Generally, no transfer taxes or stamp duties apply in any Australian jurisdiction in respect of aircraft or engine transfers under sale agreements if there is no other dutiable transaction. However, stamp duty may apply in cases such as a declaration of trust over non-dutiable property or a transfer of business assets (which could in some circumstances include an assignment or novation of an aircraft lease).

There is no requirement for a sale agreement to be translated, certified, notarised or legalised to be enforceable. 

Under Australian law, title passes when parties intend title to pass. In practice, title is usually transferred under:

• a contract of sale; or 
• an instrument of conveyance, such as a bill of sale. 

Generally, the transfer of title to an aircraft or engine physically delivered in Australia is recognised if the bill of sale is governed by either English or New York law. Under Australian law, transfer of title of the aircraft will generally be governed by the law of the place where the equipment is physically situated at the time the assignment takes place. Australia generally gives effect to the choice of foreign law, provided that the choice of foreign law is not against public policy and, pursuant to conflict of law principles, Australian law would generally recognise English or New York law bills of sale as a valid mode of transferring title to aircraft assets.

Apart from general conflict of law principles, there are no specific substantive requirements that must be satisfied for such bills of sale to be recognised.

A bill of sale is not required to be translated, certified, notarised or legalised to be enforceable against a domestic party.

There is no requirement for a bill of sale to be registered or filed with any Australian government authority except for the registration of an application for transfer of aircraft ownership with the Civil Aviation Safety Authority (CASA).

If the aircraft is an aircraft object for the Cape Town Convention, registration of the contract of sale may also be carried on the International Registry.

Stamp duty is generally not payable in Australia at the time of execution of any agreement for sale or any conveyance or transfer of aircraft including a bill of sale. Except where there are other dutiable transactions, there is no duty imposed in any Australian jurisdiction.

Operating/wet/finance leases are permissible, as are separate lease agreements for the airframe, engines, and other components which can be owned by different owners. Please note that under the Australian Civil Aircraft Register, engines cannot be separately registered (see 2.2.4 Risk of Title Annexation).

The Australian courts will generally give effect to the parties’ choice of foreign law to govern the lease agreement if the choice of law does not contravene public policy. 

Generally, there are no material restrictions imposed on domestic lessees making rent payments to foreign lessors in US dollars, subject to compliance with sanctions and other legal obligations, which may restrict payments to certain countries or recipients. 

There are no exchange controls that could prevent rent payments under a lease or any repatriation of realisation proceeds (if that lease is enforced by a foreign lessor), subject to compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

There are no taxes or duties payable for executing a lease physically in Australia and/or by or to a domestic party, or as a consequence of an original or copy of a lease being brought into Australia, either physically or electronically.

However, consideration should be given as to whether or not a foreign company may be deemed for certain purposes to be carrying on business in Australia by virtue of executing documents and carrying out certain activities in Australia. Advice should be sought before undertaking such activities.

Generally, no licences are required. However, potential lessors should obtain specific advice as to the applicable licensing and regulatory requirements before engaging as a lessor.

No mandatory terms are required to be in a lease (or ancillary documents thereto) governed by either English or New York law that would not typically already be included, although it would not be unusual to include terms to specifically deal with Australian matters such as goods and services tax (GST) and PPSA.

Generally, tax and other withholding gross-up provisions are permissible and enforceable where the provisions are designed to allocate risk and responsibility as to payment obligations.

A lease can cover parts that are installed or replaced on an aircraft or engine after its execution, provided that the parts incorporated or replaced become the property of the lessor.

There is a doctrine providing for the accession of component parts into a wider structure. However, it is highly unlikely to apply in the case of engines under general law if the owner of the engine did not intend title to pass. It is important that the lease sets out clearly the common intention of the parties that title does not pass for temporary attachments, but that title does pass for permanent replacements.

Where the PPSA applies, “accession” refers to goods which are installed in or affixed to other goods, unless both the accession and the other goods are goods which may or must be described by serial number. As airframes and aircraft engines are both such objects, engines are excluded from the PPSA accession rules.

For aircraft objects in relation to which the Cape Town Convention applies, the registration and priority rules of the Cape Town Convention will prevail to the extent of any inconsistency with Australian domestic law.

Also, it is not uncommon to have parties enter into a recognition of rights agreement between the owners of an airframe and the owner(s) of any engines attached temporarily to that airframe.

The concept of a trust and the role of an owner trustee under a lease is recognised in Australia.

The Australian Civil Aircraft Register is a registry which records the details of the owner (ie, the legal owner) and the registered operator of the aircraft.

Registration by CASA of a person as the aircraft registration holder does not give the owner a greater claim to ownership, as the register does not confer title. However, it may be considered non-conclusive prima facie evidence as to title.

It is not possible to register leases or mortgages on the register (but see 2.3.4 Registration of Leases With the Domestic Aircraft Registry for registration of security interests on the Personal Property Securities Register (PPSR) and international interests under the Cape Town Convention).

The civil aircraft register must contain the name and address of the owner and the name and address of the registered operator.

In order for an aircraft to be eligible to be registered in Australia, either the owner, or the operator, must generally be an “eligible person”. The eligible person would be recorded as the “registration holder” and/or the “registered operator” (as applicable).

If the owner does not provide the details of a registered operator, then provided the owner is an eligible person, it will be listed as the registered operator of the aircraft.

“Eligible persons” include (i) residents of Australia, (ii) corporations incorporated under the Corporations Act 2001, (iii) bodies incorporated under a law (other than the Corporations Act 2001) in force in Australia, (iv) the Commonwealth, a State or Territory and (v) foreign corporations that are lawfully carrying business in Australia.

There is no specific register for leases concerning aircraft or engines. However, for registration of security interests pursuant to leases, see 2.3.4 Registration of Leases With the Domestic Aircraft Registry.

Leases cannot be registered at the aircraft registry, however it may be necessary to register leases under the PPSA and the Cape Town Convention. 

PPSA

The Personal Property Securities Act 2009 (PPSA) introduced a single law across all states and territories of Australia that applies to security interests in goods or financial property if the property is either located in Australia or if the grantor of the security is an Australian entity. It is a framework that regulates the creation, priority and enforcement of security interests in personal property. While a full discussion of the PPSA is outside the scope of this guide, certain salient features are highlighted below.

A security interest is defined as any interest in personal property that is provided for by a transaction that in substance secured payment or performance of an obligation.

An aircraft lease that meets the “in substance” security interest test will be considered a security interest. Certain leases are also deemed to be security interests under the PPSA (“PPS Lease”). A PPS Lease is a lease or bailment of goods for a term of two years or more, or for a term of up to two years that renews automatically or at the option of one of the parties for a total term exceeding two years, or for a term of up to two years or an indefinite term in a case where the lessee or bailee, with the consent of the lessor or bailor, retains substantially uninterrupted possession for more than two years, subject to certain exclusions (including, notably, any lease by a lessor who is not regularly engaged in the business of leasing goods).

Under the PPSA rules, a security interest must be perfected to be enforceable against third parties. The PPSA provides for various forms of perfection, which can be achieved by either possession, control or registration on the Personal Property Securities Register (PPSR). In the context of leases, perfection will usually be achieved by registration.

Failure to perfect a security interest will result in:

• the secured party’s interest vesting in the grantor on the insolvency or administration of the grantor;
• the security interest will lose priority against any other registered security interest in the same collateral; and
• a third party purchaser will also take the asset free of any unperfected security interest.

Registration on the PPSR can be effected electronically by a secured party via the electronic platform. This essentially involves the creation of an account on the PPSR platform which allows such party to make registrations and manage registrations belonging to the secured party.

Perfection by registration may need to be completed within certain time frames, which include: (i) in the case of Australian companies, registration must be within 20 business days of the security agreement coming into force; (ii) in the case of any security interest that is also a “purchase money security interest”, registration must be made within 15 business days in order to enjoy super priority.

PPSA Priority Rules

The PPSA also contains the priority rules that govern the priority of interests in collateral. The general rule is that a perfected interest will have priority against an unperfected interest, and with respect to interests perfected by registration, the priority will be determined according to the time of registration.

Certain exceptions apply which give certain types of security interests “super priority” such that they will always prevail over other types of registration. Relevantly, a purchase money security interest will generally always take priority over other security interests, and to the extent a person is in possession of “chattel paper”, such person will always have priority relating to them.

Entry into a lease agreement does not in itself require any government consent or approval.

Cape Town Convention

Australia is a party to the Cape Town Convention and has passed enabling legislation such that the Cape Town Convention will prevail over any other Australian law to the extent of any inconsistency. Therefore, in cases of inconsistency, the priority rules outlined in the Cape Town Convention will prevail, specifically when international interests (or assignments of those interests and ancillary rights) are established concerning aircraft objects.

Relevantly, international interests in respect of any airframe, engine or helicopter meeting the definition of aircraft object for the purposes of the Cape Town Convention should be registered on the Cape Town Convention in order to have the benefit of the priority rules and remedies (including insolvency remedies under Alternative A) under the Cape Town Convention.

A lease does not need to be in a specific form or translated, stamped, certified, notarised or legalised to be valid.

No taxes or duties are payable for registration.

Aircraft habitually based in Australia are not typically registered in any other countries. An aircraft may not be registered or continue to be registered in Australia if, without limitation, the registration of the aircraft outside Australia does not cease by operation of law when the aircraft is being registered in Australia.

In respect of registration at the aircraft register, the aviation authority in Australia does not require any document to be either in its original form, translated, notarised and/or authenticated before accepting and processing the registration of an aircraft.

See 2.4.2 Effects of Leasing on the Residence of a Foreign Lessor.

A foreign lessor should not be deemed to be resident, domiciled, carrying on a business or subject to taxes by reason only of executing a lease document outside of Australia or enforcing a lease outside of Australia.

Foreign lessors and financiers may, however, be subject to income tax if their activities could lead them to be considered as having a permanent establishment in Australia and specific advice should be sought in this regard.

Subject to entitlement of contribution from lessees or other parties, the general position under Australian law is for strict liability on aircraft owners for material loss or damage caused to any person or property on land or water by the aircraft under the Damage by Aircraft Act 1999. There is, however, an exemption for passive owners, provided that either (i) there was a lease or other arrangement in force (whether or not with the owner) under which another person had the exclusive right to use the aircraft; or (ii) another person had the exclusive right to use the aircraft and there was an agreement in force under which the owner provided financial accommodation in connection with the aircraft.

A passive foreign aircraft or engine owner or lessor under a lease or financier financing the asset on lease will generally not be liable under the doctrine of strict liability (or any other similar domestic doctrine) as a result of damage or a loss caused by the asset. See 2.4.3 Engine Maintenance and Operations.

Generally, creditors of a domestic lessee may not attach an aircraft that is leased to it but owned by a different entity. However, the position of the creditors of the domestic lessee may be impacted by consequences of failing to perfect and priority matters in 2.3.4 Registration of Leases With the Domestic Aircraft Registry.

Some liens and detention rights could take priority over a lessor’s rights. Examples include: 

• common-law liens, such as a repairer’s lien; 
• rights of detention by Airservices Australia, as a result of a failure to pay navigation or landing charges; and 
• a tax authority’s rights of detention and power of sale, as a result of a failure to pay profit taxes.

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

Pursuant to the Civil Aviation (Carrier’s Liability) Act 1959, carriers must hold a carriers’ liability insurance policy in respect of the death of or bodily injury to any passenger in the aircraft and baggage loss or destruction. The Civil Aviation (Carriers’ Liability) Regulations 2019 prescribe liability limits as well as insurance requirements and permitted liability exclusions in the policy of insurance.

Reinsurances of up to 100% coverage may be placed outside of Australia.

Cut-through clauses in respect of an insurer located in Australia are generally regarded as being effective.

Assignments of insurances/reinsurances can be effective under Australian law.

In respect of a lessor’s ability to terminate an aircraft lease and/or sell the aircraft, termination and re-export are governed by contract law. The aircraft does not need to be located in Australia for its lease to be terminated, and there are no other specific requirements (other than the lessor having to comply with the termination provisions of the lease itself). Under Australian law, no licences or consents are required to export or re-export an aircraft for civil use from Australia.

Under CASA regulations, the registered owner is the person with the authority to deregister the aircraft and there is no need to obtain the consent of any other person to deregister the aircraft or export the aircraft. Nevertheless, it is not unusual for the owner to obtain a deregistration power of attorney from the operator or lessee of the aircraft.

In practice, after an aircraft is deregistered from the aircraft register, it will likely be necessary for the lessor to obtain an export certificate of airworthiness from CASA, so as to be able to fly the aircraft to, and facilitate the registration of the aircraft in, the export destination. 

Except where an operator is under administration, Australia allows for self-help remedies, permitting lessors to take physical possession without the need for judicial proceedings (subject to the exercise of those remedies not amounting to a breach of the peace). 

However, there are a number of reasons why a lessor may wish to seek a court order to repossess an aircraft. For example, the lessor may be exposed to potential liability if it is considered to have terminated the lease wrongfully, and therefore, the lessor may wish to obtain a court determination prior to repossessing the aircraft.

Where a company is put under administration, a statutory moratorium comes into effect which prevents (among other things) owners and lessors from recovering possession of leased property without leave of the court or the consent of the administrator.

The moratorium is subject to Alternative A of the Cape Town Convention, which, as adopted in Australia, will require that the liquidator give possession of the asset back to the creditor or lessor at the end of the 60 day waiting period, or cure all defaults (including payment defaults) other than the default constituted by the opening of the insolvency proceedings.

There is no specific court for aviation disputes. 

A summary judgment may be granted by the court if the plaintiff can show to the court that the defendant has “no real prospect” of defending the claim and that a trial is not necessary. If the lessor raises sufficient evidence to prove the lessee’s breach – eg, if the breach is as a result of periodic non-payment of rent, and the lessee cannot raise any arguable defence, summary judgment may be granted by the court.   

An interlocutory injunction could be sought from court pending final resolution of the court. The plaintiff has to show that there is a serious question to be tried and the balance of convenience lies in favour of granting the injunction. 

A court may require a person seeking injunctive relief to provide security for costs in certain circumstances.

The court will generally give effect to the parties’ choice of foreign law to govern an agreement, and their submission to the courts of a foreign jurisdiction if the choice of law and submission to that jurisdiction are not against public policy. A sovereign state may waive immunity by agreement under the Foreign States Immunities Act 1985 (Cth). See also 2.6.11 Lessees’ Entitlement to Claim Immunity.

The statutory recognition and enforceability of judgments of foreign courts in Australia depend on the jurisdiction from which the judgment is issued and the type of judgment issued, and are governed by both common law principles and the statutory regime.

In general, where Australia is satisfied that Australian money judgments will enjoy substantial reciprocity of treatment by courts in that foreign jurisdiction, enforcement will be governed by the Foreign Judgments Act 1991 (Cth) (FJA). The list of foreign courts from which judgments can be enforced under the FJA is set out in the Foreign Judgments Regulations 1992 (Cth) (and currently comprises 28 jurisdictions, but notably does not include the United States).

In general, where the FJA applies or the judgment has been obtained from another common-law jurisdiction, the conditions for the enforcement of that foreign judgment include the requirement that the judgment is final, for a fixed sum, and is not penal in nature.

Where the foreign law or jurisdiction is New Zealand, under the Trans-Tasman Proceedings Act 2010 (Cth), both money and non-money judgments can be enforced (subject to certain excluded types of judgments which are not enforceable, including criminal judgments, and judgments which are for payment of taxes and fines).

As Australia is a party to the New York Convention, it will generally recognise and enforce foreign arbitral awards made in other contracting states to the Convention.

Australian courts in exercising their discretion, are likely to grant judgment for a debt or damages in US dollars (or other foreign currency), if they find that US currency (or another currency) most fairly expresses the plaintiff’s loss.

Generally, there are no limitations for corporate borrowers, subject to the application of the doctrine of penalties (see 3.1.1 Restrictions on Lending and Borrowing).

Generally, a lessor under an aircraft lease is not required to pay taxes or fees in a significant amount in connection with the enforcement of that lease; the costs will be limited to legal costs, storage and remarketing costs and costs of applying for an export certificate of airworthiness.

However, tax consequences should be considered in respect of the carrying out of activities or transactions in Australia, which could include income tax, withholding tax and goods and services tax. Specific advice should be sought in this regard at the time of enforcement.

While the doctrine of penalties and relief against forfeiture generally applies to the termination of leasing of aircraft leased to Australian lessees, there are no mandatory notice periods for a lease under Australian law, although in circumstances where the PPSA applies, a certain notice period may need to be followed, although in many cases these notice periods can be excluded by agreement.

Generally, the lessee should not be entitled to sovereign or other immunity from any legal action or proceedings in Australia where the lessee is participating in a commercial activity.

Australia is a party to the New York Convention and therefore will generally recognise arbitral decisions of contracting states to the Convention.

As Australia is a party to the Cape Town Convention, lessors should be aware of the enforcement rights under the Convention. For instance, see 2.10.4 Enforcement of Conventions for the court’s interpretation of “giving possession” in the context of the lessee’s insolvency.

The concepts of contractual assignment and novation are recognised in Australia.

Australian courts will give effect to the terms of a lease in accordance with its governing laws. Generally, parties will choose the same governing law for the assignment/novation to avoid conflict of laws issues. 

There are no mandatory terms required to be included in the documents.

There are no requirements in Australia to translate, certify, notarise or legalise an aircraft and/or engine lease assignment and assumption/novation.

There is no need for any lease assignment or novation itself to be filed with the aircraft registry, although we note that where the novation involves a change in ownership, the change in ownership itself will need to be filed with CASA.

In respect of registrations for security interests (including leases), including how to perfect PPS security interests and consequences for failing to perfect and priority matters, see 2.3.4 Registration of Leases With the Domestic Aircraft Registry. Generally, entry into these documents does not require government consent.

If the assignment or novation is part of a dutiable transaction, stamp duty may be payable in certain cases; however, specific advice should be sought.

A transfer of the beneficial interest in a trust would be treated similarly to English law where, generally, the beneficiary holds equitable title to an indivisible interest in the trust property, and the trustee holds legal title to the trust property. The transferee would have the same interest in the aircraft, as the beneficiary of the trust, as the transferor. The exact treatment and status of the beneficiary would also depend on the terms of the trust deed.

According to CASR reg.47.132, the registration holder (being the owner) is the entity that is entitled to deregister the aircraft.

The registered owner can do so by making an application to CASA.

If the registered owner is the lessor, the lessor may deregister the aircraft in its own right.

As the registered owner is the only entity who may deregister the aircraft, the mortgagee will need to rely on an IDERA to be able to deregister the aircraft. An IDERA may be submitted by filing a form (Form 1538) with CASA.

No consent of the lessee is required; however it is nevertheless not unusual to require the lessee or any other intermediate lessor who is not the owner to provide a deregistration power of attorney.

Only the registration holder (ie, the owner) can file a form of cancellation of aircraft registration (Form 026) with CASA. 

If there is an IDERA recorded for the aircraft, deregistration can only be requested by the authorised party under the IDERA by submitting a deregistration request in connection with the IDERA.

CASA will usually process an application for deregistration in connection with a Form 026 as soon as possible.

CASA must, in connection with an IDERA, deregister the aircraft as soon as practicable but, in any event, within five working days of receiving the request.

CASA states in the relevant forms that registration will be cancelled as soon as possible upon receipt of form.

No tax or fee is payable on deregistration of the aircraft.

A power of attorney must be created in accordance with the relevant Powers of Attorney Act in each jurisdiction, which (among other things) provides the relevant registration and execution requirements of each jurisdiction. 

Deregistration Powers of Attorney are untested and there are no legislative provisions requiring CASA to recognise such instruments, nevertheless it is not unusual for financiers and lessors to require these instruments to be provided.

Subject to any additional documents requested by CASA on a case-by-case basis, there are no additional documents required to be submitted for enforcing the deregistration power of attorney.

Generally, a deregistration power of attorney does not have to be governed by Australian laws. However, in circumstances where a power of attorney is governed by a foreign law, CASA may require further proof as to the validity of such a power of attorney.

Generally, powers of attorney under Australian law can be irrevocable and survive insolvency if they are expressed to be irrevocable and the power is granted to secure the performance of an obligation owed to the secured party. The power of attorney would be irrevocable as long as the obligations secured remain undischarged.

The deregistration of an aircraft can technically only be achieved by the registration holder (being the owner) filing a Form 026 or a mortgagee submitting a deregistration request in connection with an IDERA.

It is not uncommon in Australia for financiers and lessors to obtain a deregistration power of attorney from the lessee of aircraft.

In relation to aircraft, CASA can issue export airworthiness approval in the form of an export certificate of airworthiness. This is a type of voluntary application made to CASA (Form 722). Processing time will depend on the complexity of the application.

No tax or fee is payable on export or repossession of the aircraft itself. Export of aircraft is exempt from goods and services tax if the aircraft is exported from Australia within 60 days of taking possession. However, if the aircraft is not in the condition required for CASA to issue an export certificate of airworthiness, there may be costs incurred in rectifying any discrepancies.

See 2.6.1 Restrictions on Lessors’ Abilities. 

Australia’s commonly used insolvency proceedings are (i) winding-up or liquidation, (ii) voluntary administration and (iii) receivership. These proceedings are governed under the Corporations Act 2001.

A winding-up can occur either voluntarily or by court order. A liquidator is appointed and applies the insolvency rules provided in the Corporations Act (eg, proving of debts, distribution of proceeds, statutory set-off) to govern how the proceeds from the winding-up should be distributed among the shareholders and creditors.

Voluntary administration is a procedure that statutorily protects directors in order to allow them to negotiate an agreement with their creditors. There is an immediate moratorium on civil actions against the company while the company is in administration. Administration ends if the creditors reach an agreement with the company to either allow the company to continue trading or to liquidate the company.  Creditors are only allowed to enforce their security if they have a charge over all or substantially all the assets in the company.

A receivership occurs when a secured creditor steps in to realise enough of the secured assets to repay a secured debt. The terms of the receiver’s appointment may be governed by contract or by general law, and may or may not include the power to manage the affairs of the company.

Australia has adopted legislation based on the UNCITRAL Model Law on Cross-Border Insolvency. The Cross-Border Insolvency Act 2008 enforces the Model Law in Australia subject to domestic modifications, and regulates cross-border co-operation or recognition of foreign insolvency proceedings. 

Provided that the power of attorney is expressed to be irrevocable and is a power coupled with an interest, deregistration powers of attorney should survive insolvency. However, owners or lessors will likely cause the registration to be cancelled by having the owner submit a request for cancellation, or (since Australia is a party to the Cape Town Convention) IDERAs would more likely be used, and Form 1542 may be lodged with CASA to deregister an aircraft.

There is a stay on proceedings against a company without leave of the courts where a liquidator is appointed by the court. However, secured creditors are entitled to enforce their security interest during a liquidation, provided such security interest was duly perfected and not void against the liquidator. In addition, leased assets owned by other persons are considered outside of the lessee’s insolvency estate and lessors would in any case have the benefit of Alternative A and other insolvency remedies under the Cape Town Convention.

Following the winding-up of a company, certain transactions may be invalidated if the transaction entered into within a certain period (“relation back day”) before the commencement of a winding-up is regarded as giving an “unfair preference”. Generally, an unfair preference is when a company has done something which would put a creditor in a better position than the creditor would have been if that transaction had not been entered into. The relation back day is six months for creditors generally and four years if the creditor is a related entity of the company that is being wound up.

A liquidator may apply to court for an order to unwind a transaction if a company in liquidation enters into an ‟uncommercial transaction”. The relation back day for uncommercial transactions is within two years of the relation back day, or four years if the transaction is with a related entity of the company. A transaction is uncommercial if a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to the benefits (if any) and detriment to the company of entering into the transaction and the respective benefits to other parties to the transaction of entering into it. A transaction can be uncommercial regardless of whether a creditor is a party to it. 

Unsecured creditors generally share pari passu on distribution of assets on the winding-up of a company, subject to certain creditors mandatorily preferred by law. The claims of lessors and secured parties (to the extent the asset is insufficient to discharge any outstanding liabilities) would rank pari passu with the claims of other unsecured creditors, other than any creditors mandatorily preferred by law.

See 2.9.8 Liquidation of Domestic Lessees in relation to administration.

See 2.9.5 Other Effects of a Lessee’s Insolvency. In addition, it should be noted that circulating assets are generally invalid if they are granted over a company’s property or undertaking within six months of the commencement of winding-up, unless the company was solvent immediately after the floating charge was created. 

There is an automatic stay in relation to the enforcement of ipso facto clauses for some contracts entered into on or after 1 July 2018, unless excluded expressly in writing. The automatic stay is only triggered upon voluntary administration, receivership and scheme of arrangement. However, the stay on enforcement of ipso facto clauses does not apply to agreements within the meaning of the Cape Town Convention, although it may have effects that may need to be further considered in connection with other contracts entered into in the context of the overall transaction which do not constitute agreements within the meaning of the Cape Town Convention. The stay is not designed to restrict enforcement of rights for other reasons, such as non-payment or non-performance under contract.

For voluntary administration, the stay should last until the administration period ends or upon winding-up of the company. Any secured party that has security over all or substantially all of the assets of a debtor may, at any time within a 13 business day decision period from the commencement of an administration, enforce its security and appoint a receiver (or other controller) to deal with all the secured property for the benefit of the secured party without requiring the approval of the court or the consent of the administrator. An administrator of a company who is in possession or use of leased property has five business days to issue a notice that it does not intend to exercise any rights in respect of that property or otherwise the administrator will be personally liable for rent and other amounts under the relevant lease agreements attributable to the period starting from the end of that five business day period until the end of the administration or the return of the leased property. In complex administrations (as was the case in the administration of Virgin Airlines), the administrator may seek an extension of the five business day election period.

In a receivership, the stay should end upon the receiver ceasing its control over the company. For a scheme of arrangement, it should end at the end of the scheme or upon the winding-up of the company.

In addition, secured parties and lessors will have the benefit of the insolvency remedies under the Cape Town Convention (including Alternative A), which limits the moratorium to a maximum of 60 days (unless the insolvency practitioner is able to remedy all defaults other than the opening of insolvency proceedings).

A voluntary administration is initiated when the directors resolve to put the company into voluntary administration. A voluntary administrator will hold a meeting of creditors and investigate the company’s affairs. The administration ends when creditors either reach an agreement with the company on the company’s debts (ie, entering into a deed of company arrangement (DOCA)), voting to liquidate the company or return the company to the director’s control. A DOCA is a formal agreement where the creditors and company agree to administer the company in a certain manner with the purpose of securing a higher possibility of repayment.

In a receivership, a receiver will be appointed by a secured creditor to enforce the security held by the secured creditor and repay the secured debt. The receiver will usually have the power to manage the affairs of the company during receivership.

Australia’s ipso facto laws provide a stay on exercising certain ipso facto contractual rights triggered upon a company entering into administration if the company is subsequently wound up, until the completion of the liquidation. However, the case of Rathner, in the matter of Citius Property Pty Ltd (Administrator Appointed) [2023] FCA 26, clarifies that the stay does not apply to termination rights arising solely from a company’s entry into liquidation or non-performance.

Generally, aircraft on lease would be considered to be owned by the owner or lessor and, therefore, would be outside the insolvency estate. With respect to the lease rentals, to the extent that such amounts are unpaid at the time of the winding-up or are payable damages as a consequence of default under the default provisions of the lease, these amounts would be unsecured amounts owed to the lessor, in respect of which the lessor could file a proof of claim as a creditor of the company. 

The position of lease security deposits would depend on how these deposits are structured. Generally, the lessor should in appropriately drafted leases be able to apply these deposits to satisfy the obligations of the lessee, following an insolvency event giving rise to a default.

However, the moratorium on enforcement would still apply. After the end of the moratorium, secured parties and lessors would be free to take enforcement/recovery actions.

Australia is a party to the Convention on International Interests in Mobile Equipment (the “Convention”) and the related Protocol on Matters Specific to Aircraft Equipment (the “Protocol”). The legislation came into force in Australia on 1 September 2015. 

Australia has not implemented AEP codes and therefore AEP codes are not necessary.

The Convention and the Protocol came into force in Australia on 1 September 2015.

Australia has made a declaration applying Article XIII. An IDERA can be submitted to CASA and recorded on the Australian Civil Aircraft Register.

Australian courts at all levels have now had experience in enforcing the Convention and Protocol. See 4.1 Issues Relevant to Domestic Purchase, Sale, Lease or Debt Finance of Aircraft.

Australia signed the Geneva Convention but has not ratified it. Australia is not a party to the Rome Convention.

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

However, specific advice should be sought with respect to certain matters to be considered at the structuring stage. These may typically include:

• Withholding Tax: Interest payments to non-residents will generally be subject to interest withholding tax, although there may be exemptions that may apply (for example, under double tax treaties) and for certain types of public or syndicated debt offerings.
• Income Tax: Depending on the activities conducted by the lender, the lender may be subject to tax (including, for example, if it conducts its activities in such a way as to constitute a permanent establishment in Australia).
• Foreign investment: The taking of security may, in certain circumstances, trigger mandatory or voluntary notification or approval requirements under the Foreign Acquisitions and Takeovers Act 1975 (Cth), although in the context of commercial aircraft financing, exemptions are likely to apply if the security is held solely to secure the obligations under a financing agreement.
• FSCODA Reporting: If a foreign lender is conducting in such a way that it is considered to be engaging in the provision of finance while in the course of carrying business in Australia, it could be subject to the reporting and audit requirements of the Financial Sector Collection of Data Act 2001 (Cth).

There are no exchange controls or (subject to the matters mentioned in 3.1.1 Restrictions on Lending and Borrowing) government consents that would be material to any financing or repatriation of realisation proceeds under a loan, guarantee or security document.

Borrowers are generally permitted to grant security to foreign lenders; however, see 3.1.1 Restrictions on Lending and Borrowing.

Downstream, upstream and cross-stream guarantees may be provided by an Australian company; however, certain Australian laws (including requirements as to corporate benefit and financial assistance) should be considered that may affect the enforceability of such guarantees.

While not absolutely necessary, security over shares in special-purpose vehicles are commonly taken to give secured parties maximum flexibility on enforcement. Security over shares is common but needs to be perfected by control (eg, in the case of certificated shares, by deposit of certificated shares with the secured party) and registration on the PPSR. 

A negative pledge is recognised in Australia.

Generally, there are no restrictions on parties to enter into intercreditor arrangements to regulate priority contractually. 

The concept of agency and the role of an agent (such as the facility agent) under a syndicated loan is recognised under Australian law.

Contractual subordination (for example, under subordination or intercreditor agreements) and structural subordination are both permissible and recognised.

Such transfer/assignment will depend on the governing law of the underlying loan. Australian courts will generally give effect to the parties’ choice of governing law, subject to conflict of law principles.

In the case of an Australian law loan agreement, Australian law would, in the application of conflict of law principles, recognise the modes of assignment typically contained in English or New York law-governed assignment documents as being valid modes of assignment (provided they were valid under the relevant governing law of the assignment document).

Besides the equitable doctrine of penalties, for corporate borrowers, there are no usury or interest limitation laws. Australia’s statutory usury provisions seek to protect consumer borrowers.

Security over an aircraft can take the form of a mortgage or a charge. A mortgage is the typical form of security over the aircraft. Mortgages can be legal or equitable. A charge is usually effected as a fixed charge. 

However, where the PPSA applies, this is generally referred to as a “specific security agreement”.

Generally, there is no restriction on the type of security that can be taken over an aircraft or related collateral, such as engines, warranties or insurances.

However, care should be taken when property is located in jurisdictions outside of Australia, as other laws may apply.

The concept of a trust and the role of a security trustee is recognised in Australia.

A borrower may, pursuant to a security assignment or a mortgage, assign to a security trustee its rights to the aircraft or under an aircraft lease (including in relation to insurances).

Consistent with the position in other common-law jurisdictions, it is only possible to assign rights, not obligations. It is therefore common practice if rights and obligations are intended to be transferred (eg, to a new lessor), for transfers to be effected by way of novation (which legally gives rise to the termination of the existing contract and the creation of a new contract between the lessee and the incoming lessor).

There is no requirement for security to be governed by domestic law, and it is common to have such documents governed by English law. However, documents which are governed by other laws are subject to proof of foreign law and, pursuant to conflict of law principles, Australian law would determine the question of whether a security is effectively created in accordance with the law of the place where the property is located.   

Where the security is taken in relation to an aircraft, the PPSA conflict of law provisions would apply, which provide that if, at the time the security interest is taken, it would be reasonable to believe that the aircraft would be moved to Australia, and the aircraft is located in Australia at the relevant time, or if the grantor is located in Australia, then questions of validity, perfection and non-perfection would be governed by the laws of Australia, although the construction of its contractual terms would remain a question of foreign law.

There are no requirements for the mortgage document to be in a specified form. There is also no requirement that the instrument be translated, certified, notarised or legalised. 

There is no strict requirement for security documents to be governed by Australian law. Nevertheless, it is not uncommon for security documents to be governed by Australian law for ease of enforcement.

Domestic law security instruments are not required in order to make Cape Town filings. Local law filings at the PPSR are voluntary; however, they are often made as it is arguable that PPSR registrations cover more than the rights and interest dealt with under the Cape Town Convention.

Registration costs on the PPSR are low.

An English or New York law-governed security assignment or a domestic law security instrument can be registered domestically at the PPSR. 

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

The change of name of a company would not affect any rights or obligations of that company.

The concept of a “parallel debt” structure does not need to be necessarily considered in Australia. Australia is a common-law jurisdiction that recognises trust structures. Accordingly, it is uncommon to include parallel debt provisions in Australian transactions.

See 2.4.2 Effects of Leasing on the Residence of a Foreign Lessor. In particular, tax, licensing and other requirements may be triggered when enforcing security interests in Australia and is one of the reasons that secured parties may prefer to take enforcement action through a receiver.

If a mortgage or charge over an aircraft is granted by a company incorporated in Australia, the aircraft mortgage or charge should be registered at the PPSR within 20 business days of its creation to preserve priority. 

If registration is not made, the security interest created by the mortgage would be void against any other liquidators or creditors. See consequences of failure to register in 2.3.4 Registration of Leases With the Domestic Aircraft Registry.

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

Usually, a PPSA security interest (which would generally have features similar to a fixed charge or, if intended, a floating charge) would be created over a bank account. As with security interests registrable under the PPSA, this charge should be registered within 20 business days of its creation at the PPSR to preserve priority.

A third party could, in certain circumstances, have a lien over an aircraft or engine by operation of law (including with respect to warehousemen’s, repairer’s liens). Liens which arise by operation of law are generally not registrable and are outside of the ambit of the PPSA (and would have priority as if the PPSA had not been enacted).

Consistent with the position in other common-law jurisdictions, the lien holder has the right to detain the goods but there is no right to sell the detained goods unless agreed.

Australia confers certain powers of detention of aircraft, which is similar to the concept of a fleet lien. Airservices Australia (AA) may detain any aircraft whose operator is in default for payment of landing charges (to the extent landing charges are imposed in accordance with the statutory scheme) under the Air Services Act 1995 (Cth). However, AA generally imposes landing charges under direct contractual arrangements, and to the extent it does so, it cannot impose statutory liens under the Air Service Act.

A prior mortgagee would not be able to stop the sale of an aircraft which has been detained by AA under the statutory scheme, but could participate in the distribution of the sale proceeds and rank in priority to AA in certain circumstances.

With respect to the Cape Town Convention, Australia has declared that any statutory liens that are registered in accordance with the Air Services Act will have priority over any subsequently registered international interest whether within or outside insolvency.

There is no specific timeframe in respect of liens.

In relation to mortgages, the mortgagee would be required to discharge the mortgage and any registrations following the discharge of the obligations secured by the mortgage. Usually, the loan or mortgage documentation will include a requirement that the mortgagee must release the mortgaged property promptly or within a certain period (in which case, the mortgagee would need to comply with that requirement).

It is noted that for serial numbered property (including airframe and engines), discharges must be made within five business days after ceasing to have a security interest in the collateral.

See 3.2.14 Perfection of Domestic Law Mortgages.

See 3.3.1 Third-Party Liens.

A potential purchaser could obtain searches from the PPSR and with respect to international interests, with the International Registry, and with respect to aircraft registration and verification of the person registered as the owner and registration holder, the Australian Civil Aircraft Register maintained by CASA. 

A security assignment gives rise to a proprietary interest in the underlying rights or cash flow due to the assignor, and the assignee only has rights under the assigned contract to the extent the assignor had any such rights. 

In addition, assignments by way of security give rise to an equity of redemption, such that the secured party is required to release and reassign the underlying collateral to the assignor (or pay excess proceeds back to the assignor) once the secured obligations are discharged.

The position is similar to that under English law, where an assignment will only take effect in equity until such time as the assignment is perfected by notice to the lessee. Until such time as notice is given, the lessee may give a good discharge of its obligations by paying or performing to the lessor (rather than the security trustee). 

Under Australian law, an acknowledgment is not, strictly speaking, necessary. However, it is common practice in leasing transactions for the notice to be acknowledged by the lessee for evidentiary purposes and to bind the lessee to comply with certain provisions (such as the bank account for the payment of money) of the notice.

For PPSA purposes, the notice requirement is similar; however, the PPSA imposes additional requirements with respect to any notices such that:

• if the notice is given by the transferee (rather than the transferor), the debtor may require that the transferee provide proof of the transfer and if such proof is not provided within five business days, the debtor may continue to make payment to the transferor; and
• the notice must state specifically that amounts payable or to become payable under the relevant contract have been transferred (ie, it must specifically notify the debtor that future payments are to be made to the transferee/assignee).

The agreement of the parties to use a foreign law to govern the documents or submit to a foreign jurisdiction would be upheld by the courts as long as the agreement is not against public policy.   

But see mandatory rules of Australian law, such as the rules governing the validity, perfection and non-perfection of PPSA security interests.

See 2.6.6 Domestic Courts’ Recognition of Foreign Judgments/Awards.

A secured party can take physical possession of the aircraft to enforce a security agreement or aircraft mortgage, provided the lessor had the right to do so under the lease. In circumstances where the lessee still has quiet enjoyment rights, a mortgagee would only be able to deal with the aircraft and the lease to the extent it does not breach the quiet enjoyment rights of the lessee.

In relation to enforcement against the lessee, see 2.6.2 Lessor Taking Possession of the Aircraft. 

The domestic courts of Australia (including the state and federal courts) are competent to decide on enforcement actions. 

See 2.6.4 Summary Judgment or Other Relief.

See 2.6.7 Judgments in Foreign Currencies.

If no court action is required, there will not be any substantial taxes or fees, other than any which arise as a consequence of its exercise of certain remedies (eg, landing charges, hangarage fees and insurance premiums may be payable in connection with repossession, and taxes such as goods and services tax may be payable on the sale of assets located in Australia). Specific advice should be sought in this regard before the specific type of enforcement action is taken. 

Usually, in a security agreement or aircraft mortgage, there would be express provisions to allow taking possession of the aircraft and subsequently re-marketing the aircraft without the leave of the court unless contested by the other party.