The execution of an aircraft or engine sale agreement (including the sale of an ownership interest in an entity) does not trigger any taxes in Lithuania. Lithuania does not have a concept of trust; thus, legal and beneficial ownerships are also not separated.

However, the proceeds arising from the sale of an aircraft or engine are taxable in Lithuania, subject to certain exceptions. In certain cases, a company selling assets in Lithuania and forecasting sales revenue might be required to register as a value-added tax payer.

If the aircraft is sold on the Lithuanian soil, one should consider tax implications and the requirements of the country of registration.

If the aircraft has been registered in Lithuania, an aircraft bearing Lithuanian registration will be considered as immovable property by reason of the Civil Code of Lithuania (2001) and transfer of immovable property – following overriding local laws – is subject to notarial certification in Lithuania. The public notary may notarise the agreement made in Lithuanian or both in Lithuanian and any other foreign language.

Provided the engine is not considered part of an aircraft, the transfer of an engine is not required to be certified by a notary in Lithuania. However, the parties may request notarisation of such contract.

A translation into Lithuanian of the sale agreement and/or bill of sale and/or other document evidencing the transfer of title to an aircraft may be required for submission to the civil aviation authority for aircraft ownership re-registration purposes. However, as a matter of practice, short documents in English are being accepted by the aviation authority without translation into Lithuanian (see 1.2.3 Enforceability Against Domestic Parties).

If an aircraft is registered in Lithuania, the transfer of the aircraft must be concluded in written form and notarised by a public notary following the requirements of Lithuanian laws.

An aircraft engine is considered part of the aircraft. Thus, the title of an engine can be effected and evidenced either by:

• the aircraft sale and purchase (or similar) agreement;
• a separate sale and purchase agreement for the engine; and
• an acceptance certificate (or transfer deed), which is required but can be drafted as part of the sale and purchase agreement or signed as a separate document. The acceptance certificate does not need to be notarised.

Industry practice in Lithuania applies insofar as the engine or other significant parts (auxiliary power unit or landing gears) are separately specified in the aircraft sale agreement.

The sale of the ownership interest in an entity that owns an aircraft or engine is not recognised as a sale of such aircraft or engine. The same entity will remain the direct owner of aviation assets; however, as a result of the sale of ownership interest in such entity, the ultimate owner may change.

The English law or New York law bill of sale is recognised as a document evidencing the title to an aircraft before it is registered in Lithuania. For aircraft registration purposes in Lithuania, the English or New York law bill of sale needs either to be submitted in its original form for the review of a specialist from the aviation authority or as a notarised and apostilled copy.

However, if the title to an aircraft that is already registered in Lithuania is transferred, the asset is considered to be covered by mandatory local laws. This means that such a sale and purchase (or other) agreement on the transfer of title needs to be notarised locally (see 1.2.1 Transferring Title). In practice, a short-form sale and purchase agreement governed by the laws of Lithuania is often concluded for aircraft re-registration purposes. However, the parties also enter into a parallel English or New York law sale and purchase agreement, which is further accompanied by a customary English law or New York law bill of sale.

A bill of sale evidencing the transfer of title to an aircraft may be required by the Lithuanian civil aviation authority during the registration of an ownership interest.

The aviation authority needs to either take sight of the original documents or have a copy of the bill of sale notarised and apostilled. As a matter of practice, documents in English are accepted without requiring translation.

If the aircraft has already been registered during the transfer of title, a notarised sale and purchase agreement or a similar document must also be submitted to the aviation authority (see 1.2.2 Sales Governed by English or New York Law).

A bill of sale does not need to be filed to any government entity in Lithuania and is not subject to any consent from the government entity, except that the civil aviation authority may request the bill of sale (and its translation into Lithuanian) to be filed if the owner wishes to register the aircraft in Lithuania.

The bill of sale is required so that the aviation authority can verify the title of the aircraft before registering it. If requested, the aviation authority produces a copy for its own registration purposes, and the original document filed by the applicant is returned.

No taxes or duties are payable in Lithuania 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.

If a bill of sale is submitted for aircraft registration purposes, standard aircraft registration fees apply.

There are no non-permissible types of operating, wet or finance leases in Lithuania. Lithuanian law establishes the principle of freedom of contract, allowing parties to conclude any types of agreements.

However, this matter may arise on a case-by-case basis when certain contract clauses come into question (eg, hell or high water clauses and excessive fines). The authors consider, however, that courts are more likely to take a non-interventionist approach and would endeavour to uphold the clauses agreed upon by the parties.

There are no restrictions in Lithuania to choose a foreign law as the governing law for any lease agreement.

There are no restrictions in Lithuania relating to payment of rent under the lease in US dollars or any other foreign currency.

However, we observe that payments for wet lease contracts are normally agreed upon in euros.

There are no exchange control laws in Lithuania.

No taxes or duties are due for executing a lease in Lithuania or as a consequence of an original or copy of a lease being brought into Lithuania either physically or electronically.

There are no requirements for the lessor to be licensed or otherwise qualified in Lithuania to enter into any lease arrangements with a domestic lessee.

The laws of Lithuania do not prescribe for any mandatory terms to be included in the lease (or ancillary documents thereto) governed by English or New York law that would not typically already be included.

Tax and other withholding gross-up provisions are permissible and should be enforceable in Lithuania.

A lease in Lithuania covers parts that are installed or replaced on an aircraft or engine after its execution. For the avoidance of doubt, it is advisable for the parties to sign an amendment to the lease once parts of an aircraft or engine are replaced to ensure the replaced parts are properly identified and captured under the lease.

The risk of title annexation depends on whether the engine is properly identified and separated from the airframe. It is possible to argue that an engine may be considered a part of an aircraft, and title to such an engine may be transferred together with the transfer of title to the aircraft. However, we are not aware of any practical cases where an engine owned by a third party has been annexed because it is attached to a third-party aircraft.

Lithuanian law does not distinguish between legal and beneficial interests. Similarly, the concept of a trust is not recognised in the Lithuanian jurisdiction in the same way as in common law countries.

The Lithuanian civil aircraft register is an owner register. Lithuanian law does not distinguish between legal and beneficial interests; only the legal owners are registered. An aircraft is registered in the name of the owner and the owner is indicated in the aircraft certificate of registration.

However, from a local law perspective, the aircraft certificate of registration is not a proof of ownership over the aircraft. The main effect of registering the owner’s interest is that the aircraft owner, or a person acting on behalf of the aircraft owner, must submit an application for registration or deregistration of an aircraft.

The register records both the owners and operators of an aircraft, but lessor interests (specifically, if it is an intermediate lessor) are not noted on the aircraft register.

An aircraft may be registered in the Lithuanian Civil Aircraft Registry only if there is a link with Lithuania. Thus, it is not possible to register an aircraft in Lithuania based on lease-in lease-out structures, unless the aircraft is operated by a Lithuanian person. A civil aircraft may be registered in Lithuania if:

• the owner of the aircraft is a citizen of Lithuania, a citizen of another EU state, another natural person entitled to exercise the freedom of movement within the EU, or a legal entity registered in Lithuania, a Lithuanian state, or a Lithuanian municipality;
• the aircraft belongs to a legal or natural person of a foreign state, if more than half of its flights are performed from an airport in Lithuania; and
• the aircraft will be operated by a Lithuanian legal or natural person, or a citizen of another EU state, or another natural person exercising the right to freedom of movement within the EU.

There are no specific registers in Lithuania for leases concerning aircraft or engines.

The lease of an aircraft is not registered in Lithuania, but the civil aircraft register does record the operator of an aircraft and requires evidence of the link between the aircraft owner and its operator. For this reason, a lease agreement or equivalent documents translated into Lithuanian (in practice the translation of the entire document is not required) must be submitted to the civil aviation authority for aircraft registration purposes. Failure to provide the lease may result in the civil aviation authority refusing to register the operator of the aircraft.

The leases are not subject to any consent from any government entity; however, the civil aviation authority typically checks the aircraft’s maintenance, insurance, and other non-commercial clauses to ensure that the aircraft is properly maintained and safely operated.

There are no specific requirements for a lease to be valid or accepted by the civil aviation authority as evidence of the link between the owner and the operator. However, the lease should clearly state that the right of possession over the aircraft is transferred to the operator. This should be evidenced either by the respective clauses in the lease or by a separate acceptance act between the lessor and lessee.

Lease agreements are not registrable in Lithuania.

Aircraft that are based in Lithuania are primarily registered in Lithuania. Some aircraft are registered in Malta or Poland and based in Lithuania.

As a matter of practice, the civil aviation authority requires the copies of all documents to be presented, except that a bill of sale, either the original document or its notarised and apostilled copy, must be submitted to the aviation authority. Upon confirming the authenticity of the copy of the originals, the originals are immediately returned to the applicant.

A foreign lessor will not be taxed in Lithuania just because it is leasing a commercial aircraft to a Lithuanian entity or because such an aircraft is registered in Lithuania.

A foreign lessor will not be deemed to be resident or domiciled in Lithuania just because it is leasing a commercial aircraft to a Lithuanian entity or because such an aircraft is registered in Lithuania.

Please refer to the answer provided in 2.4.1 Tax Requirements for a Foreign Lessor for details.

Owners, lessors, financiers or others with no operational interest in an aircraft would not be held strictly liable (ie, liable without fault) or vicariously liable (ie, liable without fault for another party’s obligations) for damages caused when an aircraft was operated by a third party. An owner, however, might be required to prove that it did not have operational control.

The Law on Aviation (2000) provides for a prohibition to leave Lithuanian airports to be imposed if, among other things, airport charges or air navigation fees are not discharged in respect of that aircraft or if failure to comply with safety requirements takes place.

If an aircraft is subject to a mortgage, the mortgagee has a priority claim over other creditors of the lessee. See also 2.4.5 Attachment by Creditors.

It is not mandatory in Lithuania that either all or part of the insurances be placed with domestic insurance companies, provided that insurance is placed with insurance companies of European Economic Area countries. Other insurance companies from third countries require permission from the Bank of Lithuania.

As a member of the EU, Lithuania is bound by the requirements of Regulation (EC) No 785/2004 and applies the minimum insurance requirements provided in this regulation. The regulation specifies the minimal insurance coverage for the liability of third parties. The minimum insurance coverage per accident for each aircraft depends on the maximum take-off mass. The Lithuanian civil aviation authority is authorised to control whether operators comply with the requirements of this regulation. International lessors often contractually require higher limits of liability that an airline should purchase, as the claim settlement above the limits would not be covered by the insurance policy.

Reinsurance can be placed outside Lithuania. Lithuanian insurance laws are compliant with applicable EU regulations. However, it is considered to be a business risk of the fronting company (insurer) to settle the insured claim. Thus, the fronting company would deal with reinsurers and then make the payments in accordance with the initial insurance contract.

It is not certain how cut-through clauses would be enforced in Lithuania as, owing to the absence of fronting requirements, cut-through clauses are not customarily found in the contracts entered into on behalf of Lithuanian companies.

Assignments of insurance (reinsurance) are often used in aviation finance transactions and, in the authors’ view, should generally be enforceable from the perspective of Lithuanian law. Assignments should be perfected by making relevant notifications to or seeking acknowledgements from a debtor.

If the contract provides for cases where the lessor may terminate the agreement and repossess the aircraft, the lessor may enforce such rights subject to the terms and conditions of the agreement and its governing law. Lithuanian law states that parties may agree on the conditions of terminating the agreement. However, if no such agreement is made, relevant provisions of Lithuanian law apply – stating that the nature of the lessee’s breach must be taken into consideration (as material or non-material) and the lessor must file a default notice requesting the lessee to comply with its respective obligations prior to terminating the lease.

The aircraft does not need to be physically located in Lithuania at the time of aircraft lease termination. Ferrying the aircraft to another EU jurisdiction does not require any permits.

Repossession of the aircraft must be exercised peacefully. If an operator does not voluntarily surrender the aircraft, the owner or lessor would not be entitled to enforce the repossession by force. The use of self-help remedies is very limited under Lithuanian law and is allowed only when expressly permitted by law. The owner or lessor will be permitted to repossess the aircraft without the co-operation of an operator when it is specifically authorised to do so by the court. An enforceable court order will be enforced by a bailiff, with the assistance of the police, if necessary.

Lithuanian law considers an aircraft registered in Lithuania as immovable property. The procedural laws of Lithuania state that lawsuits regarding rights in rem to immovable property, regarding the use of immovable property or the cancellation of a lien on immovable property, shall be brought before the court of the location of the immovable property or its main part. There are no specific courts to hear the aviation disputes. The courts of general competence generally decide aviation disputes, unless parties agreed to settle their disputes through arbitration.

A summary judgment can be obtained for monetary claims only – although there are several procedural rules that need to be complied with. Specifically, the debtor should not be established in a foreign jurisdiction, there should be no unfulfilled obligations of the lessor for which remuneration is due and the debtor requests such obligations to be fulfilled, etc. The estimated period to obtain a summary judgment is two business days from the moment the respective motion is brought before the court.

An injunction can be issued by the court pending final resolution of proceedings if the lessor manages to plausibly substantiate its claim and proves that, without the injunction, the execution of the court decision may become difficult or impossible. The estimated period to obtain an injunction is three business days from the moment the respective motion is brought before the court.

Aircraft lease, finance and security transactions where one party is based in a foreign jurisdiction are customarily governed under the English or New York laws. Such choice of law (as well as the choice of any other foreign law) should normally be recognised in Lithuania, respecting the freedom of contract – provided that the choice is expressly demonstrated in the contract and there are no contradictory overriding Lithuanian rules.

However, by reason of the Civil Code (2001), an aircraft bearing a Lithuanian registration will be deemed as immovable property in Lithuania and transactions on the transfer of ownership rights and other rights in rem to immovable property (aircraft) will be subject to notarial certification in Lithuania. For this reason, transfer of interests in or creation of security interest (eg, mortgage) over an aircraft bearing Lithuanian registration must be carried out in accordance with Lithuanian law requirements. Relevant agreements must be governed by the laws of Lithuania.

If an aircraft is registered in Lithuania, Lithuanian courts should have exclusive jurisdiction to hear any type of dispute regarding rights in rem to an aircraft or the cancellation of a lien on an aircraft. There is a lack of relevant case law to determine whether any relevant foreign court judgment falling within the scope of the exclusive jurisdiction of Lithuanian courts would be recognised and enforced in Lithuania.

Lithuanian courts should generally uphold a waiver of immunity by the parties to the lease.

Lithuanian courts are precluded from re-examining the case on its merits and will generally recognise and enforce a final judgment of a foreign court or an arbitral award, provided the dispute does not fall within the exclusive jurisdiction of Lithuanian courts and other respective conditions prescribed in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”), EU law, national law and bilateral treaties (as applicable) for recognising and enforcing a foreign court or an arbitral award are met.

A lessor under an aircraft lease may obtain a judgment in a foreign currency.

There is no statutory limitation on the default interest rate and parties are free to agree on the default interest rate. However, a Lithuanian court is entitled to exercise some policing over default interest rates and can reduce clearly excessive interest rates (even if they were contractually agreed).

The court fees and bailiff fees are generally applicable for the purposes of enforcement of the lease. The amount of court and bailiff fees depends on the nature and the amount of claim, but should generally not exceed EUR30,000 in total. The legal fees are subject to an agreement between the lessor and the local law firm.

The notice periods shall be established by the lease contracts and the governing law. If Lithuanian law is chosen as the governing law and there are no provisions on notice periods agreed in the lease, mandatory notice periods prescribed in the Civil Code (2001) will apply, requiring a 30-days’ notice to be submitted prior to termination due to a material breach of the contract.

None of the private companies in Lithuania are entitled to any right of immunity from suit. State immunity from suit can be waived.

Lithuania is a party to the New York Convention, effective from 12 June 1995. Lithuania can be considered a favourable jurisdiction for the recognition and enforcement of foreign arbitral awards.

There are no other relevant issues that lessors should be aware of in relation to the enforcement of their rights in Lithuania.

Lithuanian law recognises the concepts of contractual assignment and novation.

An assignment/novation of leases under foreign laws should generally be held valid and enforceable by domestic courts. Assignments should be perfected by making relevant notifications to the lessee.

There is no requirement for the lease assignment/novation to be translated, certified, notarised or legalised to be enforceable against a domestic party.

Lease assignments are neither registered nor reported to the Lithuanian authorities.

However, the civil aircraft register records the operator of an aircraft and thus needs to see the link between the owner of the aircraft and its operator (see 2.3.4 Registration of Leases With the Domestic Aircraft Registry). If this link changes owing to a lease novation (eg, a change of the lessee), such a lease novation needs to be reported to the civil aviation authority (and translated into Lithuanian, if requested by the civil aviation authority). Failure to provide the lease novation, which changes the link between the owner and the operator, may result in the civil aviation authority cancelling the registration of the aircraft.

There are no taxes or duties payable in Lithuania in respect of any assignment and assumption/novation agreement, or as a consequence of an original or copy of it being brought into Lithuania physically or electronically.

The transfer of ownership interests of the entity (or the beneficial interest in the trust) owning an aircraft (with the legal title to the asset remaining with that entity) does not trigger any legal changes in the ownership of an aircraft.

The aircraft can be deregistered if a relevant application is submitted to the civil aviation authority by the owner or a person duly authorised by the owner. However, if the aircraft is mortgaged or seized by court order, it cannot be deregistered until the mortgage is cleared or the consent of the mortgagee is received. Additionally, any existing seizure order must be lifted.

A lessee’s or operator’s consent is not required to deregister the aircraft.

To deregister the aircraft in Lithuania, the owner (or a person authorised by the owner) would need to file a respective application to the civil aviation authority, accompanied by an original of the certificate of registration and proof of payment of the state fee.

The legal acts state that the decision on deregistering the aircraft must be passed within ten calendar days upon receipt of the necessary documents. In practice, the deregistration is performed in one or two business days.

Civil aviation authorities in Lithuania do not provide advance assurances as to prompt deregistration of the aircraft. In practice, the deregistration – provided that all required documents are in place – is very quick.

The fees payable for the deregistration of an aircraft are not significant (a EUR57 fee is payable for the deregistration and a EUR35 fee is payable for the issuance of the deregistration certificate).

Under Lithuanian law, a lessee may neither register nor deregister the aircraft without a power of attorney issued by the owner. Therefore, it is arguable that the lessee’s authority in the form of a deregistration power of attorney to permit the deregistration of the aircraft is null and void because of the rule that no person can transfer more rights than they have. A deregistration power of attorney issued by the owner for deregistration of an aircraft registered in Lithuania should be notarised (and apostilled, if applicable).

No additional documents are required to enforce the deregistration power of attorney, other than those specified in 2.8.3 Required Documentation.

A deregistration power of attorney issued in respect of an aircraft registered in Lithuania should be governed by the laws of Lithuania and notarised by a public notary. However, as noted in 2.8.7 Deregistration Power of Attorney, the enforceability of a deregistration power of attorney is questionable.

The legal standing regarding the irrevocability of the power of attorney is not completely certain. The Civil Code (2001) includes such a case that “a contract may determine the cases when an irrevocable power of attorney is issued”. However, the possibility may not be completely eliminated that the revocation of any power of attorney potentially made by a principal may be deemed enforceable under Lithuanian law.

An aircraft owner may export the aircraft without the lessee’s consent under the laws of Lithuania (subject to the aircraft being physically repossessed), although the mortgagee’s consent will be required for the purpose of deregistration (see 2.8.1 Deregistering Aircraft in This Jurisdiction). A mortgagee may not export the aircraft without the owner’s consent, unless the mortgage is enforced and the right of ownership to the aircraft is transferred to the mortgagee.

The aircraft does not need to be in Lithuania at the time of deregistration and/or export.

The export procedure applies when EU goods are transported out of the EU customs territory to third countries or to special fiscal territories. In this case, an electronic export declaration must be submitted.

There are no significant costs/fees/taxes that are charged in respect of the export of an aircraft.

There are no significant practical issues that an aircraft owner or mortgagee or lessor should be aware of in respect of the deregistration of aircraft in Lithuania.

Most relevant laws of Lithuania governing restructurings, reorganisations, insolvencies, and liquidations are:

• the Law on Insolvency of Legal Entities (2019);
• the Civil Code (2001); and
• the Law on Companies (2000).

The restructuring and bankruptcy proceedings in Lithuania are regulated by the Law on Insolvency of Legal Entities. The restructuring process aims to preserve a viable company in temporary difficulties, while still operating, and to help it avoid bankruptcy by getting assistance from creditors to overcome financial difficulties through economic, technical, organisational, and other measures. The bankruptcy process is aimed at liquidating a legal entity – ie, removing an insolvent market participant from the market, even though bankruptcy proceedings can be transformed into restructuring proceedings and vice versa.

The law states that bankruptcy proceedings can be carried out in out-of-court and in-court proceedings. The out-of-court bankruptcy proceedings are subject to the consent of the company’s creditors by a qualified majority of votes (75%) and some additional conditions prescribed in the law. The restructuring proceedings can only be carried out under the supervision of the court.

The bankruptcy and restructuring proceedings can be voluntary (initiated by the company itself) or involuntary (initiated by the creditors).

According to the Civil Code (2001), reorganisation is described as the end of a legal entity without a liquidation procedure. A company may be reorganised in the following principal ways:

• merging; and
• splitting (dividing).

As a matter of transaction law, reorganisation typically involves M&A transactions or is the result thereof. A resolution to reorganise a legal person shall be passed by members of the legal person or the court in cases provided by law.

Lithuania has not enacted any specific legislation based on the UNCITRAL Model Law on Cross-Border Insolvency. However, Lithuania has established a legal framework for cross-border insolvency co-operation within the EU, primarily based on the Regulation (EU) 2015/848 and respective provisions of the Law on Insolvency of Legal Entities that ensure co-operation between courts and insolvency practitioners in different members states.

For cases involving non-EU countries, Lithuanian courts apply principles of international co-operation and reciprocity to manage cross-border insolvency issues.

The initiation of the insolvency proceedings should not affect the validity of the deregistration power of attorney. However, the deregistration power of attorney shall be considered to have expired in case the lessee is liquidated as a result of the insolvency proceedings and deregistered from the Register of Legal Entities.

Please also refer to 2.8.7 Deregistration Power of Attorney regarding the potential unenforceability of a deregistration power of attorney issued by the lessee.

From the date of entry into force of the court order to open a bankruptcy case, all deadlines for the fulfilment of a legal entity’s obligations are considered to have expired. The insolvency administrator may inform the lessor that the lease agreement will continue if the administrator finds it economically reasonable for the company and its creditors.

The law does not prohibit the lessor from terminating the lease and repossessing the aircraft when insolvency procedures are initiated. The rights of the lessor to repossess the aircraft should generally be respected and not be affected by the insolvency procedures.

If restructuring proceedings are initiated, an aircraft lease agreement may be considered an essential agreement under the Law on Insolvency of Legal Entities. The law prohibits creditors from terminating or changing the terms of an essential agreement to the detriment of the lessee until a court order approving the restructuring plan takes effect.

The aircraft will not be deemed part of the lessee’s property simply owing to the initiation of insolvency or restructuring proceedings.

Claims of the mortgagees, employees, and the State shall have priority in insolvency proceedings over the lessor’s claims (lease rentals, other payments due to the lessor, etc).

The main risk for a lender if a borrower, a guarantor or an entity providing security becomes insolvent is related to the lender’s reduced ability to recover any due and unpaid sums. A mortgage as a mean of security should grant the highest level of security in such cases.

After the court accepts an application on the initiation of an insolvency case, the assets of the legal person may be seized according to the already-issued executive documents. However, the realisation of these assets and/or collection is suspended, except when the court allows the bailiff to complete the sale of property.

If the court refuses to start the insolvency case, the recovery and sale of property is renewed from the date of the respective court ruling coming into force.

From the date of entry into force of the court order to open a bankruptcy case, it is considered that the deadlines for the fulfilment of all obligations of a legal entity have expired. The insolvency administrator may inform the lessor that the lease agreement will continue, if they find it economically reasonable for the company and its creditors.

If restructuring proceedings are initiated, the law prohibits creditors from terminating or changing the terms of an essential agreement to the detriment of the company until a court order approving the restructuring plan takes into effect.

If the court terminates the restructuring or bankruptcy proceedings, the calculation of interest and penalties, as well as the recovery proceedings are resumed.

A domestic lessee may be liquidated through voluntary or involuntary insolvency proceedings (see 2.9.2 Overview of Relevant Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership), under the decision of the shareholders of the lessee, a court’s decision, or the decision of the Register of Legal Entities.

A domestic lessee may be placed in administration by court order, law or transaction. In the cases provided for by the Civil Code (2001), administration may be determined by an administrative act.

The enforceability of ipso facto default clauses may be subject to limitations imposed by the insolvency laws of Lithuania. In particular, lessors may be prohibited from terminating the lease and repossessing an aircraft during the restructuring proceedings until a court order approving the restructuring plan takes into effect.

After the initiation of insolvency proceedings, repossessing the aircraft may require court approval or co-ordination with the insolvency administrator.

Lease rentals, maintenance reserves, and any other payments due from the lessee to the lessor may be subject to moratoria (see 2.9.7 Imposition of Moratoria in Connection With Insolvency Proceedings), permanent termination (in the case of bankruptcy proceedings), or payment under a restructuring plan approved by the court (in the case of restructuring proceedings).

The ability to set off any of the lessee’s obligations against the lease security deposit may be affected by the limitations imposed by the insolvency laws.

In June 2024, the Lithuanian Parliament passed a law ratifying the Convention on International Interests in Mobile Equipment (the “Cape Town Convention”), but the law has not yet come into force. The law will come into force on 1 July 2025.

Lithuania has made the following declarations.

• Declaration under Article 39(1)(a) of the Cape Town Convention – stating that all non-consensual rights or interest that under Lithuanian law shall have priority over an interest in an object equivalent to that of the holder of a registered international interest, shall have priority over a registered international interest, whether in or outside insolvency proceedings, whether such international interest registered before or after Lithuania ratifies the Protocol on Matters specific to Aircraft Equipment (the “Protocol”).
• Declaration under Article 39(1)(b) of the Cape Town Convention – stating that nothing in the Cape Town Convention shall affect the right of Lithuania or a Lithuanian entity, intergovernmental organisation or other private provider of public services to arrest or detain an object under the laws of Lithuania for payment of amounts owed to such entity, organisation or provider directly relating to those services in respect of that object or another object.
• Declaration under Article 40 of the Cape Town Convention – stating that a non-consensual right or interest arising under the laws of Lithuania on the basis of which an object is seized or detained shall be registrable under the Cape Town Convention as if the right or interest were an international interest and will be regulated accordingly.
• Declaration under Article 54(2) of the Cape Town Convention – stating that any remedy available to the creditor under any provision of the Cape Town Convention that is not expressed therein to require application to the court may be exercised without leave of the court.

Lithuania has not ratified the Protocol. Irrevocable de-registration and export request authorisations (IDERAs) are not submitted to and not recorded with the Lithuanian civil aircraft register at this time.

In November 2022, the Supreme Court of Lithuania ruled that the EU does not have exclusive jurisdiction over matters regulating the enforcement process of judgments from EU member state courts. Therefore, according to the Supreme Court of Lithuania, the provisions of the Cape Town Convention pertaining to the enforcement actions (protecting the interests of holders of security interests or international interests) do not apply in the absence of separate accession by the member state to this international treaty.

Given the recent ratification of the Cape Town Convention by the Lithuanian Parliament, this case law is expected to change. However, no such changes are anticipated in the near future, as the law ratifying the Cape Town Convention will only come into force on 1 July 2025.

Lithuania is also a party to the following major air law treaties:

• the Chicago Convention on International Civil Aviation (1944), effective from 7 February 1992, and a number of protocols relating to its amendments;
• the Warsaw Convention for the Unification of Certain Rules Relating to International Carriage (1929), effective from 19 February 1997 and its Hague Protocol (1955), effective from 19 February 1997;
• the Guadalajara Supplementary Convention to the Warsaw Convention (1961), effective from 9 March 1997;
• the Tokyo Convention on Offences and Certain Other Acts Committed on Board Aircraft (1963), effective from 19 February 1997;
• the Hague Convention for the Suppression of Unlawful Seizure of Aircraft (1970), effective from 3 January 1997;
• the Montreal Convention for the Suppression of Unlawful Acts against the Safety of Civil Aviation (1971) and its Protocol (1988), effective from 3 January 1997;
• the Montreal Convention on the Marking of Plastic Explosives for the Purpose of Detection (1991), effective from 21 June 1998; and
• the Montreal Convention for the Unification of Certain Rules for International Carriage by Air (1999), effective from 29 January 2005.

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

There are no exchange controls or government consents in Lithuania that would be material to any financing or repatriation of realisation proceeds under a loan, guarantee or security document.

There are no legislative restrictions in Lithuania for borrowers to grant security to foreign lenders.

Corporate guarantees are permitted and should be enforceable in Lithuania.

The pledge of shares is recognised in Lithuania.

Negative pledge is recognised in Lithuania.

Intercreditor arrangements are recognised in Lithuania.

Syndicated loan agreements are recognised in Lithuania.

Debt subordination is recognised in Lithuania.

Transfer or assignment of all or part of an outstanding debt under an English or New York law-governed loan is recognised in Lithuania.

There is no statutory limitation on the interest rate between commercial parties and parties are free to agree on the interest rate. However, a Lithuanian court is entitled to exercise some policing over interest rates and can reduce clearly excessive interest rates (even if they were contractually agreed).

Aircraft mortgage along with third-party guarantees are the most typical forms of security granted in aviation finance transactions. The debtor is also sometimes required to get its own shares pledged and refrain from certain actions limiting the debtor’s capacity to repay the debt.

As long as the contractual arrangements on the securities are not conflicting the overriding local laws, they are permitted and should generally be enforceable in Lithuania.

The concept of trust and security trustee is generally not recognised in Lithuania. In practice, parallel debt arrangements are agreed in contractual documentation.

Security assignments should generally be permissible and enforceable in Lithuania. Assignment of a mortgage is subject to notarial certification and performance of the required amendments in the mortgage documentation.

If a mortgage constitutes security, a creditor may transfer their rights under the mortgage without transferring the secured claim.

Security over immovable property (aircraft is deemed to be immovable property) must be governed by the laws of the Republic of Lithuania.

Any assignment amending the terms of a mortgage agreement shall be subject to notarial certification. Failure to comply with notarial form renders the agreement null and void.

Any mortgage over the aircraft must be governed by local laws and subject to a notarial certification. Notary fees should generally not exceed EUR500. Additional costs related to the translation into Lithuanian of corporate documents of parties to a mortgage agreement should be expected.

English or New York law-governed security assignment are not locally registered.

Any mortgage or amendment of such mortgage over the aircraft must be governed by local laws and subject to a notarial certification.

See 3.2.10 Transfer of Security Interests Over Aircraft/Engines.

Parallel debt structures are customarily contractually agreed. However, the authors are not aware of any case law related to their practical enforcement.

A secured party under a security assignment will not be deemed to be resident, domiciled, or carrying on business in Lithuania.

Any mortgage over the aircraft must be governed by local laws and subject to a notarial certification. It is advisable that mortgaging of an aircraft engine is also notarised.

Mortgage over an aircraft that is an immovable property in Lithuania must be certified by a public notary.

It is advisable that security over a fund held in a bank account would be certified by a public notary.

The Law on Aviation (2000) provides for a prohibition to leave Lithuanian airports to be imposed if, among other things, airport charges or air navigation fees are not discharged in respect of that aircraft or if failure to comply with safety requirements takes place.

The Civil Code (2001) also prescribes that the lawful possessor of an object belonging to another person, who has the right of claim against the owner of the object, may detain such object until the claim is satisfied. This right is often exercised by maintenance, repair and overhaul entities (MROs) in case the repair costs are not covered.

Provided that all necessary documents are collected, it takes approximately between one and five business days to clear a local law mortgage.

Mortgages over aircraft are recorded in the Register of Contracts and Restrictions of Rights and such data is available to the civil aviation authority.

As noted in 3.3.1 Third-Party Liens, a repair organisation or any other lawful possessor of an aircraft may exercise the right of detention over a particular aircraft.

An application can be submitted to the local aviation authority. Also, the searches in the Register of Contracts and Restrictions of Rights can be made to verify existence of any mortgages over an aircraft.

Security assignment would be enforced in the same way as a loan or guarantee. However, a local law mortgage should be enforced in out-of-court proceedings by making an application to a public notary.

The concept of trust and security trustee is generally not recognised in Lithuania. If a security trustee is not a creditor, its rights to enforce a security can be jeopardised. In practice, parallel debt arrangements are agreed in contractual documentation to minimise the risks related with the enforcement procedures.

The choice of foreign law as the governing law of a finance or security document will be upheld in any action in the courts of Lithuania, provided that:

• this choice is made expressly and clearly demonstrated by the terms of the contract and circumstances of the case; and
• overriding mandatory provisions of the Lithuanian laws can be applicable – in particular, the Aircraft shall be deemed as immovable property in Lithuania pursuant to the provisions of the Civil Code (2001) and the law states that ownership right and other rights in rem in an immovable property will be governed by the law of the state where the asset was situated at the moment of change of its legal status (thus, in the event the title of the aircraft changed or security over aircraft was created when the aircraft was registered in Lithuania, the overriding Lithuanian law requirements pertaining to the ownership right and other rights in rem in the aircraft may be applicable).

The submission to a foreign jurisdiction should will be upheld in any action in the courts of Lithuania.

However, in the absence of entirely consistent case law on this issue, the authors cannot completely exclude the likelihood that Lithuanian courts may be of the opinion that by reason of Lithuanian law an aircraft registered in Lithuania will be treated as an immovable property for civil law purposes. Therefore, claims relating to in rem rights – including the usage of the aircraft – should be subject to the exclusive jurisdiction of the Lithuanian courts.

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

Repossession of the aircraft must be exercised peacefully. If an operator does not voluntarily surrender the aircraft, the secured party would not be entitled to enforce the repossession by force. The use of self-help remedies is very limited under Lithuanian law and is allowed only when expressly permitted by law. The secured party shall be permitted to repossess the aircraft without the co-operation of lessee or operator when it is specifically authorised to do so by the court. An enforceable court order will be enforced by a bailiff, with the assistance of the police, if necessary.

Lithuanian law considers an aircraft registered in Lithuania as immovable property. The procedural laws of Lithuania state that lawsuits regarding rights in rem to immovable property, regarding the use of immovable property or the cancellation of a lien on immovable property, shall be brought before the court of the location of the immovable property or its main part. There are no specific courts to hear security agreement/mortgage disputes. The courts of general competence will generally decide such disputes, unless parties agreed to settle their disputes through arbitration.

As mentioned in 2.6.4 Summary Judgment or Other Relief, summary judgments can be obtained for monetary claims only – although there are several procedural rules that need to be complied with. Specifically, the debtor should not be established in a foreign jurisdiction, there should be no unfulfilled obligations of the lessor for which remuneration is due and the debtor requests such obligations to be fulfilled, etc.

An injunction can be issued by the court pending final resolution of proceedings if the secured party manages to plausibly substantiate its claim and proves that, without the injunction, the execution of the court decision may become difficult or impossible.

The court may order the claimant to pay a specific amount as security of future losses of the defendant in connection with the injunction or legal proceedings.

A secured party may obtain a judgment in a foreign currency.

An aircraft mortgage is enforced through non-court proceedings by a public notary making a respective executive entry. A secured party shall pay the notary fee, which should not exceed EUR500.

If security is enforced through court proceedings, a secured party should expect the court fees and bailiff fees. The amount of court and bailiff fees depends on the nature and the amount of claim, but should generally not exceed EUR30,000 in total.

The amount of legal fees related to the enforcement is subject to an agreement between the lessor and the local law firm.

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