deregistration usually exceeds the three-week period and submission of settlements/judgments/evidence of default may be required.

It is highly unlikely that the ECAA will provide advance assurances to an aircraft owner, mortgagee or lessor as to the prompt deregistration of the aircraft. However, it has been granted on rare occasions as per the Minister of Aviation approval to certain publicly owned operators.

The governmental costs associated with deregistration are minimal.

A DPOA must be filed with the ECAA to protect the rights of the beneficiary thereof.

The formalities are the same as those for leases, assignments and novations as reflected in 2.1.5 Taxes/Duties Payable for Physical Execution of a Leaseand2.3.6 Taxes/Duties Payable for Registering a Lease.

A DPOA does not need to be translated, but sometimes the ECAA requests a translated one in an informal form for guidance.

Please see 2.8.3 Required Documentation.

A DPOA does not have to be governed by Egyptian laws.

If the DPOA is irrevocable, it will be enforceable against the lessee. In principle, the irrevocable power of attorney is not subject to revocation solely by the lessee. However, in case of a dispute, the lessee may seek a court judgment revoking same, but it is difficult to obtain a ruling in its favour.

An aircraft owner, mortgagee or lessor may export the aircraft without the lessee’s consent through the deregistration power of attorney that includes a proxy and authorisation to export the aircraft.

There are no additional actions that can be taken by the lessor, owner or mortgagor at the time of lease negotiations to ensure that the aircraft is exported promptly except for the obtaining of a DPOA and IDERA (please see 2.10 Cape Town Convention and Others).

The aircraft does not need to be located in Egypt at the time of deregistration.

Aircraft export permits/licences are issued in Egypt.

An export permit/licence request/application has a limited validity period. If the aircraft is not exported within such period, a new certificate must be obtained. It is also important to note that if there are any outstanding charges against the aircraft to the Egyptian state-owned companies in the aviation industry, the aircraft may not be issued an export licence.

An export permit/licence cannot be granted in advance.

The costs with respect to the export of an aircraft are minimal.

Deregistration of aircraft in Egypt is not a smooth process, especially if the lessee is not consenting. Moreover, if the solvency status of the lessee is in question, further hurdles may be put in place since deregistration may be stopped or at least delayed for state creditors to collect their outstanding debt as a prerequisite to deregistration.

The bankruptcy regime in Egypt has been consistent for many years, in particular since 1999 with the advent of the Commercial Code. It recognises bankruptcies, insolvencies and liquidations. However, it is important to point out that in 2018, a new section on restructuring and reorganisation was introduced to the bankruptcy regime. The said section provides for restructuring through the putting in place of a plan to reorganise a trader’s financial and administrative business, including the means to recover from a state of financial and administrative distress and to pay off its debts, and the proposed sources of funding. This can be done in several ways, including the re-evaluation of assets, debt restructuring including state debt, capital increase, increased internal cash flow, reduced external cash flow and administrative restructuring.

Pursuant to the law, a trader shall be considered in a state of bankruptcy, as declared through a court order, if it stops paying its commercial debts following a distress in its financial condition, ie, its inability to pay its due debts following a distress in its financial condition as a result of the instability of the company’s financial position. The law does not specify what could be deemed as instability of a company leading to financial distress. Therefore, the court reviews all the circumstances surrounding the debtor prior to issuing its judgment, taking into consideration the debtor’s future resources, the debtor’s responsibility for causing such distress, and the creditors’ interests.

According to the rules of bankruptcy, the debt must be current, undisputable and due. Also, there should be evidence that the debtor is unable to pay such debt due to its distressed financial position. A commercial debt is the debt of a trader as defined in Egyptian law. The term “trader” is defined in the Commercial Code as “whoever exercises by way of profession in its name or for its account a commercial activity”. Such definition also includes all companies formed under the companies’ laws regardless of the purposes of their establishment.

The law further stipulates that a company shall be considered in a state of bankruptcy if it discontinues paying its debts due to its financial distress. There is a specific time period with respect to establishing whether a company should file for bankruptcy, which shall be within 15 days from the date it stopped paying its debts as a result of disruption in its financial position. The trader is declared bankrupt at its own request by applying to the competent court, or by the request of one of its creditors or that of the Public Prosecutor.

For Egyptian companies, where a company’s loss reaches 50% of its issued capital, the board of directors should convene an extraordinary general assembly of the company to look into the dissolution or continuation of the company.

Moreover, companies such as the lessee may be liquidated by (i) their dissolution, (ii) the lapse of their term under their by-laws, and (iii) the completion of their company objective.

Egyptian law provides for the appointment of a liquidator in the liquidation phase. The liquidator is appointed either by the company’s shareholders or by virtue of a court order.

The co-ordination, recognition or relief in connection with overseas proceedings is done on a case-by-case basis whereby there are certain arrangements or treaties on a bilateral, regional or international level whereby the relevant Egyptian authorities, such as the Ministry of Justice, the Public Prosecutor and the Central Bank of Egypt co-ordinate with their foreign counterparts.

As to enforcement of court judgments and arbitral awards, please see 2.6.6 Domestic Courts Recognition of Foreign Judgments/Awards.

In general, the courts will recognise a deregistration power of attorney provided that it is duly registered and notarised.

According to Egyptian law, there is a suspect period to be determined by the court, but in any event, it may not be traced back to more than two years from the date the bankruptcy judgment is issued. In that regard, the law provides that any transaction conducted during the suspect period under a bankruptcy scenario may be nullified if it is evidenced that it was conducted against the interests of the creditors and that the other party was aware of the financial status of the bankrupt entity.

Although this has not yet been tested, under a liquidation scenario, it is presumed that the appointed liquidator must adhere to all obligations assumed before the liquidation process up until liquidation is concluded.

If the lease calls for termination of the contract in case of bankruptcy, then such a provision would be respected by Egyptian courts and the bankruptcy trustee would be bound thereby. However, if the contract is silent on termination for bankruptcy, then pursuant to Egyptian law, the bankruptcy judgment does not require the termination of a binding contract to which the bankrupt is a party, unless such contract is based on personal considerations. The law further provides that if the bankruptcy trustee does not perform or does not continue the performance of the contract, the other party to the contract may request the termination of the contract, and that any decision taken by the bankruptcy trustee with regard to the contract must first be presented to the bankruptcy judge for his approval.

The lessor may be delayed or prevented from repossessing the aircraft.

The aircraft may be deemed part of the lessee’s property. In this case, the aircraft owner would be entitled by law to repossess the aircraft without the need to have a mortgage thereon if the lessor can prove ownership thereof. Accordingly, the aircraft owner would need to provide evidence to the court and bankruptcy trustee evidencing its ownership of the aircraft. A bill of sale that is notarised and legalised up to the level of the Egyptian embassy/consulate in the country of issuance may be sufficient evidence for the judge to exclude it from the bankruptcy process. The lessor would also need to request the court/bankruptcy trustee to set aside the aircraft from any proceedings and allow its repossession. The bankruptcy law further stipulates that the bankruptcy trustee, after consulting the bankruptcy controller and obtaining permission from the bankruptcy judge, may return the aircraft to its owner. If such repossession has been rejected, the party (owner) requesting it may bring a dispute before the court.

The bankruptcy trustee may impose the rights of any other creditors in priority to the lessor.

If the security provided is not perfected, then the security is at risk as other secured or unsecured creditors may be able to claim it as well.

There is a moratorium imposed in connection with bankruptcy proceedings, which excludes certain matters such as criminal claims. Under Egyptian law, there is no determined moratorium period. However, said moratorium commences on the date of rendering the bankruptcy judgment and continues up until the rendering of a decision to conclude the bankruptcy as a result of insufficient funds.

An Egyptian company may be voluntarily or involuntarily liquidated or bankrupt.

A provision in an agreement creating a default for specific reasons and thereby permitting the lessor to terminate the leasing of the asset, is permissible.

If the lessee is wound up by a court or administration proceeding, according to Egyptian law, there is a suspect period to be determined by the court, but in any event, it may not be traced back to more than two years from the date the bankruptcy judgment is issued. In that regard, the law provides that any transaction conducted during the suspect period under a bankruptcy scenario may be nullified if it is evidenced that it was conducted against the interests of the creditors and that the other party was aware of the financial status of the bankrupt entity. Accordingly, for the lease rentals, the lease security deposit and maintenance reserves may be ordered by the court to the liquidator or bankruptcy control if such payments are deemed void by the bankruptcy judge.

As to the aircraft, please see 2.9.5 Other Effects of a Lessees Insolvency (second and third paragraphs).

Egypt ratified the Cape Town Convention and the Aircraft Protocol, and both came into force on 1 April 2015. However, the Cape Town Convention has not yet been fully implemented by Egyptian authorities.

Originally, Egypt made declarations only under Articles 39(1)(a), 40 and 54(2) of the Cape Town Convention with no declarations relevant to the Aircraft Protocol. Only recently, Egypt has made new declarations whereby Egypt notified UNIDROIT on 7 November 2019 of subsequent declarations under Articles 39(1)(a), 53 and 54(2) of the Cape Town Convention and Articles XIX, XXX(1), XXX(2) and XXX(3) of the Aircraft Protocol. These subsequent declarations came into effect on 1 June 2020.

Egypt has made the relevant declaration to apply IDERAs. However, due to the fact that the Convention and Protocol have not been fully implemented, recently the ECAA began approving the registration of IDERAs provided that the relevant IDERA includes the following qualification:

“We acknowledge that the provisions in the Cape Town Convention and the Protocol to the Convention on International Interest in Mobile Equipment on Matters Specific to Aircraft Equipment relating to recognition of Irrevocable Deregistration and Export Request Authorisations have not yet entered into effect in the Arab Republic of Egypt. The Egyptian Civil Aviation Authority shall recognise this instrument once the relevant provisions are effective in the Arab Republic of Egypt.”

There is no court precedence in Egypt in relation to parties enforcing the Convention or the Protocol. It is not yet clear when and how Egypt will enforce them.

Egypt is a party to both the 1948 Geneva Convention on the International Recognition of Rights in Aircraft and 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 no exchange controls that would prevent payments under a financing or repatriation of proceeds in Egypt. However, Egyptian banks would require evidence from lessees for such payment, such as a contractual arrangement or an invoice.

Borrowers are permitted to grant security to foreign lenders.

Guarantees are generally acceptable forms of collateral to be provided to lenders.

It is important to note the clauses governing the waiver of certain rights by the guarantors that have to be waived explicitly as well as the dispute resolution mechanisms as to whether court judgments can be enforced in Egypt or not.

There is no security regime that governs guarantees and the perfection thereof in Egypt.

Usually, in Egypt, special purpose vehicles are incorporated in other, foreign jurisdictions. It is also common to have share security over such entities.

A share pledge is recognised in Egypt and can be perfected in certain ways depending on the type of the company and whether the company is registered in the public depository or not.

A negative pledge is recognised in Egypt.

There are no restrictions or requirements imposed on intercreditor arrangements.

The concept of agency and the role of an agent under a syndicated loan are recognised in Egypt.

Debt subordinations are permissible and recognised in Egypt. However, there is no legal regime that governs same except for the priority ranking of secured assets, which also depends on the type of security and whether such security can be perfected in Egypt or not. 

The transfer or assignment of all or part of an outstanding debt under an English or New York law-governed loan is permissible and recognised in Egypt.

There are certain interest limitations in Egypt.

For example:

  • The interest due in any case requiring the payment of interest cannot exceed 7% as such transaction is considered a commercial transaction. Any agreement to the contrary may be deemed void.
  • Under an aircraft mortgage agreement, the interest due on the loan secured by the mortgage agreement cannot exceed 12%. Any agreement to the contrary may be deemed void.
  • However, under banking transactions such as loans, the interest is calculated as per the market norms.

Mortgages, account pledges, share pledges, assignments of rights, assignments of insurances and reinsurances, guarantees, bank cheques, IDERAs, DPOAs and letters of credit are the typical forms of security in an aviation finance transaction in Egypt.

There are no specific types of security that cannot be taken over an aircraft in Egypt so long as they do not contravene Egyptian public order.

Egyptian law does not recognise the concept of a trust, but the role of a security trustee acting on behalf of the lenders as a security agent in a specific transaction is recognised in Egypt.

In Egypt, a borrower can assign to a security trustee pursuant to a security assignment/assignment of insurances or a mortgage its rights to the aircraft or under an aircraft lease.

It is possible in Egypt to assign the rights and benefits only, without assigning the attendant obligations of the lessor under an aircraft lease.

A security assignment or a guarantee can be governed by English or New York law in Egypt.

If there are any assignments of rights under the transaction documents, the registration of such assignments must be registered as well for such assignment to be valid vis-à-vis third parties in accordance with Egyptian law. As per Egyptian law, in order for an assignment of rights to be effective against third parties, the assignment must have an “established date”, which can be established either before an Egyptian notary whereby the ECAA acts as a notary with respect to all matters related to the aircraft or through service of a formal notice through a court bailiff to the debtor. Failure to do so may risk losing the priority of the assignment to other creditors in case it is contested before courts.

If an English or New York law-governed security assignment were to be taken in respect of an aircraft registered domestically, other security instruments available to a financier could be a mortgage, a share pledge, a mortgage over other assets, a guarantee, a DPOA, an IDERA or an account pledge. For filing fees, please see 2.1.5 Taxes/Duties Payable for Physical Execution of a Lease and 2.3.6 Taxes/Duties Payable for Registering a Lease.

An English or New York law-governed security assignment or a domestic law security instrument may be registered domestically.

The transfer of security interests over an aircraft and/or engines is recognised in Egypt.

If the identity of the secured parties under a security assignment changes after its execution then such change needs to be reflected in the underlying security documents, and if any such security documents referring to the original secured parties are filed with the ECAA, then such change needs to be reflected in the documents filed with the ECAA.

The “parallel debt” concept is not tested in Egypt. Accordingly, we are unaware as to how an Egyptian court or tax authorities might respond to it or how it would be dealt with from an accounting perspective.

A secured party under a security assignment will not be deemed to be resident, domiciled or carrying on business in Egypt as a result of enforcing such assignment.

A domestic law mortgage over an aircraft or engine is perfected through filing it with the ECAA. Enforcement thereof shall follow Egyptian law.

In order to perfect a mortgage over an engine under Egyptian law, the engine must be in the possession of either a trustee or a creditor. Since possession by the creditor cannot be perceived and is impractical, the engine mortgage agreement would include a trustee whereby the trustee is a party to the mortgage agreement. Usually, the trustee is an affiliate to the lessee to simplify the possession process.

There are various differences between the perfection process taken over an aircraft and that taken over spare engines.

The most important difference is that at present the regime governing security over mortgages is not under the auspices of the ECAA since the register in Egypt is aircraft-based and so security over engines is treated differently such as that a mortgage over an engine requires the appointment of a trustee or that the engine is kept with the creditor. The charges to perfect a mortgage over an engine are minimal.

As opposed to security over engines or spare engines, a mortgage over an aircraft is filed with the ECAA and the filing charges are EGP135,000. 

Security over bank accounts is recognised in Egypt. To perfect such a security, the bank account pledge needs to be filed with the Egyptian Collateral Registry. 

A third party can register a lien over an aircraft or engine. Nevertheless, this must be done through a court order. However, in practice such third party detains the aircraft or engine without a court order as leverage for payment or settlement of the outstanding dues.

A lien should cover only the work done on the asset in question.

A fleet lien may not be exercised.

There is no mandatory timeframe to discharge a lien or mortgage. Nevertheless, an Egyptian-registered mortgage needs to be renewed every ten years.

There is no specific mortgage register in Egypt. Mortgages are reflected in what is called the “Aircraft Register” and the mortgage agreement is filed in what is called the “Documents Register”. 

Registration of a mortgage gives a priority and will ensure continuous perfection. A registered mortgage affords the mortgagee preference over all subsequent registered secured debts, regardless of the dates on which such debts are created and all unsecured debts.

Statutory rights of detention or non-consensual preferential liens arise over an aircraft but not on a fleet-wide basis.

In practice, a potential purchaser of an aircraft will not be able to verify that an aircraft is free of encumbrances as the Aircraft Register is not publicly accessible. The only possible method of verification is through an application by the owner or lessee to the ECAA to provide evidence for the existence of any encumbrance.

There are certain relevant differences in enforcing a security as opposed to a loan or a guarantee in Egypt.

A security assignment can be perfected through filing with the ECAA, while neither loans or guarantees are perfected with any registry in Egypt.

The priority under a security assignment can be maintained, while under a guarantee or loan there are no priorities since they are not filed anywhere unless the loan is secured with collateral over certain assets that are perfected.

If enforcement is pursued under a loan or a guarantee, it will only require the payment of certain amounts that have to be rendered after obtaining a court order or an arbitral award, while under a security assignment, the debtor should be making the necessary payments to the assignee (unless the assignor revokes its instructions and the debtor abides by such new instructions).

If, under a security assignment, security is granted to a security trustee by a lessor in respect of its rights under an aircraft lease, the security trustee can enforce its rights under the security assignment pursuant only to a notice and acknowledgement executed by that lessor and the relevant lessee respectively in connection with such security assignment provided that the assignment is perfected pursuant to the relevant Egyptian laws.

Please see 2.1.2 Application of Foreign Laws, 2.6.5 Domestic Courts Approach to Foreign Laws and Judgments, 2.7.2 Assignment/Novation of Leases Under Foreign Laws and 3.2.6 Choice of Foreign Law.

Please see 2.6.6 Domestic CourtsRecognition of Foreign Judgments/Awards.

Please see 2.6.2 Lessor Taking Possession of the Aircraft, 2.8.2 Lessees/Operators Consent and 2.8.11 Owners/Lessors Consent.

Please see 2.6.3 Specific Courts for Aviation Disputes.

Please see 2.6.4 Summary Judgment or Other Relief. There are no bonds, security or cash deposits that would be required.

Please see 2.6.7 Judgments in Foreign Currencies.

Please see 2.6.9 Lessors Requirement to Pay Taxes/Fees.

The judicial process in Egypt needs to be more advanced to accommodate and cope with the fast changes in the industry, in order to encourage more lenders and lessors to invest in Egypt.

There are no other relevant material issues or material court judgments relevant to the sale, lease or finance of aircraft or engines in Egypt.

It is expected that the currently existing Egyptian aviation laws will witness some changes to accommodate the Egyptian ratification of the Cape Town Convention and Aircraft Protocol along with their relevant declarations. Accordingly, it is envisaged that the aviation industry in Egypt will benefit from enacting such an important international instrument to enhance the leasing and financing of aircraft and engines in Egypt in the future. 

Currently, the Cape Town Convention and Aircraft Protocol are undergoing various tests in Egypt that may shape the enforceability thereof in the future, for example, tests relating to the way the ECAA treats IDERAs issued for foreign-registered aircraft that are located in Egypt and the future engine register to be introduced.

Rizkana & Partners

6 Wezaret El Zeraa Street
City Capital Building, 10th Floor
Dokki
Giza
Egypt

+20 2 3760 4100

+20 2 3760 2250

www.rizkanapartners.com
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Law and Practice

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Rizkana & Partners , established in 2016, is a full-service law firm advising and supporting local, regional and international corporations, financial institutions and individual clients in Egypt, Africa and the MENA region. R&P brings together a team of highly qualified, internationally trained, experienced and ethically conscientious attorneys specialised in various legal fields. Our team provides clients with high-quality legal advice based on an in-depth knowledge of local laws and regulations, and international legal principles. The R&P team’s diverse experience makes it highly competent advising within the different business environments in which clients operate. R&P represents both Egyptian and multinational corporations operating in many fields and industries such as aviation, banking, construction, energy, financial services, hospitality, IT, manufacturing (including but not limited to the fields of automotive, aircraft, dairy products, food processing, pharmaceuticals and steel), media, mining, professional services, real estate, the sports industry and telecommunications, as well as some foreign embassies.

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