Under Maltese law, no stamp duty is payable on the execution of an aircraft or engine sale agreement. Aircraft are not chargeable assets under the Duty on Documents and Transfers Act (Chapter 364). No income tax or capital gains tax is chargeable on the direct transfer of an aircraft held as a capital asset. Where title is transferred indirectly through the sale of ownership interests in an entity holding the aircraft, stamp duty may apply to transfers of marketable securities. The transfer of securities or an interest in an entity owning an aircraft (assuming the aircraft is held as a capital asset) would also be subject to capital gains tax in Malta, subject to applicable exemptions.

There is no general requirement for an aircraft sale agreement to be translated, certified, notarised or legalised to be enforceable against a domestic party. However, notarisation, apostilling or legalisation depending on the circumstances and any document submitted to the Civil Aviation Directorate (CAD) in a language other than English must be accompanied by a certified English translation.

Under Maltese law, the transfer of title to an aircraft requires a bill of sale or written sales agreement clearly identifying the aircraft, transferor and transferee, and evidencing the intention to transfer ownership whereby the party with the power to dispose of the asset binds itself to transfer to the other the said asset for a price. Title reservation agreements, under which ownership does not pass until specified conditions are satisfied, are also possible. The transfer extends to all installed parts owned by the transferor at the time, unless otherwise specified. For a registered aircraft, the transfer has no legal effect against third parties until registered with CAD under the Aircraft Registration Act (Chapter 503) (ARA).

The transfer of an ownership interest in a company that holds title to an aircraft or engine is treated as a transfer of shares/change in the company’s shareholders.

Under Maltese private international law, including Regulation (EC) No 593/2008 (“Rome I”) and Regulation (EC) No 864/2007 (“Rome II”) on non-contractual obligations, parties are free to choose the governing law of their contractual and non-contractual obligations. A bill of sale governed by English or New York law in respect of an aircraft delivered in Malta will generally be recognised by Maltese courts, subject to Maltese public policy and mandatory rules. The bill of sale or written document should clearly identify the aircraft, transferor and transferee and evidence the intention to transfer ownership.

A bill of sale submitted to CAD must be certified. In addition, depending on the circumstances, it may also need to be notarised and apostilled. Any document submitted in a language other than English must be accompanied by a certified translation into English.

The bill of sale or the sale agreement must be provided as part of the supporting documentation required by CAD when registering an aircraft in Malta. In addition, in relation to a registered aircraft, the transfer of an aircraft has no effect against the aircraft and any person other than the transferor unless registered with CAD in accordance with applicable legislation.

See 1.1.1 Taxes/Duties Payable Upon Execution of the Sales Agreement.

There are no outright prohibitions on leasing of engines or parts under Maltese law. The ARA expressly contemplates aircraft leasing and provides that lessor and lessee rights may be recorded in the National Aircraft Register (the “Register”). Leases covering engines or spare parts are valid under Maltese law.

See 1.2.2 Sales Governed by English or New York Law.

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

Exchange control limitations have been abolished in Malta, and Maltese persons may enter into foreign currency transactions without limitation. Reporting requirements, for statistical purposes, may apply in terms of the External Transactions Act (Chapter 233).

Malta does not impose stamp duty on the execution of aircraft leases or as a consequence of an original or copy of a lease being brought into Malta. Notarial fees would only be payable if the lease is entered into as a public deed or is notarised, but this is not standard practice for aircraft leases.

A foreign lessor (under an operating lease) is not required to be licensed, registered or otherwise qualified in Malta to lease an aircraft to a Maltese lessee. As a general rule, finance leasing is a licensable activity in Malta. Certain exceptions apply. No prior approval is required under Maltese law for a lessee to take an aircraft on lease from a foreign owner.

There is no distinction between the terms required for a Maltese aircraft lease and a foreign law-governed lease, and there are no mandatory terms that would not already appear in a standard commercial aircraft lease. Under the ARA, a lease is one under which the lessor grants a right of possession or control for a stipulated time, with or without an option to purchase, in return for a rental or other payment. The general rule under Maltese law is that the parties’ agreed terms in an aircraft lease prevail over the provisions on leases of the Civil Code (Chapter 16) (the “Civil Code”).

See 2.3.5 Requirements for a Lease to Be Valid and Registrable.

Tax gross-up clauses are generally valid and enforceable under Maltese law. Maltese courts will uphold such clauses in aircraft lease agreements, and there is no specific prohibition or limitation on gross-up provisions in the aviation leasing context.

Under the general principles of Maltese contract law and the Civil Code provisions on lease, any existing or future movable property may be leased, which would include spare parts. There are no specific formalities required under Maltese law to ensure that spare parts are subject to the lease, but the lease agreement should clearly provide so and set out the terms applicable to them.

In terms of the ARA, where an engine has been attached to an airframe and is not owned by the airframe owner, each of the owners shall retain the ownership of their respective aircraft object and the engine shall not accede to the airframe.

The concept of a trust and the role of an owner trustee are recognised under Maltese law. The ARA expressly provides that owners of an aircraft held by a trustee may be recorded in the Register. The ARA also recognises that mortgages may be registered in favour of a security trustee appointed or acting under a trust for the benefit of other persons.

The Register may record the particulars of any owner, lessor, lessee, trustee, mortgagee or other person with a legal or beneficial interest in the aircraft, and a person holding an ownership or title interest may request in writing that such interest be noted. The certificate of registration constitutes prima facie evidence of its issuance and contents.

The Register is an operator registry, and the general rule is that the aircraft is registered in the name of the operator, which is not necessarily (and is normally not) the owner. The ARA also allows for an aircraft to be registered in the name of the owner that also operates it, the owner of an aircraft under construction or temporarily not being operated, or a conditional buyer authorised to operate it.

Malta does not maintain a separate register for aircraft or engine leases.

An aircraft may be registered in the name of its operator based on temporary title, provided the aircraft meets applicable registration requirements, the operator qualifies to register the aircraft, and the operator demonstrates legal authority to operate it. Where the registrant is a lessee, a copy of the lease or operating agreement must be submitted with the application for registration. No additional governmental approvals or consents are required for aircraft registration.

According to the latest information advisory notice published by CAD, the lease agreement must be in English or accompanied by a certified translation. The document must clearly state the date of execution and specify the lease term. A certified true copy of the agreement is required and, depending on the circumstances, it may need to be legalised/apostilled. The signatures and initials appearing on each page must be authenticated. Any reference to the aircraft should identify it by its Maltese registration marks and not include any previous registration marks.

Malta does not impose taxes or duties on filing aircraft leases with CAD.

Aircraft that are habitually based in Malta are normally also registered in Malta.

Certain documents are required in original or certified true copies. For example, a Mortgage Deed, an Irrevocable De-registration and Export Request Authorisation (IDERA), a certified designee appointment in relation to an IDERA and a deregistration power of attorney (DPOA) must be filed in original and may need to be notarised and legalised or apostilled.

Where a non-resident person leases or operates aircraft or engines in the international transport of passengers or goods, income from such activities is deemed to arise outside Malta, regardless of whether the aircraft has called at or operated from a Maltese airport. Accordingly, leasing income of a non-resident lessor is not subject to tax or withholding in Malta.

Where the special jurisdictional rule (above) does not apply, or if the foreign lessor is deemed to be trading in Malta through a branch, employees, agents or similar dependent representatives, the lessor’s income would be subject to Maltese tax and the Maltese lessee may be obliged to withhold 35% tax on payments to lessor under the Income Tax Act (ITA). Article 73(4) of the ITA does not impose additional liability on the non-resident lessor by reason of the lessee’s failure to withhold; however, the non-resident lessor’s primary tax liability, if any, remains enforceable by the Commissioner of Tax and Customs.

Maltese-registered lessors receiving operating lease income are subject to the standard tax rate of 35% on resulting profits. Lease payments are generally fully deductible for the lessee. Upon distribution of taxed profits by way of dividend, shareholders may be entitled to a refund of Maltese tax paid, the extent of which depends on the circumstances.

A foreign lessor will not be regarded as having a permanent presence, being resident or domiciled, carrying on business or being subject to any taxes in Malta solely by reason of leasing an aircraft under an operating lease to a Maltese lessee.

Whether a foreign lessor has a permanent establishment in Malta is a factual determination. Relevant factors include whether the lessor maintains a fixed place of business in Malta, the nature of its activities in Malta, whether it employs personnel or dependent agents in Malta, and the interpretation of permanent establishment under any applicable double taxation treaty. Where the lessor is registered in Malta as an international registrant, the appointment of a resident agent acting strictly within the capacity prescribed by the ARA does not, in itself, create a permanent establishment or tax presence, provided the agent’s activities remain limited to those functions and do not extend to active commercial operations on behalf of the lessor.

Where a lease agreement assigns maintenance and operational responsibilities to the foreign lessor, those contractual obligations will be recognised and enforceable under Maltese law.

The Civil Aviation Act (Chapter 232) (CAA) provides that, where an aircraft is flown so as to cause unnecessary danger to persons or property, the pilot, the person in charge, and the owner (unless the owner proves no actual fault or privity) shall be liable to a fine not exceeding EUR2,500 or imprisonment not exceeding six months, or both. The term “owner” includes any hirer of the aircraft at the time of the offence.

Where material loss or damage is caused to any person or property on land or water by, or by a person in, or an article or person falling from, an aircraft in flight, taking off or landing, damages are recoverable from the owner without proof of negligence or intention, unless the loss was caused by the claimant’s own negligence. Where the aircraft has been bona fide demised, let or hired out for more than 14 days and no crew member is employed by the owner, liability shifts to the hirer.

In limited circumstances, creditors of a lessee may attach a leased aircraft, for example where a creditor holds a possessory lien over it.

Registration in the Register does not create any additional rights. The lessor’s right should, however, be registered as an international interest in the International Registry (IR) under the Cape Town Convention (“Convention”) and Aircraft Protocol (“Protocol” and, together with the Convention, CTC) to grant the lessor the necessary protection contemplated therein.

If the lease constitutes a registered international interest under the CTC, the lessor’s claim will have priority over unsecured creditors.

Possessory liens held by repairers, manufacturers or other creditors that have performed works on the aircraft take priority over the aircraft to the extent of the service performed and value added. Similarly, priority non-consensual rights and interests under the ARA, including judicial costs for the aircraft’s sale, CAD fees, crew wages, repair and preservation debts, and salvage costs and expenses, are also afforded priority.

International interests and registered mortgages and registrable non-consensual rights or interests (which include taxes, duties, or levies due to the Government of Malta regarding the aircraft and wages and expenses for assistance or recovery related to the aircraft), if registered in the IR under the CTC, rank in order of their registration date.

There is no requirement for any part of an aircraft’s insurance to be placed with domestic insurance companies, provided adequate insurance is maintained in compliance with applicable legislation (including in terms of Regulation (EC) No 785/2004 and the Civil Aviation (Insurance Requirements for Air Carriers and Aircraft Operators) Order (S.L. 499.41).

See 2.5.1 Requirement to Engage Domestic Insurance Companies.

There are no restrictions on placing reinsurance with entities outside Malta.

A person may stipulate for the benefit of a third party in terms of Article 1000 of the Civil Code.

Assignments of insurance and reinsurance are generally permitted under Maltese law, subject to the contract’s terms and applicable law.

Maltese law imposes no restrictions on a lessor’s ability to terminate an aircraft lease. A lessor (or mortgagee, unless such power is expressly waived) may terminate upon default by serving written notice, without prior court authorisation and notwithstanding any opposition by the lessee. The lessor should ensure termination is based on grounds stipulated in the agreement or recognised at law, failing which the lessee may pursue a damages claim.

As regards re-export, Maltese law does not restrict a lessor’s ability to re-export the aircraft following termination, subject to obtaining the requisite flight authorisations. Where the lessor holds a recorded IDERA in the prescribed form, deregistration is straightforward: the lessor must certify to CAD that all registered international interests ranking ahead have been discharged or that their holders have consented to deregistration and export.

There are no statutory constraints on a lessor’s right to sell the aircraft after termination, provided the lessor holds title and legal capacity. It is not a prerequisite that the aircraft be physically present in Malta for the termination or any subsequent sale.

See 2.8 Aircraft Deregistration and Export.

A lessor may take physical possession of the aircraft without a court order or the lessee’s consent following termination upon written notice, in accordance with the parties’ agreement, and may apply to the Maltese courts for an order directing transfer of possession, which the courts must grant as expeditiously as possible.

General Court Jurisdiction

Malta has not yet established a dedicated court with exclusive competence over aviation matters, which are generally adjudicated by the First Hall of the Civil Court, which may issue precautionary warrants, including warrants of ejectment and arrest in relation to aircraft. Malta is expected to establish a dedicated Commercial Court with a specialised civil aviation section (see 4.2 Current Legislative Proposals).

Notable Aviation Case Law

In Air X Charter v Avmax (September 2021), the Court upheld the primacy of the CTC by revoking a prohibitory injunction that restrained the lessor and CAD from taking action in connection with the termination of the lease, repossession, and deregistration and export of the aircraft, notwithstanding that an IDERA had been registered with CAD and a request had been made under said IDERA. In Hi Fly Limited v FlyPop Limited (May 2023), the Court confirmed that a warrant of prohibitory injunction cannot be issued to prevent an authorised party under an IDERA from enforcing its rights.

Cape Town Convention Speedy Relief

Under the ARA’s implementation of the CTC, a creditor with a registered international interest who adduces evidence of the debtor’s default shall, pending final determination and to the extent the debtor has agreed, be entitled to speedy relief from a court in the form of: (i) preservation, possession, control or immobilisation of the aircraft (within ten calendar days); (ii) lease or management of the aircraft and income therefrom (within 30 calendar days); and (iii) sale and application of proceeds by agreement (within 30 calendar days), in each case from the date the application is filed.

Other Precautionary Measures

Maltese courts may also issue precautionary warrants as interim/injunctive relief, including warrants of arrest, seizure of the lessee’s assets, and a warrant of ejectment requiring the lessee to vacate the aircraft.

See 1.2.2 Sales Governed by English or New York Law.

Under the CTC as implemented in Malta, a waiver of sovereign immunity from court jurisdiction or enforcement of rights in an aircraft object is binding and effective, provided it is in writing and describes the aircraft object.

A judgment awarded by a competent court outside Malta will be recognised and enforceable in Malta without re-examination of the merits, subject to the following regimes:

• EU member state judgments: recognised and enforced under Regulation (EU) No 1215/2012 (the “European Judgments Regulation”).
• Lugano Convention judgments: recognised and enforced under the Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters of 30 October 2007 (the “Lugano Convention”).
• Hague 2005 Convention judgments: recognised and enforced under the Convention on Choice of Court Agreements of 30 June 2005 (the “Hague 2005 Convention”).
• Hague 2019 Convention judgments: recognised and enforced under the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters of 2 July 2019 (the “Hague 2019 Convention”), to which the EU (on behalf of EU member states including Malta) and the UK are contracting parties.
• UK superior court judgments: enforceable in Malta under the British Judgments (Reciprocal Enforcement) Act (Chapter 52) (the “British Judgments Act”). The creditor must apply to the Court of Appeal within 12 months of judgment to have it registered in Malta. The Court will order registration if it considers it just and convenient to do so, subject to standard grounds for refusal including lack of jurisdiction, fraud, failure of service, pending appeal or public policy grounds.
• Other foreign judgments: recognised and enforced by Maltese courts subject to applicable Maltese law requiring judgment registration or confirmation, unless the judgment is liable to be set aside on grounds for retrial under Maltese procedural law or contains provisions contrary to Maltese public policy.

Save for the above, Maltese court jurisdiction is not excluded merely because a foreign court is also seized of the same or a related cause of action.

Foreign arbitration awards are recognised and enforceable in terms of (and subject to) the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York 1958).

Maltese court judgments, and precautionary and executive warrants, are denominated in Malta’s lawful currency (the euro). However, Maltese courts will generally accede to specific applications for the currency to be converted into and expressed in a foreign currency denomination.

See 3.1.11 Usury/Interest Limitation Laws.

A lessor is not required to pay taxes or fees in a significant (non-nominal) amount in connection with the enforcement of an aircraft lease in Malta.

See 2.6.1 Restrictions on Lessors’ Abilities and 2.6.2 Lessor Taking Possession of the Aircraft.

Under Maltese law, private entities, including airlines and aircraft operators, are generally subject to civil proceedings and enforcement measures without immunity. Limited exceptions apply, including aircraft in exclusive government service, military aircraft, and the constitutional immunity of the President of Malta in the exercise of official functions.

Malta has ratified the 1958 New York Convention.

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

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

Maltese law recognises both contractual assignment and novation.

See 1.2.2 Sales Governed by English or New York Law.

The lessee’s consent to an assignment of the lessor’s rights is not required under Maltese law (unless the lease expressly requires it); notice to the lessee is sufficient. An assignment is effective against third parties if notice is given to the debtor by judicial act, or the debtor has otherwise acknowledged the assignment. There are certain terms which must be included: the Civil Code expressly states that the assignor will not be answerable for the solvency of the debtor unless expressly bound to that effect.

A novation requires all parties to agree and must clearly state that it is a novation (novation cannot be presumed). Once novated, the outgoing party is fully released and the incoming party assumes all rights and obligations.

If the document is not in English and will be submitted to CAD, a certified English translation will be required. Documents may require notarisation, apostilling or legalisation depending on the circumstances.

If enforcement proceedings are being taken, translations would be required.

Malta does not maintain a register for aircraft leases. However, where there is a change in lessee or any particulars furnished to CAD during aircraft registration, CAD must be notified. No government applications or consents are required as a prerequisite to the execution and delivery of a lease assignment or novation in relation to an aircraft registered in Malta.

Malta does not impose stamp duty, transfer taxes or similar charges on the assignment or novation of an aircraft lease.

Where the ownership interest in an entity owning an aircraft is transferred while legal title to the aircraft remains with that entity, such transfer is treated under Maltese law as a transfer of shares, not a transfer of the aircraft. No registration of a change of aircraft ownership with CAD is required solely because of a transfer of shares in an aircraft-owning company.

Who Can Apply for Deregistration?

Persons entitled to apply for deregistration from the Register are: (i) the registrant (owner or operator in whose name the aircraft is registered), where no IDERA or DPOA has been registered; (ii) the authorised party under a recorded IDERA or its certified designee; and (iii) the holder of a recorded DPOA or its delegate.

Standard Process and IDERA-Based Deregistration

The standard deregistration process requires a written request to the Director General (DG) for cancellation of registration. The DG will not cancel registration of an aircraft subject to an undischarged mortgage or international interest, or a registered IDERA or DPOA, without the consent of all holders.

Where an IDERA or DPOA is recorded, only the authorised party or attorney may apply for deregistration. Where an IDERA has been recorded, the DG is legally required to process a compliant request within five working days, unless prior-ranking international interests are registered in the IR.

If the lessee is the registrant of the aircraft, then the lessee must apply for deregistration. However, where an IDERA and/or DPOA has been recorded in the Register, the authorised party may apply for deregistration without the lessee’s or operator’s consent, without court approval, and without administrative involvement beyond CAD’s mandatory processing, provided any undischarged mortgage or registered international interest holders have consented to deregistration or discharged their interests. Where any person has had an interest annotated in the Register, reasonable notice must also be given to that person.

For IDERA-based deregistration, the request must be submitted in the form prescribed in Annex 3 of the ARA’s Second Schedule, signed by the authorised party or its certified designee. The authorised party must certify to CAD that all prior-ranking registered interests have been discharged or that their holders have consented to the deregistration and export.

For non-IDERA deregistration, required documents include: a written request on CAD’s application form; evidence of discharge of or consent from all holders of registered mortgages and international interests; payment of outstanding fees; and supporting corporate documentation confirming the signatory’s authority.

With lessee co-operation and complete documentation, deregistration typically occurs within a few days of the request to CAD. Where an IDERA has been recorded, the DG is legally required to deregister within five working days of receipt of a complete and compliant request, without: (i) the consent of the registrant, any other person or entity; (ii) any court or administrative order; (iii) any need for CAD to investigate external facts; or (iv) imposing additional requirements.

CAD does not ordinarily provide advance assurances as to the prompt deregistration of the aircraft. The letter of deregistration is issued only once the aircraft has been formally deregistered.

There are no significant (non-nominal) fees for deregistration of an aircraft (currently, the fee is EUR50). No taxes are payable in Malta on the deregistration or export of an aircraft following the enforcement of a lease.

An irrevocable power of attorney granted by way of security to the owner, authorising it to deregister and export an aircraft (a DPOA) is enforceable in Malta, regardless of whether it is governed by Maltese law or foreign law.

No additional formalities are prescribed for validity beyond the DPOA being in writing; however, it must be granted by the registrant of the aircraft, and no other DPOA for the same aircraft may already be recorded in the Register. Once submitted, CAD registers the DPOA and records it in the Register, together with details of any delegate appointed.

Any document submitted to CAD in a language other than English must be accompanied by a certified English translation and, depending on the circumstances, the document may require notarisation, legalisation or apostilling.

The ARA expressly regulates the procedure for deregistration based on an IDERA. It does not expressly regulate the procedure for deregistration based on a DPOA, but requires CAD to act upon a request made by the authorised party under the DPOA, unless any international interest registered in the IR ranks in priority thereto.

A DPOA does not have to be governed by Maltese law.

Generally, a mandate is revocable; however, where a DPOA is expressed to be irrevocable and is, and is expressly stated to be, granted by way of security, it may only be revoked with the consent of the person whose interest is secured and the grantor cannot revoke it unilaterally.

Deregistration and export can proceed without lessee consent, court approval or administrative authority involvement beyond CAD’s mandatory processing. The aircraft does not need to be physically located in Malta at the time of deregistration. The aircraft owner, mortgagee or lessor should, at the time of negotiating the lease or mortgage, procure from the lessee/mortgagor an IDERA (and DPOA) registered with CAD and ensure that all prior-ranking registered interests are discharged or that their holders have consented. The transaction documents should also expressly grant the creditor the rights to deregister and export.

Where an aircraft is being deregistered for export to a third country, the owner or operator must apply for an export Certificate of Airworthiness or Export Conformity Statement. The documentation and timing for issuance depend on the circumstances and the aircraft.

Costs associated with the export process will depend on the circumstances and the aircraft.

Several practical considerations apply: (i) CAD will not cancel registration of an aircraft subject to an undischarged mortgage or international interest without the consent of all holders; (ii) deregistration may be refused or delayed if the aircraft is under arrest or subject to court proceedings; (iii) where an IDERA and/or DPOA is recorded, the authorised party is the sole person entitled to request deregistration; and (iv) the removal of nationality marks and the fireproof plate, return of original certificates, and changing of electronic or radio identifications are required, though where a request to deregister is made under an IDERA, these must be done promptly after, and not as a condition of, deregistration and export.

The primary insolvency legislation applicable to a Maltese lessee comprises:

• Companies Act (Chapter 386) (CA): the main framework for corporate insolvency, winding-up and company recovery;
• ARA: specific provisions governing insolvency of aircraft companies and protection of secured creditors;
• Pre-Insolvency Act (Chapter 631): implementing Directive (EU) 2019/1023; and
• EU Insolvency Regulation (Regulation (EU) 2015/848) (the “Insolvency Regulation”): governing cross-border insolvency within the EU.

In terms of the CA, a company may be dissolved and wound up by the courts or voluntarily (members’ or creditors’ winding up). There are three modes of winding up under Maltese law: (i) members’ voluntary winding up; (ii) creditors’ winding up; and (iii) court winding up.

Maltese companies whose main object is to own, hold, operate, charter, manage or lease aircraft or aircraft engines are excluded from the company recovery procedure under the CA. For aircraft companies (with their centre of interests in Malta or registered in Malta, whose sole asset is an aircraft or related assets), the constitutional documents of the company may vest the right to request insolvency proceedings exclusively in the holders of a mortgage, international interest, security interest or trustee/agent over such assets, to the exclusion of all other persons for so long as their interest remains in force. Should no such right be vested in those persons, and a member of the aircraft company files a winding-up demand, the applicant must provide the court with all information available relating to any aircraft claims and enforcement proceedings involving the aircraft company.

Cross-border insolvency proceedings involving Malta are governed primarily by the Insolvency Regulation, which provides for automatic recognition of insolvency proceedings opened in other EU member states. Potential conflicts may arise between the CTC and EU Regulations. Malta has not adopted the UNCITRAL Model Law on Cross-Border Insolvency.

A mandate is generally revocable and is terminated by a declaration of bankruptcy of either party. However, where an IDERA or an irrevocable DPOA is granted by way of security, it will not be terminated or rendered void by a declaration of bankruptcy or the opening of insolvency proceedings against the issuer. An IDERA is irrevocable by nature; a recorded irrevocable DPOA (by way of security) lapses only if it contains a specified expiry date that is reached.

The liquidator’s powers include carrying on the company’s business. Therefore, the lease will not be set aside and will continue to bind the parties in accordance with its terms.

Under the ARA, enforcement actions by creditors shall not be interrupted or hindered by a liquidator, receiver, trustee or curator in bankruptcy, for any cause other than one that could be raised by the aircraft owner. During the insolvency of aircraft companies (see 2.9.2 Overview of Relevant Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership), a court-appointed person must exercise any powers under applicable law in support of the remedies of secured creditors, and must preserve the aircraft and maintain its value until handed over to the creditor entitled to possession.

Under the CTC, the insolvency administrator or debtor may retain possession of the aircraft, if within 30 calendar days of the insolvency-related event, it has cured all non-insolvency defaults and commits to future performance of obligations. Debtor obligations cannot be modified without creditor consent.

The main risks include delays and priority of prior-ranking interests. The Civil Code also provides an actio pauliana allowing creditors to challenge and annul fraudulent transfers by a debtor, and the CA provides for claw-back of payments made within six months before dissolution if they constitute a transaction at an undervalue or a fraudulent preference. Potential conflicts between the CTC and EU insolvency regulations may also create uncertainty in cross-border scenarios.

Under the Pre-Insolvency Act, a moratorium is available to debtors during restructuring proceedings. However, it carves out the following if they are inconsistent or insofar as they may be construed as limiting or restricting: (a) actions in rem against an aircraft or engine; (b) proceedings by registered mortgagees or privileged creditors; and (c) warrants of arrest against an aircraft or engine.

Under the CTC (Alternative A as adopted by Malta), a waiting period of 30 calendar days applies from the date of the insolvency-related event, after which, if defaults are not cured, the lessor may take possession.

The court may appoint a provisional administrator at any time after presentation of a winding-up application and before the making of a winding-up order. Either the official receiver or any other competent person may be appointed as administrator.

Under the Civil Code, a lease of an aircraft is immediately terminated by the lessor (or mortgagee) upon a default and written notice to the lessee. “Default” includes: (i) a failure by a party to perform its obligations or fulfilment of an agreed dissolution condition; (ii) a material change in the lessee’s financial condition that endangers payment of debt or diminishes security; or (iii) a default depriving the mortgagee of what it is entitled to expect.

Under the ARA provisions transposing the CTC, the insolvency administrator or debtor may retain possession of the aircraft, if within 30 calendar days of the insolvency-related event, it has cured all non-insolvency defaults and committed to future performance of obligations.

Outstanding rentals rank as an unsecured claim unless protected by a registered international interest. Security deposits and maintenance reserves may be treated as part of the lessee’s estate without specific contractual and structural protections, leaving the lessor as an unsecured creditor for those amounts.

See 2.9.5 Other Effects of a Lessee’s Insolvency.

Malta ratified the CTC in 2010, and it came into force in Malta on 1 February 2011. Malta has not designated an Authorised Entry Point.

Malta has made the following declarations: (i) Articles 39(1)(a), 39(4), 40, 53 and 54(2) of the Convention; and (ii) Article XXX(1) of the Protocol.

In addition, the ARA implements the provisions of Alternative A of Article XI of the Protocol on remedies on insolvency.

Article XIII of the Protocol applies in Malta. An IDERA may be submitted to CAD for recordation in the form prescribed in Annex 1 of the Second Schedule of the ARA. A nominal fee is payable. CAD is required to record a compliant IDERA within two working days of receipt, promptly confirm recordation, and issue a declaration undertaking not to deregister the aircraft without the consent of the authorised party. CAD will not record an IDERA where the aircraft is not yet registered in Malta or where an existing recorded IDERA for that aircraft remains in force. Once recorded, the IDERA is enforceable without judicial proceedings: CAD must effect deregistration and export within five working days of receipt of a compliant IDERA request, without the lessee’s consent or any court approval.

Depending on the circumstances, the signature on the IDERA may require notarisation and apostilling. It must be accompanied by adequate evidence of the signatory’s authority to bind the registered owner, such as a notarial certification or certified board resolution appointing that person to sign. Signed scanned copies are acceptable provisionally pending receipt of originals.

See 2.6.3 Specific Courts for Aviation Disputes.

Malta is not a party to the 1948 Geneva Convention on the International Recognition of Rights in Aircraft, nor to the 1933 Rome Convention on the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft.

Generally, in terms of the Financial Institutions Act (Chapter 376), lending and financial leasing cannot be transacted regularly or habitually, in or from Malta, except by a company that is in possession of a licence granted by the competent authority.

See 2.1.4 Exchange Controls.

Regulatory consents, such as from the Malta Financial Services Authority, may also be required in order to provide financing (see 3.1.1 Restrictions on Lending and Borrowing).

Borrowers are generally permitted to grant security to foreign lenders, unless otherwise provided in the company’s constitutional documents.

See 3.1.3 Granting of Security to Foreign Lenders.

The CA regulates the granting of financial assistance. An undertaking cannot subscribe for, hold, acquire or otherwise deal in shares in a company which is its parent company, or give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of an acquisition or subscription made or to be made by any person of or for any shares in the company or its parent company, save in exceptional circumstances/subject to compliance with certain procedures.

It is advisable for a lender to take share security (pledge of shares) over a domestic special purpose vehicle (SPV) that owns the financed aircraft, as this gives the lender direct recourse to the SPV itself. A pledge of shares is recognised under Maltese law. However, if the company is a private company, securities may not be pledged unless the company’s constitutional documents specifically allow it.

Negative pledges are recognised and enforceable under Maltese law as a matter of contract.

There are no material restrictions or requirements on intercreditor arrangements under Maltese law. Parties are free to agree contractually on priority, subordination, standstill periods, enforcement co-ordination and voting mechanics without regulatory approval or registration. Under the Civil Code, a creditor may subordinate, postpone, waive or otherwise modify its rights of payment, enforcement or ranking in favour of another creditor, whether by agreement or unilateral declaration.

The concepts of agency and the role of a facility agent in a syndicated loan are recognised under Maltese law.

See 3.1.7 Intercreditor Arrangements.

See 2.7.2 Assignment/Novation of Leases Under Foreign Laws.

Maltese law contains usury and interest limitation provisions. Under the Civil Code, interest is generally capped at 8% per annum, and compounding of interest is not enforceable unless the obligation is outstanding for more than one year and certain procedures are followed.

However, under the Interest Rate (Exemption) Regulations (S.L. 16.06), these limitations do not apply to debts or obligations where: (a) the obligation arises under a contract governed by a law other than Maltese law; (b) the agreed rate is in accordance with international market conditions; and (c) the payor of interest is not a natural person. The limitations also do not apply to debts secured by a mortgage over, or due under a lease of, a ship or aircraft (including an aircraft engine), regardless of where registered or what law governs.

The typical forms of security and recourse in a Maltese aviation finance transaction are: (i) aircraft mortgage: registered with CAD; (ii) international interest: registered in the IR under the CTC; (iii) IDERAs and DPOAs: registered with CAD; (iv) share pledge: over the shares of the aircraft-owning company incorporated in Malta; (v) assignment of insurances; and (vi) assignment of manufacturer warranties.

There is no prohibition specific to collateral being taken over engines, warranties or insurance. However, there is no separate engine register in Malta, so a mortgage cannot be registered exclusively on an engine. As for the CTC, an international interest can be registered on an aircraft engine.

Security over the aircraft would not extend to any engine attached to the airframe when such engine is not the property of the airframe owner granting the security, notwithstanding that the engines may be specifically referred to in the mortgage, the Register or elsewhere. If an engine attached to an airframe is not owned by the airframe owner, each of the owners retains ownership of their respective asset.

The concept of a trust and the role of a security trustee are recognised under Maltese law.

Assignment of rights is recognised under Maltese law (see 2.7.1 Recognition of the Concepts of Contractual Assignment and Novation and 2.7.2 Assignment/Novation of Leases Under Foreign Laws).

Maltese law also contemplates security by title transfer under the Civil Code, whereby a debtor (or third party for the debtor) transfers or assigns movable property to secure a present or future obligation to creditors (present or future), or to a third party acting as a trustee for the benefit of such creditors and subordinately for the debtor, in accordance with the Civil Code provisions regulating a “security trustee”.

Maltese law permits the assignment of rights and benefits without also novating obligations.

A security assignment or guarantee may be governed by foreign law.

See 1.2.2 Sales Governed by English or New York Law.

There are no formalities relating to a security assignment.

In accordance with the Civil Code, in a security by title transfer (subject to any other formalities), the creditor acquires ownership as soon as the debtor/transferor and creditor enter into a written agreement designating the property being transferred, the secured obligations (which may be existing or future), and the rights of the transferee in case of default. The transfer operates against third parties, in the case of debts and rights against an obligor, when notice is given (which may be by any means including electronic means, without requirement for a judicial act), and in the case of registered property, when the transfer is registered in the relevant register.

See 3.2.7 Formalities/Mandatory Terms to Create and Perfect Security Assignments.

Security assignments are not registrable in Malta. If a security by title transfer is entered into in relation to an aircraft, then the change in title may be registered.

Transfers of security interests are recognised. If the transfer is of a registered national aircraft mortgage, then the procedure set out in the ARA must be complied with. Assignments of international interests must comply with the provisions of the CTC.

Where a mortgage is granted in favour of a security trustee acting for the benefit of other persons, the security trustee is registered as mortgagee and is entitled to exercise all rights under the mortgage without reference to underlying beneficiaries. A change in the secured creditors will not jeopardise the security.

In the case of a mortgage registered in favour of a named secured creditor, a change in the secured creditor must be notified to CAD as a transfer of mortgage in terms of the ARA.

Parallel debt structures are of questionable validity in terms of Maltese law.

A secured party under a security assignment will not be deemed to be resident, domiciled or carrying on business in Malta, or be subject to any Maltese taxes, solely as a result of being a party to or enforcing a security assignment.

A domestic law mortgage over an aircraft in Malta is perfected by registration with CAD in accordance with the ARA. The mortgage must be in the statutory form, executed by the mortgagor before a witness, and submitted in original. The signatory may be an attorney under a power of attorney, which must be presented with the mortgage deed and may require notarisation, legalisation or apostilling. CAD also requires copies of corporate authorisations for the granting of the mortgage. Mortgages are recorded in order of time (day and hour) of presentation, which determines priority. The registration fee is EUR500 for a new mortgage and EUR250 for amendments. A domestic mortgage may also be registered in the IR under the CTC, and domestic mortgages cannot be registered over engines.

See 3.2.2 Types of Security Not Available.

The most common form of security over a bank account is a pledge or assignment of receivables. A pledge is in writing and perfected by written notice (judicial act) to, or acknowledgement from, the debtor. A security assignment may be used, and it is perfected by notice to (or acknowledgement from) the account bank.

Third parties may exercise possessory liens over an aircraft or engine in Malta. Repairers, manufacturers or other creditors into whose care and authority an aircraft has been placed for works or other purposes have a possessory lien on the aircraft as security for the works done, to the extent of the service performed and value added. Such creditors may retain possession of such aircraft until their claims are paid or adequately secured. The possessory lien covers only work performed and value added to the actual asset.

In addition, certain statutory special privileges arise by operation of law, including judicial costs for the sale of the aircraft and distribution of the proceeds, CAD fees, crew wages, salvage costs and expenses.

See 2.4.6 Priority of Third Parties’ Rights.

A possessory lien is discharged when the debt is settled or adequate security is deposited in court. Voluntary release also extinguishes the lien permanently. Discharging a registered mortgage requires submission of the mortgage deed to CAD by signing on the back of the mortgage and is relatively quick if all documentation is in order.

Mortgages over aircraft are registered in the Register, which records both aircraft registrations and security interests, including mortgages, and there is no separate register for aircraft mortgages. Registration renders the interest effective against the aircraft and third parties, and establishes priority by time of registration over subsequent mortgages.

Domestic mortgages registered under the ARA rank after any international interest, prospective international interest, or other right registered in the IR, irrespective of the date and time of registration in the IR.

See 3.3.1 Third-Party Liens.

A potential purchaser should search both: (i) the Register, which records registered aircraft, mortgages, IDERAs, DPOAs, prohibitory notices and other interests; and (ii) the IR, which records international interests, sale assignments and associated notices. An encumbrance recorded only in the IR will not appear in the Register, and vice versa.

The differences in enforcing a security assignment as opposed to a loan or a guarantee are tied to the relevant security interest. For example, a mortgage granted by a borrower and a mortgage granted by a guarantor would be enforced in a similar manner.

In an assignment, the assignee may exercise the assigned rights after notice has been given to the debtor by judicial act. In the case of a title transfer by way of security, only written notice is required, including by electronic means.

See 2.6.5 Domestic Courts’ Approach to Foreign Laws and Judgments.

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

A mortgagee may, upon default of any term or condition of a registered mortgage or of any document or agreement referred to therein, and upon written notice to the debtor, take possession of the mortgaged aircraft without a court order. An authorised party under an IDERA may take physical possession without the lessee’s or operator’s consent and without a prior court order. The Maltese courts are obliged to render full support as expeditiously as possible where the secured party encounters practical difficulties.

See 2.6.3 Specific Courts for Aviation Disputes and 4.2 Current Legislative Proposals.

Maltese courts may issue precautionary warrants as interim/injunctive relief pending final resolution, including a warrant of arrest of an aircraft, a warrant of seizure of the lessee’s assets, and a warrant of ejectment requiring the lessee to vacate the aircraft within four to eight days. In connection with a precautionary warrant of arrest, the court may require the arresting party to provide sufficient security (not less than EUR11,600) for payment of any penalty, damages and interest, failing which the warrant may be rescinded.

See 2.6.4 Summary Judgment or Other Relief.

See 2.6.7 Judgments in Foreign Currencies.

No taxes or duties in a significant (non-nominal) amount are payable by a secured party in connection with the enforcement of a security agreement or aircraft mortgage in Malta.

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