Aviation Finance & Leasing 2022

Last Updated June 15, 2022

Madagascar

Law and Practice

Authors



John W Ffooks & Co is a full-service corporate, commercial law firm with offices in Madagascar, Mauritius and Senegal, providing support to business and industry across French-speaking Africa. The firm's multilingual legal team, comprised of 6 resident partners and 20 associates, is the only legal practice in the region with a combination of Napoleonic and English law expertise – making the firm the obvious choice when it comes to international transactions in Francophone Africa. Its particular strengths are in assisting inward investors into the region and in reconciling their common law understanding of business with the realities of working under legal systems derived from the Napoleonic Code. The firm's expertise in advising local and international clients has earned the trust of listed and unlisted domestic, as well as international, corporations, banks and financial institutions, light and heavy industrial firms, state-owned enterprises and government departments.

Transfer of ownership is subject to the payment of administrative fees of MGA354,000 (approximately USD90).

Fees associated with the filing of the ownership interest of the owner of an aircraft will depend on the tonnage of the aircraft. It varies between MGA600,000 (approximately USD150) and MGA2 million (approximately USD500).

Whilst it is not mandatory, it is advisable for a sale agreement written in a foreign language to be accompanied by a French translation made by a Malagasy sworn translator. Sometimes local courts accept English documents, but this is not always the case. Whether they are accepted or not mainly depends on the decision of the judge in charge of the matter (if the matter goes to court).

A sale agreement or a bill of sale is typically required for the transfer of title of an aircraft or engine. They do not extend to the inclusion of all installed parts, such as an auxiliary power unit (APU), unless so established in the agreement.

The sale of the ownership interest in an entity under these conditions does not itself constitute the sale of the aircraft or the engine.

It is possible for a bill of sale to be governed by a foreign law (including English or New York law); such an agreement will be recognised in Madagascar. The most important requirements under Malagasy law are that the foreign law-governed bill of sale should be (i) manually signed by the authorised signatory and (ii) notarised.

Whilst it is not mandatory to provide a translation, a bill of sale written in a foreign language should be accompanied by a French translation made by a Malagasy sworn translator in order to be enforceable against a domestic party. Sometimes local courts accept English documents; see 1.1.2 Enforceability Against Domestic Parties.

Bills of sale should be registered with the Malagasy Civil Aviation Authority (CAA). The period of completion of registration is estimated to be one week, but administrative delays may occur.

There are no government applications or consents required as a prerequisite to the execution and delivery of a bill of sale in relation to an aircraft or engine registered in Madagascar. It should be noted that there is no separate engine registry within the CAA. 

There are no known taxes that are payable for executing and/or delivering a bill of sale or 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:

  • located in this jurisdiction;
  • over international waters; or
  • in transit to/from this jurisdiction.

The fees that should be paid are the fees requested by the CAA during the registration of the bill of sale or the deregistration of the aircraft (which are reasonable).

There are no known types of operating/wet/finance leases or leases concerning only engines or parts that are neither permissible nor recognised. 

It is permitted for a lease involving either a domestic party or an asset to be governed by a foreign law. Malagasy law allows the parties to a contract to choose the governing law of their contract freely.

As long as it is established in the lease agreement, there are no material restrictions 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 or any repatriation of realisation proceeds, if the lease is enforced by a foreign lessor. Payments of rents are considered as operations courantes, or current operations, and are not subject to any specific exchange control procedure.

The fee payable to the CAA when registering a lease is MGA408,000 (approximately USD100). Other than this, no other additional fees are foreseen.

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

Any lease must contain the following terms and conditions:

  • effective date and date of expiry of the lease;
  • details of the lessor and the lessee;
  • a description and details of the aircraft (type, manufacturer, serial number);
  • a statement specifying that the aircraft is under the care and custody of the lessee for the duration of the lease;
  • a statement specifying the party liable for the continuing airworthiness of the aircraft as well as for the maintenance of the aircraft for the duration of the lease;
  • a statement specifying if a sublease is permitted or not; and
  • the termination provisions of the lease.

Most of the time, the foregoing are already contained in the lease (or ancillary documents thereto) governed by English or New York law.

Tax and other withholding gross-up provisions are permissible and enforceable under Malagasy law.

A lease may cover parts that are installed or replaced on an aircraft or engine after its execution. For this purpose, it is necessary to sign an addendum to the initial lease agreement.

The aircraft engines installed on an airframe should be indicated and legally separated from the aircraft if it is intended to avoid the risk of title annexation, otherwise the engines will not be considered as separate assets from the aircraft, legally speaking. The use of nameplates is recommended to identify clearly the actual owner of the aircraft engines installed on an airframe.

The concept of trust is not expressly provided for in any legal provision. However, the Malagasy Contract Law gives free rein to the parties to establish the terms and conditions of their contract. This includes the right to appoint an entity or an individual to represent and act on behalf of several parties driven by the same interest.

The concept of legal or beneficial ownership does not exist under Malagasy law. However, the identity of the lessor of an aircraft can be noted on the aircraft register and it will, subsequently, appear on the certificate of registration of that aircraft.

In all cases, if the owner is different from the operator, the certificate of registration of the aircraft will clearly identify which person is the owner and which is the operator of the aircraft.

There is no separate register for leases (aircraft or engines) in Madagascar. Leases are registered with the Aircraft Register.

Leases should be registered in the Aircraft Register and are not subject to any consent from government authorities.

The requirements are as follows.

  • A registration application must contain the following information: date of the lease, duration of the lease and details of the applicant. The application must be signed by the applicant.
  • The lease must be annexed to the application.

No government applications or consents are required as a prerequisite to the execution and delivery of an aircraft and/or engine lease in relation to an aircraft registered in Madagascar.

There is no specific requirement with respect to the form of the lease. The most important part is the signature of the lease by the lessor and the lessee.

The fee payable for registration is MGA408,000 (approximately USD100). Apart from the registration fee, there are no other taxes (including stamp duties payable for registering the interest of the lessor). In all cases, if the CAA requires any other administrative fees (of negligible amount), a receipt is always provided to the applicant.

The registration of aircraft in alternative countries is not applicable in Madagascar. Aircraft habitually based in Madagascar should be registered at the Aircraft Register.

There is no specific requirement with respect to a document to be accepted and registered. However, a power of attorney should be notarised. 

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. However, any payment of rent made by the lessee to the lessor will be subject to a withholding income tax of 10%. This will be withheld by the paying entity (ie, the lessee). This is the reason why there are tax gross-up clauses in lease agreements.

A foreign lessor would 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.

In principle, the lessee/operator is liable for the operation and maintenance of an aircraft or engine.

It is not possible for the lessor, as owner (but not operator), to be held responsible for the operation of the aircraft unless damage is suffered and can be attributed to an act or default of the lessor/owner, namely, in the case of an accident, drug trafficking, etc.

Malagasy law distinguishes between strict liability that may arise for the operator of the aircraft (as lessee/operator) and any potential fault based on liability of the lessor or owner arising from the ownership of the aircraft.

In all cases, the lease should contain a statement specifying the party liable for the continuing airworthiness of the aircraft as well as for the maintenance of the aircraft for the duration of the lease.

Malagasy law distinguishes between strict liability that may arise for the operator of the aircraft (as lessee/operator) and any potential fault based on liability of the lessor or owner arising from the ownership of the aircraft.

The retaining right is the right of a creditor to retain in their possession a debtor’s asset in an event of default and until full payment of the debts. This is applicable to movable assets and properties. Please note that the retaining right is not subject to any agreement or registration formalities in order to be enforceable. The creditor’s security is materialised by their right to retain in their possession the asset that is the object of the dispute. For example, an aircraft maintenance service company is entitled to retain the aircraft in its possession if the aircraft operator fails to pay the maintenance fees.

In terms of ranking, employees’ salaries, court fees, legal fees (eg, bailiff’s fees), taxes and other state fees, suppliers’ debts secured by rights of detention (droit de rétention), mortgages and pledges (possessory and non-possessory pledges) take priority over a lessor’s rights under an aircraft or engine lease.

The main insurance of the aircraft must be subscribed with a local insurance company. Reinsurance can be subscribed with foreign insurance companies.

According to Malagasy law, airlines and aircraft operators must have insurance covering their liability towards passengers, luggage, cargo and third parties regarding acts of war, terrorism, hijacking of aircraft, acts of sabotage, illicit apprehension of aircraft and civil turmoil.

Reinsurances of up to 100% coverage can indeed be placed outside Madagascar.

According to the Malagasy Insurance Law, it is possible for rights belonging to the insurer, and which were conferred to this party under the reinsurance agreement, to be conferred to third parties whenever permitted by general law. Therefore, it follows that cut-through clauses in such documents are enforceable under Malagasy law.

Assignments of insurances/reinsurances are permitted.

There are no restrictions on the lessor’s ability to terminate an aircraft lease and sell the aircraft following that termination, except if any limitations were established in the lease agreement in this regard. The aircraft does not need to be physically located in Madagascar for any such termination and sale to take place, but the consent of the lessee to carry out the deregistration of the aircraft, given the termination of the agreement, is required. This consent is not required if the deregistration of the aircraft is a result of an event of default.

With regard to the re-export of the aircraft in such circumstances, from a contractual point of view, the main conditions are:

  • the irrevocable deregistration authorisation (IDERA);
  • reregistration power of attorney (DPOA);
  • the usual deregistration and export government guarantee; and
  • any clause of the lease allowing the lessor to export the aircraft if an event of default occurs and is continuing.

The lease should provide a clause allowing the lessor, by serving notice, to require the lessee to redeliver the aircraft at a specific location; in addition, the DPOA should expressly allow the lessor to require a pilot of the lessee or any other pilot to fly the aircraft to a specific location.

In an administrative point of view, an export certificate of airworthiness (ECA) is required. The ECA is issued by the CAA following an application made by the lessor, subject to a technical airworthiness assessment made by the responsible authority.

The CAA remains entitled to require any further documents that it deems relevant (eg, a document evidencing that the aircraft was duly authorised by the customs authorities to enter and stay in Madagascar).

If a DPOA/irrevocable power of attorney has been granted by the lessee to the lessor, neither the consent of the former nor a court order is required.

There are no specific courts that are competent to decide aviation disputes. This type of dispute is normally brought before the commercial courts.

It is possible for a lessor to obtain a summary judgment, or equitable or other injunctive relief, pending final resolution of judicial proceedings for such purposes, if the following conditions are met:

  • the applicant party proves the existence of a grounded fear that the counterparty will cause a serious or barely repairable action to its rights;
  • the applicant party proves the urgency of the matter, which is not compatible with the delay of the main judicial proceedings;
  • the applicant party gives summary evidence of its rights; and
  • the court should not consider that the harm caused to the other party does not considerably supersede the damage that the injunctive relief is envisaged to avoid.

The estimated period to obtain such a court order could be immediate or up to 30 days, depending on the specific injunctive relief requested to the court.

Malagasy courts would uphold a foreign law as the governing law of an aircraft lease, as well as the submission to foreign jurisdictions if the parties so choose (choice of law and of jurisdiction clauses or agreements), and also a waiver of immunity by the parties to that lease, if the issues in dispute were to be regarded as non-disposable rights or inalienable rights.

Malagasy courts would recognise and enforce a final judgment of a foreign court or an arbitral award after an exequatur order by a Malagasy court. An exequatur order is a decision of a Malagasy court to enforce a foreign judgment in Madagascar after a final verification that the foreign judgment is not in breach of public order and good moral standards (eg, any decision that may constitute a threat to national defence cannot be enforced in Madagascar). The case will not be re-examined on its merits.

It is possible for a lessor under an aircraft lease to obtain a judgment in a foreign currency if the lease agreement sets forth this possibility.

It would be possible for a lessor to recover default interest (or the compounding thereof), but, after termination of the lease for default, including if the lessee fails to return the aircraft, it would not be possible to charge additional rent, although it would be possible to claim the repossession of the aircraft and a compensation for the damages incurred by the lessor, given the lessee’s failure to return the aircraft.

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 enforcement of an aircraft lease.

The lessor is only obliged to comply with the mandatory notice periods for termination of the aircraft lease that are established in the lease agreement.

The lessee is not entitled to claim sovereign or other immunity from suit. In all cases, immunities can be waived.

On 16 July 1962, Madagascar became a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"). Therefore, the national courts recognise and enforce arbitral decisions.

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

Madagascar recognises the concepts of contractual assignment and novation.

Agreements governed by New York or English Law would be held valid by a Malagasy court. Whether the consent of the lessee would be required or not would depend on the law governing the lease agreement and the assignment or novation agreement. In any case, under Malagasy law, consent is required and for registration purposes the consent is mandatory.

In principle, there is no need to translate, certify, notarise or legalise an aircraft and/or engine lease assignment and assumption/novation. However, it is advisable for these assignments and assumptions/novations to be notarised/authenticated to be enforceable against a domestic party. In addition, should the enforcement be carried out via the Malagasy judicial courts, a certified translation thereof by a Malagasy sworn translator is required.

It is necessary to register and file an aircraft and/or engine lease assignment and assumption/novation with the Aircraft Register for them to be enforceable in Madagascar. However, they are not subject to any consent from a government entity.

For the formalities concerning registration, leases should be registered at the Aircraft Register and are not subject to any consent from government authorities.

The requirements are as follows.

  • A registration application must contain the following information: the date of the lease, the duration of the lease and details of the applicant. The application must be signed by the applicant.
  • The lease must be annexed to the application.

No government applications or consents are required as a prerequisite to the execution and delivery of an aircraft and/or engine lease in relation to an aircraft registered in Madagascar.

There is no specific requirement with respect to the form of the lease. The most important is the signature of the lease by the lessor and the lessee.

Assignment and assumption/novation agreements are not subject to taxes/duties.

Transfer of ownership interests would not be considered per se as a transfer of ownership of the aircraft.

Deregistration of an aircraft can be carried out by its owner, lessor or any other entity with a power of attorney (POA) signed by the lessor.

The step consists of the filing of the relevant application before the CAA and of providing the latter with the documents required for the deregistration.

An aircraft owner, mortgagee or lessor can apply for the deregistration of the aircraft without the lessee’s or operator’s consent. The consent of the lessee or operator is not required for the deregistration of the aircraft.

The documents required for deregistration of an aircraft are a deregistration application in respect of the aircraft, signed by the applicant (the lessor or its representative with a POA signed by the lessor) and filed at the CAA. The application must contain the following information:

  • a reason for the deregistration (eg, termination of a lease agreement for any event of default); and
  • details of the aircraft.

The following documents are also required by the CAA to proceed with the deregistration:

  • an IDERA;
  • a DPOA;
  • a signed deregistration application letter (the CAA may ask the lessor to complete and sign a deregistration form);
  • a copy of the documents evidencing the need for deregistration; and
  • the original of the certificate of registration of the aircraft.

The CAA is always entitled to ask for any other documents it considers relevant.

If all documents required for deregistration are in good order, the deregistration process should take approximately 10 to 20 working days from the filing of the application at the CAA. However, this may be subject to administrative delays.

The CAA does not provide advance assurances to an aircraft owner, mortgagee or lessor as to the prompt deregistration of the aircraft.

The fees to be paid for the deregistration of an aircraft are MGA354,000 (approximately USD90), which is not a significant amount. The fees are payable prior to the issuance of the certificate of deregistration (ie, at the time of the application for deregistration).

DPOAs are recognised, but should be notarised. The DPOA should be filed with the CAA. There are no associated costs.

In order to enforce a deregistration power of attorney, there are no additional documents required (eg, supporting corporate documentation).

A deregistration power of attorney can be governed by a foreign law.

It is not possible to revoke an irrevocable power of attorney if the beneficiary (the attorney or a third party) does not give its consent, except if just cause for revocation exists (eg, abuse of the granted powers). For revocation purposes, the written consent of the beneficiary is mandatory.

From a strict legal perspective, it is possible for the lessor/owner/any party named in the IDERA and Certified Designee Confirmation Letter (CDCL) to export an aircraft unilaterally. However, as a matter of practice, any formality in connection with a transaction involving a local lessee (and especially if that lessee is the national airline) is subject to the approval of the latter. For deregistration/export purposes, an aircraft should be in Madagascar for inspection purposes in order to be issued with an export certificate.

From a contractual point of view, the IDERA, DPOA and, eventually, any clause of the lease allowing the lessor to export the aircraft if an event of default occurs and is continuing are the main conditions for an aircraft to be exported. The lease should provide a clause allowing the lessor, by serving notice, to require the lessee to redeliver the aircraft at a specific location. The DPOA should expressly allow the lessor to require a pilot of the lessee or any other pilot to fly the aircraft to a specific location.

From an administrative point of view, an export certificate of airworthiness (ECA) is required. The ECA is issued by the CAA following an application made by the lessor, subject to a technical airworthiness assessment made by the CAA. It should be noted that it is not possible to obtain an ECA in advance because this is subject to the technical assessment of the CAA at the time of export.

The CAA remains entitled to require any further documents that it deems relevant (eg, a document evidencing that the aircraft was duly authorised by the customs authorities to enter and stay in Madagascar).

The ECA is issued by the CAA within approximately 10 to 20 working days from the application. The obtaining of the ECA is subject to the payment of MGA1 million (approximately USD250) to MGA6 million (approximately USD1,500).

The main fee is the one in connection with the obtaining of the ECA, which ranges from MGA1 million (approximately USD250) to MGA6 million (approximately USD1,500).

The main significant practical issue that an aircraft owner or mortgagee or lessor should be aware of in respect of the deregistration of aircraft in Madagascar are administrative delays, which are very common.

Law No 2003-042 dated 3 September 2004 (the "Insolvency Law") governs insolvency proceedings in Madagascar. The Insolvency Law introduces three types of collective insolvency proceedings:

  • preventive settlements,
  • judicial reorganisation; and
  • liquidation.

These are applicable to corporate insolvency proceedings against a Malagasy company to the extent that it is duly incorporated and has its main interest in Madagascar.

Preventive Settlement (Règlement Préventif)

The preventive settlement (règlement préventif) is aimed at avoiding a debtor’s cessation of payment (cessation de paiements) or the cessation of its activity, and allowing the clearing of its debts by way of an arrangement with creditors. In this proceeding, the company’s manager shall petition the commercial court by stating the company’s economic and financial situation and presenting proposals for the reorganisation of the company. If the court deems that the proposals are likely to lead to the company’s reorganisation, the president of the court will appoint a conciliator who will look for an arrangement between the debtor and its creditors. The arrangement will then be subject to the approval of the court president and will suspend any lawsuits that may have been initiated by creditors against the debtor for the payment of their debts.

Judicial Reorganisation (Redressement Judiciaire)

The judicial reorganisation (redressement judiciaire) is designed to save the debtor company and to clear its debts by way of a composition proposal (offre de concordat) with its creditors. If a debtor is unable to meet its current liabilities out of its disposable assets, it must file a declaration of cessation of payment at the commercial court within 30 days from its cessation of payment in order to initiate the collective proceedings for judicial reorganisation. It is also required to lodge at the court a composition proposal specifying the measures and conditions envisaged to redress the company within 15 days from the filing of the declaration. The court will then issue a judgment establishing the cessation of payment, ordering the judicial reorganisation (if the debtor proposal is accepted by the court) and appointing the official receiver. The judgment will result in:

  • the assistance of the company’s current directors/managers by a receiver in the administration and disposal of the company’s assets;
  • the constitution of creditors into a single body, represented by the receiver;
  • the suspension and the prohibition of any individual proceedings;
  • the suspension of the registration of any securities; and
  • the production and verification of debts by the creditors.

The judgment also suspends the accruing of legal and contractual interests and any interest on overdue payments. It should be noted that the composition proposal is subject to the approval of the court after its adoption by the debtor’s creditors. Where the court does not approve the composition proposal or if the composition is cancelled (due to the failure by the debtor to comply with its commitments), the court will convert the judicial reorganisation into judicial liquidation.

Liquidation (Liquidation des Biens)

The purpose of the liquidation (liquidation des biens) procedure is the realising of the debtor company's assets in order to clear its debts. The judge orders the liquidation when it appears that the debtor has not made a serious proposal for reorganisation that would allow for its financial recovery and the clearing of its liabilities. When the judgment is pronounced, it results in the removal of the directors of the debtor’s company from the administration and the disposal of the company’s assets, declaration and verification of creditors' claims, winding up of the company and realisation of its assets or sale of its business for the payment of claims.

Madagascar has been a party to a cross-border initiative (CBI) programme that comprises a policy framework between multiple countries throughout Eastern and Southern Africa and the Indian Ocean, providing full support from their co-sponsor. It is similar to the concept adopted by states in the Indian Ocean and the cross-border programme set by the Indian Ocean Commission in 2014. Therefore, the CBI has been put in place to facilitate co-operation between states in the Indian Ocean such as Mayotte, Madagascar, Comoros, Mauritius and the Seychelles. Nevertheless, there are no specific provisions that mandate cross-border co-operation preventing restricted parties from adopting co-ordination principles such as the American Law Institute and International Insolvency Institute Guidelines Applicable to Court-to-Court Communications in Cross-Border Cases 2001, and the INSOL International (International Association of Restructuring, Insolvency and Bankruptcy Professionals) Global Principles for Multi-Creditor Workouts 2000.

Irrevocable powers of attorney regarding the assets which integrate the patrimony of the insolvent party will not survive its insolvency. However, and taking into account that the aircraft is not owned by the lessee/insolvent, the aircraft is not part of the patrimony of the insolvency, which is why the deregistration power of attorney will survive. If the amounts regarding the lease are not paid, the lessor may invoke an event of default to terminate the agreement, requesting the repossession and deregistration of the aircraft through a deregistration power of attorney.

In Madagascar, the declaration of the insolvency of a lessee does not suspend a lease agreement and the aircraft will not be deemed part of the lessee’s property.

However, given that Madagascar has adhered to the Cape Town Convention and the Protocol, the following options must be considered when it comes to repossession of the aircraft.

Madagascar has chosen alternative A of Article XI of the Cape Town Protocol. In other words, if the lessee is declared insolvent, the receiver(s) must give back the aircraft within a maximum waiting period of 60 calendar days unless the lessee executes the outstanding obligations and commits to execute all its future contractual obligations. The aircraft must be immediately returned to the lessor upon the occurrence of a new event of default and the lessee cannot claim any further delay.

Any attempt to delay or prevent the repossession of the aircraft by the lessor after the expiry of the waiting period of 60 days is prohibited.

Subject to the foregoing, which is fully recognised and applicable in Madagascar, the Cape Town Protocol does not prevent the lessor from using any remedy available in the local legislation.

The main risk is the lack of sufficient assets to provide for the payments due to the creditors, including the lender, which, if they do not have a guarantee of their own (eg, a mortgage), will be deemed as any other common creditor which should be equally paid in accordance with the debtor’s existing assets.

No moratorium or similar stay is imposed in connection with insolvency proceedings. Additionally, the declaration of the lessee’s insolvency does not suspend the execution of the lease agreement, but the insolvency administrator, under applicable law, can always terminate it by undertaking to pay the retributions corresponding to the existing period between the date of the production of its effects and the end of the term established in the contract, or the date on which termination by the insolvent would have been possible.

The methods by which a domestic lessee can be liquidated or placed in administration or receivership are judicial reorganisation (redressement judiciaire) and liquidation (liquidation des biens). See 2.9.2 Overview of Relevant Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership.

Performance defaults are required to repossess an aircraft during a lessee insolvency proceeding.

If a domestic lessee is wound up by a court or administration proceeding. The lease is not automatically terminated upon the issuance of the insolvency judgment. The following scenarios may apply.

Scenario 1

The receiver(s) can decide to continue the lease subject to the payment of the rent. If the receiver(s) and the lessee fail to pay the rent and any other payment obligations under the lease, the lessor is no longer required to perform its obligations. The lessor can also send a notice period of 30 days to the lessee and the receiver(s) to remedy the situation. Failing that, the lease is automatically terminated.

The termination of the lease for non-payment of rent means that the lessor can repossess the aircraft and proceed with the deregistration and export of the aircraft.

Scenario 2

If the lessor wants to terminate the lease upon the issuance of the insolvency judgment as a result of any pre-insolvency reasons, the lessor must introduce its claim for termination before the commercial court within 30 days following the second publication of the insolvency judgment in the newspaper. The judge will only decide to grant the termination if they consider that the lessee is unable to provide sufficient guarantee in respect of the payment of the rent. If the termination is granted, the lessor will be entitled to proceed with the repossession, deregistration and export of the aircraft.

Scenario 3

If the lessor wants to terminate the lease after the issuance of the insolvency judgment as a result of any post-insolvency reasons, the lessor must introduce its claim for termination before the commercial court within 15 days after it has been informed of the lessee’s default. The judge will only decide to grant the termination if they consider that the lessee is unable to provide sufficient guarantee in respect of the payment of the rent. If the termination is granted, the lessor will be entitled to proceed with the repossession, deregistration and export of the aircraft.

The Convention on International Interests in Mobile Equipment (the "Convention") and the related Protocol on Matters specific to Aircraft Equipment (the "Protocol") are in force in Madagascar. There is no implementing local legislation but the Convention and Protocol are applicable and enforceable in Madagascar, as the adherence of the Republic of Madagascar has been authorised by Law No 2012-009.

However, Madagascar has not designated an “entry point” pursuant to Article XIX of the Protocol.

At the time of Madagascar’s adherence to the Convention, the Republic of Madagascar made declarations in respect of Articles 39 (1) (a) and (b), 40, 53 and 54 (2).

At the time of Madagascar’s adherence to the Protocol, the Republic of Madagascar made declarations in respect of the following articles:

  • Article XXX (I) relating to Article VIII;
  • Article XXX (2) relating to Article X;
  • Article XXX (3) relating to Article XI; and
  • Article XXX (I) relating to Article XII and Article XIII.

Article XIII of the Protocol is applicable in Madagascar. There is no specific procedure for the submission and recordation of an IDERA with the Aircraft Register. The most important action is that the IDERA is filed with the CAA (which is in charge of the records in the Aircraft Register).

There is no known precedent of enforcement of the Convention or the Protocol in Madagascar.

Madagascar is a party to the 1948 Geneva Convention on the International Recognition of Rights in Aircraft, but not to the 1933 Rome Convention for 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 or government consents required in respect of financing or repatriation of realisation proceeds under a loan, guarantee or security document.

Borrowers are permitted to grant security to foreign lenders.

Downstream, upstream and/or cross-stream guarantees are not permitted under Malagasy law.

Taking share security over a domestic special-purpose vehicle (SPV) that owns the financed aircraft is possible, but this kind of situation has not yet arisen. Pledges over shares are permitted.

Negative pledges are recognised.

There are no material restrictions or requirements imposed on intercreditor arrangements

Whilst the concept of agency and the role of an agent (such as the facility agent) under a syndicated loan does not exist per se in Madagascar, from a practical perspective, this concept is recognised. In addition, the Malagasy Contract Law gives free rein to the parties to establish the terms and conditions of their contract. This includes the right to appoint an entity or an individual as agent.

There is no specific method of debt subordination that is expressly permissible and recognised by Malagasy law. However, in practice, subordination agreements are permissible and recognised.

It is permissible to transfer or assign all or part of an outstanding debt under an English or New York law-governed loan.

There are usury or interest limitation laws in Madagascar. For instance, in commercial contracts, any interest beyond 6% is considered as usury. There are no specific laws concerning usury or interest limitation in Madagascar.

The typical form of security and recourse that would be granted in an aviation finance transaction domestically is a mortgage.

It is not possible to set up pledges over aircraft or related collateral such as engines, as they are subject only to mortgages.

Under Malagasy law, the concept of a trust and of the security trustee is not expressly provided for in any legal provision. However, the Malagasy Contract Law gives free rein to the parties to establish the terms and conditions of their contract. This includes the right to appoint an entity or an individual to represent and act on behalf of several parties driven by the same interest.

It is permitted for a borrower to assign to a third party, including a security trustee, its rights to the aircraft or under an aircraft lease, pursuant to a security assignment or a mortgage.

Under Malagasy law, it is possible to assign the rights and benefits only, without also assigning the attendant obligations of the lessor under an aircraft lease.

It is permitted and enforceable for security assignments or guarantees to be governed by English or New York law.

It is a requirement to have a written contract duly signed by the authorised signatories of the parties to that contract. The registration of such an assignment with the CAA is also advisable in order to be enforceable. Whilst this is not mandatory, it is advisable for a security assignment written in a foreign language to be accompanied by a French translation made by a Malagasy sworn translator. Sometimes, local courts accept English documents, but this is not always the caseWhether they are accepted or not mainly depends on the decision of the judge in charge of the matter (if the matter goes to court).

If an English or New York law-governed security assignment were to be taken in respect of an aircraft registered in Madagascar, there would be no need to take an additional specific domestic security instrument.

It is permissible to register an English or New York law-governed security assignment or a domestic law security instrument domestically. The registration is made at the CAA.

The transfer of such security interests is recognised.

Under such circumstances, the security interests are not jeopardised as long as this change is documented and updated at the CAA.

These types of structures have not been seen in Madagascar.

A secured party under a security assignment would not be deemed to be resident or domiciled in Madagascar and would not be subject to any taxes as a result of its being a party to, or its enforcement of, any such security assignment.

A domestic law mortgage over an aircraft or engine should be registered with the tax authority and the CAA in order to be perfected. In practice, this kind of situation has not been seen.

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

Security over a bank account usually takes the form of a pledge over a bank account. A pledge over a bank account should be registered with the tax authority and the companies' registry to be perfected.

The Malagasy Security Law does not provide for any specific provisions on liens. However, the closest concepts under Malagasy law are the retaining right and the possessory pledge.

The retaining right is the right of a creditor to retain in their possession a debtor’s asset in an event of default and until full payment of the debts. This is applicable to movable assets and properties. It should be noted that the retaining right is not subject to any agreement or registration formalities in order to be enforceable. The creditor’s security is materialised by their right to retain in their possession the asset that is the object of the dispute. For example, an aircraft maintenance service company is entitled to retain the aircraft in its possession if the aircraft operator fails to pay the maintenance fees.

The possessory pledge is an agreement between a pledgee and a pledgor that allows the pledgee to enter in possession of an agreed movable asset (excluding the aircraft) until full payment of the debt. This is not applicable to an aircraft, which is not considered as a movable asset under the Malagasy Security Law and the Civil Aviation Code.

Neither the retaining right nor the possessory pledge is subject to registration formalities. These securities are only materialised by the possession of the assets by the creditor.

There is no specific timeframe to discharge a lien or mortgage over an aircraft. From the authors' experience, this may take up to six months. The main issue in Madagascar is the risk of an administrative delay.

The Aircraft Register operated by the CAA is the register for mortgages and charges. The interests of an aircraft mortgagee or security trustee can be noted on the aircraft register and the effect of any such notation is the enforceability towards third parties.

There are no specific provisions on liens under the Malagasy Security Law. The closest concept is that Madagascar has made a declaration under Article 39 of the Convention right of detention in favour of employees, fees, taxes and royalties due to the Republic of Madagascar or any other public entities and the right of detention in favour of suppliers (eg, in respect of maintenance services) means that they have priority over registered international interests. None of the provisions of the Convention will prevent the Republic of Madagascar or any public entity or any supplier of a public entity from performing its right of detention over a specific asset. Also, Madagascar has made a declaration under Article 40 of the Convention. All non-consensual rights or interests resulting from the seizure of the aircraft ordered by a judgment can be registered as an international interest.

A potential purchaser of an aircraft should check the Aircraft Register to verify that an aircraft is free of encumbrances.

There are no relevant differences between enforcing a security assignment and enforcing a loan or guarantee.

It would be permitted for a third party (a security trustee, etc) to enforce its rights under a security assignment pursuant to a notice and acknowledgment executed by the lessor and the lessee respectively in connection with that security assignment.

Courts in Madagascar will uphold a foreign law as the governing law of a finance or security document and the submission to a foreign jurisdiction.

Madagascar courts will accept and enforce a final judgment of a foreign court or an arbitral award, without re-examination of the matter, to the extent that an exequatur order is obtained via a local court and that any such final judgment or exequatur award does not contain provisions that are contrary to public order and morals.

It would be possible for a secured party to take physical possession of an aircraft to enforce a security agreement/aircraft mortgage without the lessee or operator’s consent.

Commercial courts are generally competent to decide enforcement actions under a security agreement/aircraft mortgage.

It is possible for a secured party to obtain a summary judgment pending a final resolution of judicial proceedings to enforce a security agreement/aircraft mortgage. However, this is only possible if there is urgency and that there is no possibility for the counterparty to challenge the request of the lessor.

It is possible for a secured party under a security agreement/aircraft mortgage to obtain a judgment in a foreign currency.

In order to enforce its claims, the secured party is liable to pay court fees. These fees are nominal in the Malagasy judicial court. Therefore, it is not necessary to pay non-nominal fees.

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

There are no other relevant issues or court judgments that are relevant to these matters.

There are no other relevant issues or court judgments that are relevant to these matters.

John W Ffooks & Co

1st Floor, Immeuble Assist
Ivandry Antananarivo
101
Madagascar

+261 20 224 3247

contact@jwflegal.com www.jwflegal.com
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Law and Practice

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John W Ffooks & Co is a full-service corporate, commercial law firm with offices in Madagascar, Mauritius and Senegal, providing support to business and industry across French-speaking Africa. The firm's multilingual legal team, comprised of 6 resident partners and 20 associates, is the only legal practice in the region with a combination of Napoleonic and English law expertise – making the firm the obvious choice when it comes to international transactions in Francophone Africa. Its particular strengths are in assisting inward investors into the region and in reconciling their common law understanding of business with the realities of working under legal systems derived from the Napoleonic Code. The firm's expertise in advising local and international clients has earned the trust of listed and unlisted domestic, as well as international, corporations, banks and financial institutions, light and heavy industrial firms, state-owned enterprises and government departments.

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