No UK stamp duty or other documentary taxes apply to the execution of an aircraft or engine sale agreement, even if executed or stored in the UK.

VAT may arise if the aircraft is supplied in the UK and not zero-rated (eg, for private or non-qualifying use). Supplies to airlines operating international routes for international commercial purposes may qualify for zero-rating under UK VAT law.

If the sale involves the transfer of shares in an English company owning the aircraft, stamp duty at 0.5% may apply.

Under English law, there is no requirement for a sale agreement to be translated, certified, notarised or legalised in order to be enforceable against a domestic party.

Transfer of title to an aircraft or engine is typically effected by the signing and dating of a bill of sale. While it would be usual (and good practice) to expressly identify the airframe and engines by their serial numbers, in respect of other parts like an auxiliary power unit, a generic reference to “all parts” would be used to capture and include all installed parts.

As long as the entity owning the aircraft or engine holds both the legal and beneficial title, a sale of the ownership interest in that entity would effectively be recognised as a sale of such aircraft or engine itself. The tax treatment of such a “non-metal” sale may differ from the tax treatment of a sale of the asset, and specific tax advice should be sought.

A bill of sale may be governed by English law, New York law or the laws of any other jurisdiction if the bill of sale includes a governing law clause to that effect. Transfer of title pursuant to such a bill of sale would be recognised by the English courts.

In respect of the physical delivery of an asset located in England at the time of title transfer, a bill of sale governed by either English or New York law would be recognised.

For the bill of sale to be recognised, it must be in writing, signed by a duly authorised signatory, dated and delivered.

There is no requirement for a bill of sale to be translated, certified, notarised or legalised in order to be enforceable against a domestic party.

A bill of sale does not need to be registered, filed nor subject to any consent from any government entity.

If the relevant aircraft is also registered with the national aviation regulator, the Civil Aviation Authority (CAA), consideration should be given to any need to notify the CAA by submitting a Form CA1, but no copy of the bill of sale is required.

No UK taxes or duties are payable on the execution or delivery of a bill of sale for an aircraft or engine, regardless of whether title passes while the asset is located in the UK, over international waters or in transit. However, if the transaction involves the transfer of shares or loan capital in a UK entity that owns the aircraft or engine, stamp duty at 0.5% of the consideration (or debt or shares) may apply, payable within 30 days of execution.

From a VAT perspective, the sale of an aircraft may be subject to 20% UK VAT, unless it qualifies for zero-rating. To qualify, the aircraft must be used by an airline operating for reward chiefly on international routes or by a state institution, have a maximum take-off weight exceeding 8,000 kg and be neither designed nor adapted for use for recreation or pleasure.

Subject to the general principles of contract law, there are no restrictions on the types of operating/wet/finance leases or leases concerning only engines or parts, and the parties are free to determine the terms as they see fit.

A lease involving either a domestic party or an asset situated in England can be governed by a foreign law but this should be stated expressly. In the absence of an express governing law clause, the governing law will be the law of the country with the closest connection to the lease.

In practice, English law (or New York law) is a very common choice for cross-border aircraft leasing transactions, making it highly unusual for a lease involving a domestic party to be governed by a foreign law (other than New York law).

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

Except to the extent imposed by sanctions legislation, there are no exchange controls that could prevent rent payments under a lease or any repatriation of realisation proceeds (if such lease is enforced by a foreign lessor).

No UK taxes or duties are payable solely as a result of executing or delivering an aircraft lease in the UK, whether physically or electronically. However, lease rentals may attract UK VAT at 20%, unless the lease qualifies for zero-rating (see 1.2.5 Taxes/Duties Payable Upon Execution of a Bill of Sale). No stamp duty applies to leases of chattels such as aircraft.

A lessor does not have to be licensed or otherwise qualified in England to lease an aircraft asset to a domestic lessee.

There are no mandatory terms required to be in a lease (or documents ancillary thereto) governed by English or New York law that would not typically already be included.

Tax and withholding gross-up provisions are standard and enforceable under English law. UK withholding tax does not generally apply to lease rentals, but gross-up clauses are used to protect lessors against future tax changes. VAT gross-up clauses are also common to address changes in VAT treatment or recoverability.

A lease can cover parts that are installed or replaced on an aircraft or engine after its execution. The lease would typically include the requirements and steps to be taken to ensure that such parts are captured under the lease, with distinctions drawn between temporary and permanent replacements. The details of such requirements are ultimately the product of commercial negotiation but points to consider include if/when lessor consent is required and what technical parameters any replacement must adhere to. In the case of a permanent replacement, there should be an express requirement that it is unencumbered at the time of its installation.

There is no known risk of title annexation under English law as it is well accepted that engines are identifiably distinct from the airframe. In addition, aircraft leases would typically require that nameplates are installed on the engines which identify the lessor/owner and, if applicable, the mortgagee. It is also common for parties to enter into a “recognition of rights‟ agreement with other interested parties when engines are to be installed on airframes not owned by the owner of the engines.

The concept of a trust and the role of an owner trustee under a lease are recognised.

An aircraft can be entered onto the CAA’s Register of Civil Aircraft (the “Register”) under the name of either the aircraft owner or the charterer by demise (ie, the operator), as long as such person meets the eligibility requirements. The aircraft will need to be registered in order for the Certificate of Registration (CoR) to be issued.

The Register is not a register of legal ownership. Where the registration is in the name of the operator, the CAA will keep a record of the legal owner’s identity but that will not appear on the CoR nor be available to the public.

See 2.3.1 Notation of Owner’s/Lessor’s Interests on Aircraft Register.

There is no specific register for aircraft or engine leases. However, if such a lease constitutes an “international interest” pursuant to the Cape Town Convention, this should be registered on the International Registry.

See 2.3.3 Aircraft/Engine-Specific Registers. Leases do not require consent from any government entity.

See 2.3.4 Registration of Leases With the Domestic Aircraft Registry.

There are no UK taxes or duties payable for registering a lease. The Register does not record leases, and there is no domestic lease registry. Cape Town filings are made via the International Registry and do not attract UK tax.

The CAA does charge administrative fees for registering aircraft and for changes in ownership/leasehold interest (though these are not specifically taxes).

There are no alternative countries in which aircraft habitually based in England are commonly registered.

To register an aircraft on the Register, the owner or charterer by demise must submit an online Form CA1 on the CAA website. As part of the online application, the applicant must submit evidence of insurance and relevant ID verification; full guidance is available on the CAA website.

A foreign lessor is not subject to UK income or capital gains tax solely by leasing an aircraft to a UK lessee, provided it has no UK permanent establishment.

UK withholding tax does not apply to lease rentals.

VAT may apply if the aircraft is used in the UK, but zero-rating may be available for qualifying international use, and the reverse charge mechanism may apply to business-to-business supplies.

A foreign lessor will not be deemed to be a UK tax resident nor carrying on business in the UK merely by entering into or enforcing a lease with a UK lessee, provided it does not have a UK permanent establishment. VAT registration may be required if the lessor makes taxable supplies in the UK.

In general, no liabilities in respect of aircraft or engine maintenance and operations would be imposed on a foreign lessor under a lease as a result of its being a party to such lease. While Section 76(2) of the Civil Aviation Act 1982 (“1982 Act”) provides that an aircraft owner has strict liability for loss or damage caused by an aircraft to third parties and property, Section 76(4) of the 1982 Act transfers that liability to the charterer by demise if the relevant charter agreement is for a period of more than 14 days (as would be the case in almost every commercial aircraft lease). Furthermore, commercial aircraft leases would typically include clear risk allocation provisions that, broadly, make the lessee responsible for all costs associated with maintenance, operations and insurance.

See 2.4.3 Engine Maintenance and Operations.

See 2.4.6 Priority of Third Parties’ Rights.

The following categories of third-party rights will take priority over a lessor’s rights under an aircraft or engine lease, whether or not such lease/lessor is registered in the national aircraft register:

• liens of maintenance providers in respect of work performed but not paid for;
• rights of airport authorities and Eurocontrol in respect of overdue landing fees or air navigation charges (as applicable); and
• rights of certain public authorities in respect of fines related to noise or emissions contraventions.

Holders of an English air operator’s certificate must demonstrate adequate coverage for their aircraft, but there is no legal requirement that all or part of such insurance be placed with a domestic insurance company.

EC Regulation EC 785/2004 (having effect in England through the applicable implementing regulation) imposes certain minimum levels of insurance, denominated in Special Drawing Rights, with the precise level depending on the maximum take-off mass of the aircraft and the numbers of passengers. More details can be found on the CAA website but an aircraft operator’s insurance must cover the following areas:

• passengers;
• baggage;
• third-party cover;
• cargo; and
• risks of war and terrorism.

Hull insurance policies are typically arranged on an agreed value basis.

Reinsurance can be placed outside of England up to 100% of coverage but this would be unusual in reality given the primacy of the London insurance market itself.

“Cut-through” clauses – which, broadly, provide that the reinsurer will pay any sums due under the reinsurance contract directly to the underlying insured – are enforceable under English law, although whether they are effective against a liquidator of the reinsured has not yet been tested in court.

Assignments of insurance/reinsurance are permitted.

Apart from laws affecting the rights and remedies of creditors generally (eg, in relation to insolvency), there are no restrictions on the lessor’s ability to exercise remedies under the lease, provided that any requirements under the lease itself are complied with.

Any sale of the aircraft following termination would be subject to there being no third-party liens in place; see 2.4.6 Priority of Third Parties’ Rights for more detail.

The aircraft does not need to be physically located in England at the time of any such action(s), although local law procedures are likely to apply if it is located in a third country.

Provided that the lease grants such rights (which would be the standard position), a lessor can take physical possession of the aircraft without the lessee’s consent to enforce such lease, provided that the lessor can do so peacefully and lawfully. However, where the lessee is being unco-operative, the lessor may apply for a court order.

There are no specific courts in England that deal exclusively with aviation disputes. The cases would be heard across the general court systems in England, with the commercial courts in London being typical.

The English courts will, as appropriate, grant summary judgment pending final resolution of a lease dispute – eg, for unpaid rent and/or maintenance reserves.

The court will grant interim injunctions subject to the application therefor meeting the equitable criteria, which include:

• damages not being an adequate remedy;
• risk of frustration of a court judgment;
• there being a serious issue to be tried; and
• that the balance of convenience lies in favour of an injunction.

The English courts generally respects parties’ decisions to contract and elect governing law and the jurisdiction for determining disputes, but a contractual choice of law can be overridden in limited circumstances (eg, if all elements of the lease are located in another country and such country’s laws cannot be derogated from).

The English courts will generally uphold any waiver of immunity by the parties and recognise the difference between waiver of immunity of suit and of enforcement.

The English courts will recognise and enforce arbitral awards under the New York Convention without any reconsideration of the merits.

For foreign court judgments, if the jurisdiction from which the judgment is rendered falls within the scope of the Hague Convention, Lugano Convention, Brussels Convention, Administration of Justice Act 1970 or Foreign Judgments (Reciprocal Enforcement) Act 1933, the judgments can be recognised and enforceable without reconsideration of the merits. If the judgment derives from a jurisdiction that does not fall within one of the conventions or statutes, the party will have to issue fresh proceedings based on the foreign judgment and seek summary judgment.

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

As long as the sums to be recovered do not amount to a penalty, there are no limitations on a lessor’s ability to recover default interest (or the compounding thereof) or to charge additional rent following termination of the lease for default, including where the lessee fails to return the aircraft.

English case law regarding penalties is constantly evolving but the key principle is that the sum being claimed must not be out of proportion, in order to protect the legitimate interests of the non-defaulting party.

There are no significant UK taxes or fees payable by a lessor in connection with lease enforcement. Court fees may apply in litigation but are generally nominal. VAT on enforcement-related services (eg, legal fees) may be recoverable depending on the lessor’s VAT status; however, there are no fees in the nature of tax that would otherwise apply.

There are no mandatory notice periods if a lessor terminates an aircraft lease (regardless of its terms) that relates to an aircraft that is operated domestically or that is leased by a domestic operator.

If a lessee was otherwise entitled to sovereign or other immunity, this can be waived and it is common for aircraft leases to include such waivers (whether from immunity of suit and/or immunity from enforcement).

The UK acceded to the New York Convention on 23 December 1975.

The procedure for the enforcement of an award under the New York Convention is the same as for a domestic award, with the process being by way of an Arbitral Claim Form issued usually in the Commercial Court in England. There are only limited grounds where a domestic court may refuse to enforce the award (eg, where doing so would be contrary to public policy).

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

England recognises the concepts of contractual assignment and novation but only rights can be assigned, not obligations. Under a novation, the original contract is extinguished and replaced by a new contract on the same terms (or amended in accordance with the terms of the novation agreement).

Assignment

A lessor transferring its rights under an aircraft lease may assign its rights under such lease to a new lessor pursuant to a New York or English law-governed assignment and assumption agreement, and such an agreement will be held valid by a domestic court with no requirement for lessee consent. Note that obligations cannot be assigned under English law.

Novation

A lessor transferring its rights under an aircraft lease may transfer all of its rights and obligations pursuant to a New York or English law-governed novation agreement, and such an agreement will be held valid by a domestic court. A novation agreement would include the lessee as a party; while there is no legal requirement for lessee consent, it is required in practice.

In either case, the assignment or novation must comply with the terms of the underlying lease (which will commonly include conditions that must be satisfied by the assignee/new lessor) but there are no mandatory terms required by English law to be included in such agreement/deed.

It is not necessary for an aircraft and/or engine lease assignment and assumption/novation to be translated, certified, notarised or legalised to be enforceable against a domestic party.

As there is no registry for aircraft or engine leases, there is no specific register for any related assignment and assumption or novation. However, if such transaction includes a change of ownership then the CAA should be notified thereof, and any “international interest” arising pursuant to the Cape Town Convention should be registered on the International Registry.

Under UK tax law, the assignment, assumption or novation of an aircraft lease does not generally give rise to stamp duties or taxes, and the mere act of bringing a copy of such an agreement (physically or electronically) into the UK does not trigger any UK tax liability.

If the ownership interest of the entity (or the beneficial interest in the trust) owning an aircraft is transferred (with the legal title to the asset remaining with that entity), there will be no assignment or novation of the underlying lease agreement and, in principle, no requirement for lessee consent or involvement. However, various documentation (such as insurance certificates) will likely require updating, so the lessee would typically be involved.

The registered owner (ie, the owner or the operator) can request the CAA to deregister the aircraft.

If the operator is noted as the registered owner on the CAA, they will be the only party who can request a deregistration unless there is an irrevocable deregistration and export request authorisation (IDERA) filed with the CAA. If there is an IDERA in place, the authorised party thereunder is the only party that can request deregistration.

The deregistration process can take up to three working days.

If the aircraft is also subject to a mortgage (which has been registered with the CAA), the mortgage must be released and the lenders must provide their consent for the aircraft to be deregistered; no such release is required (from a CAA perspective) if an IDERA is in place, but the authorised party must declare in the request to deregister that it has consent from all mortgagees ranking in priority.

To discharge a mortgage from the CAA’s Register of Aircraft Mortgages, Form CA1577c must be submitted, together with a copy of the deed of discharge (or equivalent release document). Mortgages are deemed discharged from the date and time of receipt by the CAA (subject to the CAA opening hours of 10am to 4pm weekdays).

If an IDERA is in place, the authorised party will not require the lessee’s or operator’s consent to deregister the aircraft.

If the owner, mortgagee or lessor is named as an authorised party under the IDERA, it will need to file a Form CA54 before the aircraft can be deregistered. There is no fee for such deregistration unless same-day service is requested.

Deregistration to another country can take up to three working days unless an expedited, same-day service is requested and paid for.

The CAA does not provide advance assurances to an aircraft owner, mortgagee or lessor as to the prompt deregistration of the aircraft, but does outline its service standards clearly on its website.

Deregistration of an aircraft from the Register does not attract UK taxes, and the CAA charges only a nominal administrative fee. However, parties should also consider the potential separate costs that flow from the deregistration process (related to export of the aircraft and performance of associated flights, etc).

The CAA has now moved to using IDERAs rather than deregistration powers of attorney. Accordingly, the CAA will not record (nor act on) any deregistration powers of attorney.

See 2.8.7 Deregistration Power of Attorney. No additional documents are required for the authorised party under an IDERA to exercise its rights.

See 2.8.7 Deregistration Power of Attorney. The IDERA must be in the standard CAA form (see Form CA50).

See 2.8.7 Deregistration Power of Attorney. An IDERA can only be revoked by the authorised party (or a “certified designee” notified to the CAA using Form CA52).

Provided that an IDERA is in place in their favour, an aircraft owner, mortgagee or lessor can deregister and export the aircraft without the lessee’s consent. Similarly, a mortgagee who is the authorised party under an IDERA can deregister and export the aircraft without the owner’s or lessor’s consent.

At the time of negotiating the lease or mortgage (as applicable), an owner, mortgagee or lessor should include express rights in its favour to permit the deregistration and export of the export following the occurrence of an event of default.

The asset does not need to be located in England at the time of deregistration and/or export.

Upon request, the CAA will issue a Certificate of Airworthiness for Export (“Export CoA”) certifying that the aircraft conforms to the described type certificate data sheet and is in a condition for safe operation.

The CAA’s service standard for processing the application is 15 working days from receipt of a correctly completed application and clearance of the required fee.

Having an Export CoA does not mean the aircraft can be flown: a separate valid certificate of airworthiness or permit to fly would be required to fly the aircraft.

There are no significant UK taxes or duties charged in respect of the export of an aircraft. If the aircraft does not otherwise qualify for zero-rating (see 1.2.5 Taxes/Duties Payable Upon Execution of a Bill of Sale), the export is treated as a zero-rated supply for VAT purposes, provided the conditions for zero-rating are met, including timely removal from the UK and retention of appropriate export evidence. This means VAT is chargeable at 0%, rather than being outside the scope of VAT.

The principal UK tax exposure arises on importation. Import VAT and customs duties may be payable depending on the aircraft’s use and status, and whether any reliefs apply (such as those for qualifying aircraft).

If an Export CoA is required in connection with the deregistration (which will depend on the intended country of re-registration), the aircraft must remain registered until the Export CoA is provided by the CAA, making it essential that the deregistration request is made only once that is in place.

Similarly, as a consequence of deregistration, any certificate of airworthiness or permit to fly in force over the aircraft will be automatically suspended and revoked by the CAA.

The principal UK legislation relating to insolvency and restructuring is the Insolvency Act 1986 (the 1986 Act), supported by the Insolvency Rules 2006.

Corporate insolvency processes include:

• Part A1 moratorium;
• Company Voluntary Arrangement;
• administration; and
• liquidation (also known as winding-up).

In addition, the Companies Act 2006 contains reorganisation and restructuring procedures, including schemes of arrangement and restructuring plans.

The main corporate procedures relevant to a lessee domiciled in England are as follows.

Company Voluntary Arrangement

This is a procedure whereby a company makes a proposal to its unsecured creditors regarding the compromise and rescheduling of its liabilities. If the proposal obtains sufficient support, it will bind all applicable unsecured creditors, but it cannot bind secured creditors without their approval. In most cases, the company will continue to trade and the directors will remain in office. The contribution and distribution of the monies available in the arrangement are overseen by an insolvency practitioner.

Administration

This is intended to be a rescue procedure providing a moratorium against proceedings but is also often used to enhance returns to creditors. Administration can principally be initiated by the company or its directors, a creditor or a qualifying floating charge holder. The insolvency practitioner appointed as administrator takes control of the company and tries to save the company or, if that is not possible, realise secured assets to distribute to secured creditors and achieve a better realisation for unsecured creditors than in a winding-up. That will often involve the sale of the business or assets of the company. Once the objectives of the administration are achieved, the company will either be restored to solvency or exit via another procedure.

Liquidation

This is a terminal procedure. There are three types of liquidation:

• compulsory liquidation, which is usually commenced by a creditor petitioning the court;
• creditors’ voluntary liquidation (CVL), where an insolvent company itself resolves to go into liquidation; and
• members' voluntary liquidation (MVL), where a solvent company resolves to go into liquidation in order to return value to shareholders.

In each case, the role of the insolvency practitioner appointed as liquidator is to wind down the company, collect in and realise the assets and distribute the proceeds to the creditors and, in the case of an MVL, the shareholders. The liquidation process is overseen by the court.

Scheme of Arrangement

This is a court-sanctioned agreement between a company and its creditors or members (or a class of them). It is a flexible tool used for various corporate restructurings, including mergers, demergers and insolvent restructurings. The process involves court approval, meetings with creditors/members, and a vote. It is not necessary for the company to be insolvent.

Restructuring Plan

This is a formal agreement between an insolvent company and its creditors (and/or shareholders), designed to alleviate financial difficulties and allow the company to continue operating. It can involve various measures, such as debt rescheduling, debt-for-equity swaps, or even injections of new funding. The plan is tailored to the specific circumstances of the company and its creditors. It requires court approval and is legally binding on all parties once sanctioned by the court. The court can permit “cross-class cram down”, a mechanism that allows a company to impose a restructuring plan on dissenting classes of creditors, even if those classes have not approved the plan, provided certain conditions are met.

The UNCITRAL Model Law on Cross-Border Insolvency has been adopted into English law under the Cross-Border Insolvency Regulations 2006.

Section 426 of the 1986 Act also provides for co-operation between courts with insolvency jurisdiction in different parts of the UK but also the Channel Islands, the Isle of Man and most Commonwealth states.

In addition to those statutory regimes, there is a general common law principle that English courts will recognise and enforce foreign insolvency proceedings provided they:

• are not contrary to public policy;
• do not contravene fundamental standards of procedural fairness;
• are not based on fraud/unfairness; and
• do not give effect to foreign penal laws.

If a lessee has granted an IDERA to a lessor, owner or mortgagee of an aircraft, any liquidation of the lessee would not void the IDERA nor result in its termination, so the authorised party could still exercise its rights thereunder.

If a lessee has possession of the aircraft and is put into liquidation, the lease will not automatically terminate (unless the lease itself provides for that). In an MVL or a CVL, the lessor will be free to repossess the aircraft unless the liquidator (or another creditor) applies to court to restrain such action. In a compulsory liquidation, the position will be the same whilst the petition is outstanding, but permission of the court will be required once the winding-up order has been made. On the assumption that the lease terms provide that title in the aircraft remains with the lessor, the aircraft will not be deemed part of the lessee’s property. The lessor’s rights in relation to any arrears will be an unsecured claim that will rank equally with all other unsecured creditors (and will be paid proportionally from the available assets, if any) but the lessor’s application of the security deposit and/or maintenance reserves in accordance with the lease terms will not be precluded. The lessor’s right to the aircraft itself will be unaffected as the aircraft will be an asset outside the insolvent estate.

If a lessee has possession of the aircraft and is put into administration, the position will be similar to the above but the administrator may wish to continue to trade and use the aircraft and, due to the moratorium, the lessor could not repossess the aircraft without the administrators’ consent or the permission of the court. In those circumstances, the administrators would be obliged to pay the lease rentals for continued use of the aircraft.

Subject to the following conditions in relation to “hardening periods”, security taken from an obligor will survive the obligor’s insolvency. If a lender has lent or taken a guarantee on an unsecured basis, the insolvency of the obligor will mean that the lender will not recover in full as it will share in the funds available to all unsecured creditors (if any) on a proportional basis. Secured creditors will recover (from the secured assets) in priority to unsecured creditors but may rank in different priority amongst themselves.

The 1986 Act provides for “hardening periods”, during which security granted by the company can be challenged. Depending on the circumstances, this could be six months or two years from the grant of the security. If the security provider goes into administration or liquidation before the end of the appropriate period, the insolvency office holder can bring proceedings to challenge the security, which could result in the lender losing its security.

An administration carries a moratorium against proceedings from the date of the application/filing of the notice, until the expiry of the administration (the initial term of an administration is 12 months but this can be extended if required). Proceedings can only be brought with the consent of the administrator or permission of the court.

In a compulsory liquidation, after the date of the winding-up order, proceedings can only be brought with the permission of the court. That restriction will remain in place until the liquidation is complete and the company is dissolved.

In a CVL, there is no automatic moratorium but the liquidator can apply to court for a stay of any process that is commenced or continued against the company. The duration of any stay obtained will depend on the terms of the court order.

The compulsory liquidation process is usually commenced by a creditor presenting a petition to the court. There will then be a court hearing at which it will be decided whether or not a winding-up order should be made.

MVL and CVL are each commenced by the company passing a resolution to wind up. In the case of a CVL, there will also be a meeting of creditors to decide whether to ratify the shareholders' choice of liquidator.

Administration can be commenced in one of two ways:

• an application to court followed by a hearing at which it will be decided whether or not an administration order should be made; or
• in certain circumstances, a qualifying floating charge holder or the directors/company can file an appointment document at the court to effect an immediate appointment without the requirement for a hearing.

A secured creditor can enforce their security and appoint a receiver over certain assets of the company by simply serving a written notice of appointment on the proposed receiver, who must send a written response accepting the appointment. Less commonly, an interested party can seek the appointment of a receiver by the court.

There are certain general statutory restrictions on exercising rights of termination and other contractual remedies purely as a result of the insolvency of a party, but this ipso facto prohibition does not affect “financial contracts” (eg, loans or finance leases) nor prevent termination on the basis of an insolvency event if the relevant lease or security agreement is registered as an international agreement under the Cape Town Convention.

If a domestic lessee is wound up by an administration proceeding, the aircraft will remain the property of the lessor but the lessor may not be able to repossess the leased asset without the consent of the administrator or permission of the court. The arrears of lease rentals will not be paid, but ongoing lease rentals will need to be paid as an expense of the administration if the administrator wishes to continue to use the aircraft. The terms of the lease will also continue to dictate the treatment of the lease security deposit and the maintenance reserves – the lessor is likely to retain and use these as necessary.

If a domestic lessee entered into liquidation, the liquidator is unlikely to be trading the business or attempting to sell it as a going concern, so it may consent to the lessor repossessing the aircraft as neither lease rental arrears nor lease rental going forward are likely to be paid. The arrears at the date of the liquidation can be claimed as an unsecured debt in the liquidation (which may eventually result in a “pence in the pound” distribution). The treatment of the lease security deposit and the maintenance reserves will be the same as for an administration.

The Convention on International Interests in Mobile Equipment (“Convention”) and the related Protocol on Matters specific to Aircraft Equipment (“Protocol”) came into force in the UK on 1 November 2015 through the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015.

It is not necessary to obtain “authorised entry point” codes for registering international interests, and a lessor can attend to the Cape Town filings itself.

The UK made declarations under Articles 39(1)(a)-(b), 39(4), 52, 53 and 54(2) of the Convention, and under Articles XXIX, XXX(1), XXX(2) and XXX(3) of the Protocol.

See 2.8.7 Deregistration Power of Attorney.

There is no recent case law in the English courts in respect of the enforcement of the Convention or the Protocol.

The UK has signed both the 1948 Geneva Convention on the International Recognition of Rights in Aircraft and the 1933 Rome Convention on the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft, but has ratified neither.

There are no restrictions on foreign lenders financing an aircraft locally, but tax analysis would be advisable to ensure the absence of withholding taxes or similar. Beyond the general laws to which any local borrower would be subject, there are no particular restrictions on borrowers using loan proceeds from a foreign lender.

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

Borrowers are permitted to grant security to foreign lenders.

Downstream, upstream and/or cross-stream guarantees are all permitted in favour of lenders. In relation to all, there must be adequate “corporate benefit” for the company giving the guarantee, which should be adequately documented in corporate approvals.

It is advisable for a lender to take share security over a domestic special purpose vehicle that owns the financed aircraft. A pledge of shares is recognised but a charge over shares would be more common and would usually be put in place together with security over the asset itself (eg, aircraft mortgage).

A negative pledge would be recognised under English law.

There are no material restrictions or requirements imposed on intercreditor arrangements.

The concept of agency and the role of an agent (such as the facility agent) under a syndicated loan is common and well established as recognisable under English law.

Subject to general qualifications as to enforceability, both contractual and structural debt subordination are permissible and recognised.

The transfer or assignment of all or part of an outstanding debt under an English or New York law-governed loan is permissible and recognised, and a well-established practice.

There are no usury or interest limitation laws but there is a general English law principle that “penalties” are not enforceable (see 2.6.8 Limitations on Lessors’ Actions Following Termination).

The typical forms of security and recourse granted in an aviation finance transaction domestically are:

• mortgage over the aircraft;
• security assignment;
• assignments of insurance/reinsurance;
• account charge (if applicable); and
• share charge (if the obligor is a special purpose vehicle).

If the entity granting the security is a company established in England, security must be registered with Companies House within 21 days of its creation.

In addition, it would be usual to see airframe/engine warranty agreements and the putting in place of an IDERA, but these do not strictly create security interests.

Depending on credit assessment, parent company guarantees may also form part of the overall security package.

There are no types of security that cannot be taken over an aircraft or related collateral such as engines, warranties or insurance.

The concept of a trust and the role of a security trustee are recognised and common.

Under English law, a borrower can assign its rights to the aircraft or under an aircraft lease (including in relation to insurance) to a security trustee, pursuant to a security assignment or a mortgage, and this is common and accepted practice.

Under English law, it is not possible to assign obligations, so it is eminently possible to assign the rights and benefits only without also assigning the attendant obligations of the lessor under an aircraft lease. Where the intention is to also “assign” obligations, this would be achieved by way of novation of the relevant contract.

A security assignment or a guarantee governed by New York law would be enforceable, provided that it was properly created under New York law.

Security assignments are often executed as deeds but this is not strictly a requirement for it to be valid and enforceable (unless the security assignment includes the grant of a power of attorney, which English law does require to be effected by way of deed).

If the assignor is a company established in England, the security assignment should be registered at Companies House within 21 days of its creation.

To perfect an English law security assignment, a notice should be provided to the counterparties of any contracts assigned thereunder (eg, a lessee or an insurer). While it is usual practice to also request an acknowledgement from recipients of such notice(s), a failure to obtain such acknowledgement does not undermine the perfection achieved by giving notice.

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

If a New York law-governed security assignment were to be taken in respect of an aircraft registered domestically, there is no requirement for a financier to take any domestic law security instrument in addition.

There are no mandatory English law security instruments and/or local law filings required in order to make Cape Town filings.

In principle, a New York law-governed security assignment could be registered domestically if the assignor were a company established in England, but it would be more usual to see an English company enter into English-law governed security documents.

Provided that the requirements of the underlying security documents are complied with, the transfer of security interests over an aircraft and/or engines is recognised.

A security assignment would usually provide that the security trustee is acting for the secured parties as identified at that time, and as may change from time to time; accordingly, if the identity of the secured parties changes after the execution of a security assignment, the security interests created thereunder are not jeopardised.

Largely due to the fact that trust structures are recognised and well understood, “parallel debt” structures (which would give the security trustee an independent right to the secured debt) are not common in England.

A secured party under a security assignment would not be deemed to be resident, domiciled or carrying on a trade or business in the UK solely by reason of being a party to or enforcing such security assignment, nor would it be subject to UK taxation as a result, provided it has no other UK nexus (such as UK-source income or a UK permanent establishment).

For an English law mortgage over an aircraft to be recognised as effective by an English court, the aircraft must be physically located in England (or English airspace) at the time the security is created, or in another jurisdiction whose domestic laws would recognise the creation of an English law mortgage.

A mortgage over an aircraft registered with the CAA may be registered in the mortgage register that the CAA maintains (this is not required for perfection of the mortgage but does give notice to third parties of the existence of the security). It is possible to lodge a “priority notice” with the CAA, which has a 14-day validity period during which no other mortgage can be registered.

If the mortgagor is a company established in England, the mortgage should also be registered with Companies House within 21 days.

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

An account charge would typically be used to take security over a bank account (such as a lease receivables account). An account charge would be perfected by giving notice to the account holding bank and, in the case of the chargor being established in England, by registration at Companies House within 21 days of its creation.

While not registrable, a third party can take a lien over an aircraft or engine in respect of unpaid airport fees, navigation charges, customs duties and repairers’ costs.

In the case of repairers’ costs and similar liens, the lien would be in respect of the value of the work actually performed on the aircraft (as opposed to the contract price).

See 3.3.4 Statutory Rights of Detention or Non-Consensual Preferential Liens regarding fleet liens.

It is not possible to provide an “average” timeframe to discharge a lien or mortgage over an aircraft as there are many variables. In respect of a mortgage registered with the CAA, mortgages are deemed to have been discharged at the date and time (subject to CAA opening hours) of receipt by the CAA of Form CA1577c and the copy of the deed of release.

The CAA holds a register of aircraft mortgages. The interest of an aircraft mortgagee or security trustee over an aircraft registered with the CAA can be noted on this aircraft register by filing Form CA1577 together with a certified true copy of the mortgage.

A registered mortgage serves as public notice of the aircraft mortgagee's or security trustee’s security interest. It also establishes priority over subsequent mortgages or claims, so it is important to avoid delays in registration as that risks a different mortgage being registered and having priority.

Statutory rights of detention or non-consensual preferential liens can arise over an aircraft and/or on a “fleet-wide” basis. In particular, the CAA has power to detain one aircraft to recover Eurocontrol charges, and certain UK airports have power to detain one aircraft to recover airport charges in respect of, in each case, an airline’s entire fleet. See also 2.4.6 Priority of Third Parties’ Rights.

A potential purchaser of an aircraft can carry out searches of the Register and the Cape Town International Registry to verify that an aircraft is free of encumbrances. If the aircraft is owned by a company established in England, a search of Companies House should also be carried out.

Security Assignments

A security assignment will generally contain detailed enforcement provisions that govern when and how the assignee can enforce its security. Ideally, the enforcement powers will be as broad as possible and will have been tailored to reflect the nature of the secured assets, typically including:

• the right to appoint a receiver;
• the power of sale (and other powers conferred by the Law of Property Act 1925); and
• the right to take possession.

Loans

A facility agreement will usually specify the actions that a lender (or the security trustee on behalf of the lender(s)) may take following the occurrence of an event of default, which would typically be rights to:

• cancel any outstanding commitments so that no further utilisations may be made (ie, the right to cancel will only be relevant if the facilities have not been fully drawn);
• accelerate and demand immediate repayment of all amounts accrued and outstanding; and
• exercise the rights provided under the security documents.

Note that these are rights that may be exercised rather than being automatic.

Guarantees

A true guarantee is a secondary obligation. This means that if the primary obligation ceases to exist for any reason, the guarantor cannot be liable for it, because the guarantee is dependent on the primary obligation. The type of guarantee affects the way in which it is enforced. The Court of Appeal in England has held that a guarantee that is a conditional payment guarantee or a concurrent primary obligation creates a debt obligation (enforceable by a statutory demand), whereas a guarantee by which the guarantor’s obligation is to procure performance of the primary debtor creates a claim in damages (which requires a judgment for enforcement).

If, under a security assignment, security is granted to a security trustee by a lessor in respect of its rights under an aircraft lease, the security trustee’s ability to enforce its rights under the security assignment will be as set out in the security assignment itself.

If a notice and acknowledgement have been executed by the lessor and the relevant lessee (the notice being required to perfect the assignment and the acknowledgment from the lessee being good, and usual, practice), then the security trustee can enforce its rights thereunder in accordance with the terms of the security assignment itself.

If the security assignment does not include express terms regarding enforcement, the security trustee can enforce its rights that arise by operation of law (eg, appoint a receiver, take possession, exercise a power of sale).

Generally, the English courts will uphold a foreign law as the governing law of a finance or security document, and the submission to a foreign jurisdiction, except, for example, where it would be incompatible with public policy in England or where the elements of the contract to be performed are located in a jurisdiction other than England and that country’s laws cannot be derogated from by contract.

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/aircraft mortgage without the lessee’s or operator’s consent on the basis that the power is expressed in the relevant agreement and the security party is able to do so peacefully. However, a court order will often be useful as airport authorities tend to require it in order to allow access and it avoids any argument by the lessee as to trespass or breach of the lessee’s right to quiet enjoyment of the aircraft in circumstances where the lessee opposes the repossession.

The English courts are competent to decide enforcement actions under a security agreement/aircraft mortgage, with the English Commercial Court being the usual forum.

See 2.6.4 Summary Judgment or Other Relief.

See 2.6.7 Judgments in Foreign Currencies.

A secured party is not required to pay any material (ie, non-nominal) taxes or duties in connection with the enforcement of a security agreement or aircraft mortgage. Enforcement itself does not give rise to UK tax liability.

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