Aviation Finance & Leasing 2019 Comparisons

Last Updated July 29, 2019

Contributed By Furtună și Asociații

Law and Practice

Authors



Furtună și Asociații is a new law firm on the Romanian market founded by trend-setter professionals in Aviation and Airport Infrastructure. The team of seven lawyers consists of experienced litigators and consultants united by the desire to tackle creatively complex legal issues with emphasis on technical law areas. The aviation practice is best known for two things: firstly, the scope of aviation projects covered, ie assistance and representation in all the proceedings involving aviation accidents, assistance with the financing, construction and authorisation of international airports, assistance on matters related to the manufacturing of aviation equipment, advisory services on buying, selling and registration of aircraft, legal clearance for aviation shows, as well as regulatory drafting, and secondly, the ability of the lead partner Mihai Furtună to assemble and co-ordinate multidisciplinary teams of lawyers and technical experts in order to handle highly complex cases in civil and criminal proceedings successfully.

In respect of taxes or duties payable, the general rule is that pursuant to the Romanian Fiscal Code, value-added tax (VAT) is assessed on the supply of goods (including aircraft) delivered in Romania. This would apply to the sale or transfer of title to aircraft, engines and spare parts. Nonetheless, VAT is not applicable for all aircraft purchased and used by airlines primarily engaged in international passenger and/or freight transport, namely aircraft delivery, modification, repair, lease, rent. The current VAT rate is 19%.

According to Romanian legislation, it is not mandatory for a sale agreement of an aircraft or engine that is to be translated, certified, notarised or legalised to be enforceable against a domestic party. Nevertheless, the notarised translation of the sale agreement is necessary in the case of litigation against the domestic party or for performing administrative operations before the national authorities (such as aircraft registration).

The “transferring title” to an aircraft or engine can be a sale agreement, a final court decision or any other legal document whereby ownership is transferred. The ownership title is applicable to all the installed parts unless otherwise stated by the parties.

As regards the sale of the ownership interest in an entity that owns an aircraft or engine, a distinction should be made between share deal and asset deal. In the first case, a share deal is executed solely in respect of the shares and does not involve the sale of the aircraft or engine itself. Even if the ownership of the entity should change, the owner of the aircraft or engine will remain the entity itself. In the case of an asset deal that involves a sale of goods, it does entail the sale of an aircraft or engine itself.

Irrespective of the law that governs the bill of sale, the transfer of title to an aircraft or engine physically delivered in Romania is recognised by the Romanian authorities.

The national legislation does not impose any special requirements for the recognition of a bill of sale. Nonetheless, it is mandatory for the bill of sale to include the essential elements, such as the parties (seller, buyer), the object of the contract (aircraft or engine) and delivery date.

According to Romanian legislation, it is not mandatory for a bill of sale to be translated, certified, notarised or legalised in order to be enforceable against a domestic party. Nevertheless, the notarised translation of the bill of sale is necessary in the case of litigation against the domestic party or for performing administrative operations before the national authorities.

For the recognition of a bill of sale there are no requirements for registration or consent from any government entity.

In respect of taxes or duties payable, the general rule is that, pursuant to the Romanian Fiscal Code, value-added tax (VAT) is assessed on the supply of goods (including aircraft) delivered in Romania. This would apply to the sale or transfer of title to aircraft, engines and spare parts. Nonetheless, VAT is not applicable for all aircraft purchased and is used by airlines primarily engaged in international passenger and/or freight transport, namely, aircraft delivery, modification, repair, lease, rent. The current VAT rate is 19%.

Romanian legislation allows and recognises all types of operating/wet/finance leases or leases concerning only engines or parts of the aircraft.

According to the Romanian Civil Code, the parties can choose the governing law of the lease, which may be Romanian law or a foreign law, in the latter case under the condition that the chosen law is compatible with Romanian public order. In addition, the Regulation (EC) No 593/2008 (“Rome I”) states the same.

Our national legislation does not impose any material restrictions on domestic lessees making rent payments to foreign lessors in US dollars.

There are no national exchange controls which could prevent rent payments under a lease nor any repatriation of realisation proceeds.

In respect of taxes or duties payable, the general rule is that, pursuant to the Romanian Fiscal Code, value-added tax (VAT) is assessed on the supply of goods (including aircraft) delivered in Romania. This would apply to the rental payments under an aircraft lease. Nonetheless, VAT is not applicable for all aircraft purchased and used by airlines primarily engaged in international passenger and/or freight transport, namely, aircraft delivery, modification, repair, lease, rent. The current VAT rate is 19%.

Romanian jurisdiction does not require any licence or other qualification for a lessor to do business with a domestic lessee.

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

Both value-added tax - VAT and income tax on income earned by non-residents from services supplied in Romania, except for international transport and related services, are withheld taxes in Romania. The domestic party has an obligation to withhold the tax and make the payment to the competent authority. Therefore, it is advisable to capture in the lease contract special clauses with respect to withholding taxes.

According to the national legislation, if not otherwise stated, an aircraft lease covers all parts that are installed or replaced on an aircraft or engine. Nevertheless, the lease agreement should contain special clauses in this regard detailing the installed/replaced parts that are part of the lease agreement. If the agreement is executed and these clauses were not captured, for avoidance of any doubt the agreement should be concluded with an addendum.

There are no express provisions regarding the concept of title annexation in Romanian law. Regardless of any such lack of provisions, there is a risk that this automatic transfer could occur, as it might be regulated by the parties' agreement.

Our legislation does not provide a concept of trust, but it has a similar concept, fiduciary (fiducia in Romanian). Fiduciary is the legal operation by which one or more settlors transfer present or future rights to one or more trustees, to the benefit of one or more beneficiaries. The fiduciary must be expressly stipulated by law or by notarised agreement.

According to the Civil Romanian Air Regulation No RACR-IA, “Registering civil aircraft” edition 1/2016, the Romanian Civil Aviation Authority manages the following registers: (i) Civil Aircraft Register; (ii) Aircraft Mortgages and Charges Register and (iii) Civil Aircraft Deregistration Register. Therefore, the interests of the owner (legal or beneficial) or a lessor of an aircraft will not be noted in the aircraft register, but in the register of aircraft mortgages and charges. The effect of such notation lies in the fact that it may be opposed to third parties.

The aircraft can be registered domestically in the name of the aircraft operator if the operator is not also the owner, or in the name of the owner if the owner is not also the operator, due to the fact that, according to the Romanian legislation: (i) both owner and operator, as the holder of the aircraft, can submit the request for the registration in the aircraft register, in the second case under the condition to provide the written consent from the owner and (ii) the aircraft register includes both the name of the owner and the aircraft operator/holder.

There is no specific register for leases concerning aircraft or engines in Romanian legislation.

The lease, per se, does not have to be registered or filed in the domestic aircraft registry but, given the provision stating that the Romanian aircraft registry includes both the name of the owner and the holder, the lease will be mentioned under that specific section.

The national legislation states that any change regarding the owner or the holder of the aircraft must be brought to the Romanian Civil Aviation Authority's attention within ten days. If the solicitant does not meet the deadline, AACR will suspend the Registration Certificate for a maximum period of six months. If, during the suspension period, the changes are not registered, AACR will revoke the certificate.

No government consent is required in Romania.

If the lease is concluded by the time of the initial registration in the aircraft registry, there is no specific requirement, as it will follow the steps of the registration process. In the event that the lease agreement is concluded after the registration, to provide the change of owner/holder the applicant must submit: (i) the modification request, (ii) relevant supporting documents, and (iii) proof of payment for the modifications (EUR45 + VAT). The process will be finalised within 30 days from the complete submission of the documentation.

The national legislation does not provide any government applications or consents required as a pre-requisite to the execution and delivery of an aircraft and/or engine lease in relation to an aircraft registered in Romania.

Given that the aircraft register is being operated by the Romanian Civil Aviation Authority and considering that all the documents submitted to that authority must be in their original form or legalised and with a certified translation in case of being in a foreign language, the lease agreement must comply with such provisions.

Please see Registration of Leases with Domestic Aircraft Registry.

Usually, aircraft habitually based in Romania are typically registered in Malta and Cyprus.

The Romanian Civil Aviation Authority requires all applicants to submit the documentation for aircraft registration in original form or legalised and, if written in any other language than Romanian, together with a certified translation. 

Usually, the lessor is subject to income tax according to the country where he or she is resident for tax purposes. As regards Romanian tax law, on income earned by non-residents from services supplied in Romania, except for international transport and related services, withholding tax is generally applied, the standard tax rate being 16%. Given such provisions, with a view to avoiding double taxation, Romania has concluded 108 Double Taxation Avoidance Treaties and Protocols amending the treaties, which can be found on the website of the national tax administration agency.

Also, Romanian tax legislation states that (i) if the income payment is considered to be related to an artificial transaction (transactions which are essentially aimed at avoiding taxing or obtaining tax advantages which otherwise would not be granted) and (ii) the income is paid in a state with which Romania has not concluded a treaty for the exchange of information, the tax rate will be 50%.

A foreign lessor cannot be deemed to be resident, domiciled, carrying on business or subject to any taxes as a result of it being a party to or its enforcement of the lease. As mentioned above, Romanian legislation regulates such situations and does not impose any such conditions. 

The Romanian Civil Code states that the lessor is required to make all necessary repairs to keep the asset in proper use for the duration of the lease, according to the intended purpose, with the lessee being in charge of the repairs resulted from the usual use of the goods. Therefore, depending on the type of the aircraft/engine maintenance and operations, both the lessor and the lessee can be held liable. Nevertheless, any such liability should be contractually stipulated.

According to Romanian domestic law, for a damage or a loss caused by the asset, under the strict liability doctrine, the party that will be held liable is the one holding the guardianship of the good, and which exercises, in fact and in law, the power of directive, supervision and control, independently, over an asset that is serving its own interest. Given such provision, a foreign aircraft or engine owner or lessor under a lease or financier financing the asset on lease could be held liable, depending on the cause of damage or loss (for example, in the case of a technical issue, the lessor can be held liable).

Creditors of a domestic lessee cannot attach an aircraft that is leased to it but owned by a different entity, since the lessee is not the owner of the aircraft and the aircraft is not part of its assets. The creditors of a domestic lessee can attach only the lessee’s assets.

Whether or not any third parties' rights will take priority over the lessor's rights depends on the registration being made and, moreover, the time of the registration. So, if the lessor registered its rights, any other third parties' rights that will arise after the registration will not take priority. But if the lessor failed to register its rights, there may be third parties' rights which could take priority.

It is a legal requirement to be insured, but it is not mandatory that either all or part of the insurance be placed with domestic insurance companies.

The Regulation (EC) No 785/2004 on insurance requirements for air carriers and aircraft operators imposes a number of insurance coverage requirements in respect of liability for passengers, baggage and cargo and liability for third parties.

Reinsurances can be placed outside of Romanian jurisdiction up to 100% coverage.

In principle, cut-through clauses are generally enforceable, from the perspective of the original insured. There is no direct claim of an insured against a reinsurer, unless specifically agreed, eg, by means of a cut-through clause.

Assignment of both insurances and reinsurances is permitted under the provision of Law No 237/2015.

There are restrictions on a lessor's ability to terminate an aircraft lease, restrictions that rely on the duration of the contract: (i) if the contract is fixed-term, the lessor can end the lease only if the agreement includes such a provision; (ii) in the case of an indefinite lease, the lessor is able to end the lease at any point, under a reasonable notice. In addition, if the lessee does not comply with the obligations arising out of the contract, the lessor can terminate the lease agreement, with the right to receive damages, if necessary, but only if the breach of contract is unjustified and the failure to comply is significant or, if minor, is repeated. Following the termination of the lease agreement, the lessor can export and sale the aircraft without any restrictions. The location of the aircraft is irrelevant at the time of such actions.

The lessor can take physical possession of the aircraft without the lessee’s consent only if the lease agreement is authenticated and governed by Romanian law and only by starting the enforcement procedure. In such a case, the authenticated lease agreement represents a writ of execution regarding the repossession of a leased asset, if any such obligations arise out of the termination of the agreement. In all other situations, a court order is required.

In addition, it is worth mentioning that Romania ratified the Cape Town Convention on international interests in mobile equipment on matters specific to aircraft equipment, under a declaration of reserve affirming that “all the creditor's rights according to the Convention must be exercised only with Romanian courts' approval. Any proceedings outside the courts are excluded.”.

There are no specific courts competent to decide on aviation disputes. The claims will be adjudicated in accordance with the common rules of general, material and territorial competence. Romanian legislation has a special provision regarding pecuniary claims in civil matter, giving the competence to settle claims of RON200,000 inclusive to district courts, whereas claims of a higher amount are adjudicated by tribunals.

Our national law provides a special procedure, similar to a summary judgment, by which the court can establish temporary measures pending final resolution. The conditions to be complied with to obtain such a decision are as follows: (i) the matter adjudicated has to be urgent and would be considered urgent if the lessor's right would be harmed by delay if not protected, if the damage is imminent and otherwise might not be recovered or if it is necessary to set aside any obstacle that might be encountered in enforcement proceedings; (ii) the lessor must appear to be entitled to the right claimed. This urgent and temporary procedure could take from a few days up to a few months. 

The domestic courts shall uphold a foreign law as the governing law of an aircraft lease, given that the Romanian Civil Code states that the parties can choose the governing law. Regarding the submission to a foreign jurisdiction, domestic courts shall recognise the foreign judgments if (i) the judgment is final, (ii) the foreign judgment court is competent, and (iii) there is reciprocity between Romania and the foreign court regarding the effects of the foreign judgments. Even so, the recognition may be refused if: (i) the judgment is against Romania's private international law public order; (ii) the claim has already been solved or was under trial when the foreign court was notified; (iii) is irreconcilable with a previous foreign judgment which is likely to be recognised in Romania; (iv) Romania's domestic courts had exclusive competence to solve the cause; (v) the right of defence has been violated; or (vi) the judgment may be the subject of an appeal in the State in which it was pronounced.

The domestic courts can uphold a waiver of immunity by the parties of a lease agreement governed by a foreign law, on condition that it is stipulated by national legislation or international conventions.

In the light of Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012, a judgment given in an EU Member State is recognised without requiring any special procedure and enforceable without any declaration of enforceability being required. The only conditions imposed are to provide a copy of the judgment which satisfies the conditions necessary to establish its authenticity, together with a certificate issued by the court of origin.

Regarding the recognition and enforcement of a foreign arbitral award, the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), ratified by Romania on 13 September 1961, stipulates similar provisions.

Regarding non-EU jurisdictions, the provisions of the Romanian Procedural Code shall apply, under complying with the conditions mentioned in Domestic Courts' Approach to Foreign Laws and Judgments.

There is no restriction for a lessor under an aircraft lease to obtain a judgment in a foreign currency.

The lessor is able to recover the default interest as stipulated in the agreement or, if not stipulated, the legal interest, or to charge additional rent following termination of the lease for default, including where the lessee fails to return the aircraft, within the three-year statute of limitations period, unless stated otherwise in the agreement.

In the case of a penalty clause, it can be reduced by the court under two conditions, namely: (i) the main obligation that arose out of the contract was partially fulfilled and the lessor took advantage of the execution; and (ii) the penalty is overly excessive in relation to the prejudice provided by the parties at the time they concluded the contract.

If the lessor chooses to follow the judicial procedures before the domestic courts, a stamp duty tax must usually be paid. The amount will be determined based on the amount of the debt or the value of the asset subject to litigation.

If Romanian law is the governing law, regardless of whether the aircraft is operated domestically or is leased by a domestic operator, a reasonable notice period is mandatory in the case of an indefinite-term lease. But if the lease is fixed-term, the parties can terminate the lease under the condition of such a provision being stipulated in the lease, together with the notice period.

The lessee is entitled to claim sovereign or other immunity from suit and he or she can waive such immunity under the condition that it is stipulated by national legislation or international conventions.

Romania adopted the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) on 13 September 1961 by Decree No 186/1961. According to the Convention, Romania must recognise arbitral awards as binding and enforce them in accordance with the rules of procedure in Romania where the award is relied upon, under the condition that (i) the duly authenticated original award or a duly certified copy thereof and (ii) the original agreement under which the parties agree to submit to arbitration or a duly certified copy thereof are submitted.

Usually, to enforce any rights, it is mandatory to bring the action to court. Nevertheless, according to Romanian law, the lessor can enforce its rights directly with the enforcement body only in such cases when (i) the lease is authenticated and (ii) the breach of contract lies on the failure to pay the rent in full for at least two consecutive months or when, at the termination of the agreement, the lessor does not gain repossession of the asset.

The Romanian Civil Code recognises both concepts of contractual assignment and novation.

If a lessor transferring its rights under an aircraft lease is assigning or novating its rights under that lease to a new lessor, pursuant to a New York or English law-governed assignment and assumption agreement or novation agreement (or deed), the agreement (or deed) will be held valid by a domestic court if it will be valid under its governing law, the New York or English law.

According to the provisions of the Romanian Civil Code, in the case of an assignment, the lessee's consent is not required, but he or she will have to be informed about the transfer of rights for opposability reasons. In the case of a novation, the lessee's consent is mandatory. However, the national provisions shall apply only if the assignment/novation is governed by Romanian law.

The mandatory terms required to be included in such an agreement (deed) are those that are stipulated by the governing law of the lease, in this assumption by New York or English law.

There is no special form required for an aircraft and/or engine lease assignment and assumption/novation to be enforceable against a domestic party. A contract assignment/novation is a contract modification and, according to Romanian law, any contract modification must comply with all the form requirements of the initial contract. So, if the initial contract was concluded in an authentic form, the assignment/novation must be concluded in the same authentic form in order to be valid and enforceable against a domestic party. The notarised translation of the assumption/novation is necessary in the case of litigation against the domestic party initiated before the Romanian courts.

The aircraft and/or engine lease assignment and assumption/novation, per se, does not have to be registered or filed in the domestic aircraft registry, but given that the provision stating that the Romanian aircraft registry includes both the name of the owner and the holder, the lease assignment and assumption/novation will be mentioned under that specific section.

The Civil Romanian Air Regulation No RACR-IA,” Registering civil aircraft” states that any change regarding the owner or the holder must be brought to the Romanian Civil Aviation Authority's (AACR) attention within ten days. If the solicitant does not meet the deadline, AACR will suspend the Registration Certificate for a maximum period of six months. If, during the suspension period, the changes are not registered, AACR will revoke the Certificate.

Government consent is not applicable in Romania.

If the aircraft and/or engine lease assignment and assumption/novation is concluded by the time of the initial registration in the aircraft registry, there is no specific requirement, as it will follow the steps of the registration process. If the agreement is to be concluded after the registration, to provide the change of owner/holder, the applicant must submit: (i) the modification request, (ii) relevant supporting documents, and (iii) proof of payment for the modifications (EUR45 plus VAT).   

No government applications or consents are applicable and are therefore not required as a pre-requisite to the execution and delivery of an aircraft and/or engine lease assignment and assumption/novation in relation to an aircraft registered domestically.

No taxes/duties are applicable or payable in respect of any such assignment and assumption/novation agreement, or as a consequence of an original or copy of the agreement or assignment being brought into Romania's jurisdiction, either physically or electronically.

If the ownership interest in an entity is transferred by a share deal, the aircraft will remain the property of the entity and all the agreements having the aircraft as their subject will remain in force. Practically, the ownership interest transfer will not affect the contractual relationships with respect to the aircraft.

The owner or the operator of the aircraft can deregister an aircraft by submitting a request in this regard to the Romanian Civil Aviation Authority. Deregistration implies paying a deregistration fee and the process should be finalised within 30 days. For more detailed information, please see below.

According to national legislation, only the owner or the lessor can apply for the deregistration of the aircraft and in such a case, the leasee’s or operator’s consent is not required. Nevertheless, for any such operation, the law requires the mortgagee’s consent.

For deregistration of an aircraft the following documentation is required: an application for the deregistration of the aircraft in the prescribed form; the written consent for deregistration of the owner, if the request is made by the operator; the certificate of registration in its original form; and, if necessary, the documents proving the termination of the lease agreement, the consent of the mortgagee, if applicable, and proof of payment of the administrative fee.

The deregistration process should be completed within 30 days from submitting the deregistration request with all the required documentation.

The aviation authority does not provide advance assurances to an aircraft owner or lessor as to the prompt deregistration of the aircraft.

The deregistration fee is in the amount of EUR90 plus VAT for each deregistration operation.

A deregistration power of attorney will be recognised by the Romanian authorities without any additional formalities if the act is valid under the applicable law. In order to use the deregistration power of attorney before the Romanian authorities, the document must be translated and notarised.

To enforce deregistration power of attorney, no other additional documents are required. However, the submission of the translated and notarised power of attorney is required for the deregistration process.

A deregistration power of attorney is recognised by the Romanian Authorities, no matter what the applicable law is.

If the deregistration power of attorney is governed by Romanian law, the grantor is able to revoke the power of attorney even if it is expressed to be irrevocable. In such a case, the revocation will be justified if it is caused by the representative’s fault, unforeseeable circumstances or an event of force majeure. The unjustified revocation gives the representative entitlement to obtain the compensation for the damage suffered.

Prior to starting the export procedures, the aircraft must be deregistered. To deregister an aircraft the applicant must present a request for deregistration and the consent of the owner/lessor. Therefore, if the applicant is the owner/lessor the lessee’s consent is not required. The owner will be allowed to deregister an aircraft over which a mortgage has been recorded only with the consent of the mortgagee. The mortgagee will be able to deregister and export the aircraft only with the consent of the owner.

The law does not require the lessee’s consent. However, if the aircraft is in the possession and control of the lessee, the owner will not be able to take repossession of the aircraft without the lessee’s consent.

In Romania, Aircraft export licences are issued by the Romanian Civil Aviation Authority. Such a licence can be requested by the owner, the lessor, the empowered person or by an authority in the field of civil aviation from a state party of the Chicago Convention. The export licence should be issued within 30 days from submission. The licence is issued only if the applicant is under Romanian law, excepting the situation in which the entity has facilities, partners or subcontractors outside Romania, and (i) if the applicant has submitted all the data concerning the procedures of co-ordination with the aforementioned facilities and the relation between the applicant and the facilities outside Romania and (ii) these procedures or relations agreed by the authority allow it to perform all the inspections and tests necessary to verify the compliance with the applicable requirements. The licence cannot be issued in advance.

Prior to the deregistration being granted, the aircraft-owner or lessor must remove the registration marks from the aircraft and must submit to the authority the identification plate. If, before the deregistration is granted, the aircraft-owner or lessor does not have access to the aircraft, the Romanian Civil Aviation Authority may grant the deregistration, even without the removal of registration marks and the submission of the identification plate. In such a case, as soon as the owner or lessor has repossession of the aircraft, the registration marks must be removed, and the identification plate must be filed to the authority.

Even though, since 1 July 2018, the Protocol on Matters specific to Aircraft Equipment has been in force in Romania, in the Romanian jurisdiction Article XIII of the Protocol - Deregistration and export request authorisation (IDERA) is not applicable. As regards the deregistration power of attorney, according to the national legislation, the liquidation of the lessee determines the termination of the power of attorney. The power of attorney will cease to operate upon the court’s final ruling on starting the liquidation procedure. 

Is the lessee is put into insolvency/liquidation, the judicial administrator/liquidator will notify all the lessee’s creditors of the commencement of insolvency/liquidation proceedings. In such a case, the lease contract can be terminated upon the judicial administrator/liquidator’s decision, if the legal and/or contractual condition for termination are met. Depending on the reason for termination of the lease agreement, a reasonable notice period may be required. In the case of termination, the lessor will repossess the aircraft, without his or her ownership right being affected, under the conditions stipulated in the agreement, without any additional delays. In regard to the rights of the lessor, other creditors may have priority if such a status is given by law or convention. A priority cannot be arbitrarily set by a judicial administrator/liquidator.

In the case of insolvency, the judicial administrator/liquidator is not obliged to make payments for outstanding debts owed before the initiation of the insolvency procedure. In order to recover these outstanding debts, the creditor must submit a request to the judicial administrator/liquidator and, following the approval, the outstanding debt will be registered with the creditor’s register. Nevertheless, this will not guarantee the recovery of the outstanding debt, since other preferential creditors may exist. The situation is the same in the case of insolvency of a guarantor or entity providing security.

A moratorium is not imposed in connection with insolvency proceedings.

Insolvency or liquidation proceedings against a domestic lessee may be initiated upon a request for opening insolvency/liquidation proceedings filed before the court by the lessee itself, by the lessee’s creditors or other persons or institutions expressly nominated by the law. For such a request to be admitted, the minimum amount of the outstanding debt is approximately EUR9,000. The insolvency or liquidation proceedings will start upon the court’s final ruling.

In general, the contracts between the lessor and the lessee will not be affected by the insolvency procedure. Any repossession of the aircraft can be claimed according to the contractual clauses, in case of performance default and following the termination of the lease agreement.

If a domestic lessee is wound up by a court or administration proceeding and the lease contract ceases to operate (i) the lessor can take repossession of the aircraft under the conditions stipulated in the agreement, (ii) the outstanding lease rentals will be collected by the lessor only if the lessee has enough cash availabilities and depending on the creditors' priority, otherwise the outstanding lease rentals will not be recovered by the lessor, (iii) regarding the maintenance reserves, after determining the final compensation, if the lessor is entitled to receive compensation, the lessee will make such a payment subject to cash availabilities and depending on the creditors' priority and if the lessee is entitled to receive compensation, the lessor has the obligation to make the payment.

The Convention on International Interests in Mobile Equipment (the “Convention”) and the related Protocol on Matters specific to Aircraft Equipment (the “Protocol”) came into force in Romania on 1 July 2018. So far, Romania has not implemented AEP codes.

Romania made the declaration stipulated at Article 39 para (1) letter (b) of the Convention and the declaration stipulated at Article 54 para (2), respectively, that any remedy available to the creditor under any provision of the Convention which is not therein expressed to require application to the court may be exercised only with leave of the court. In addition, Romania has declared that it will apply Article VIII of the Protocol. 

Article XIII of the Protocol is not applicable in Romania.

Until now, there has not been any relevant national jurisprudence since Romania adhered to the Convention and the Protocol in 2017, which entered into force on 1 July 2018. 

Romania is a party to the 1948 Geneva Convention on the International Recognition of Rights in Aircraft and was a party to the 1933 Rome Convention on the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft, until 2016.

Romanian legislation does not stipulate any restrictions on foreign lenders financing an aircraft locally or on borrowers using the loan proceeds. 

Romania does not impose exchange controls or government consents that would be material to any financing or repatriation of realisation proceeds under a loan, guarantee or security document. Nonetheless, the national Bank of Romania may impose certain foreign exchange control restrictions as safeguarding measures, as fees or commissions, or certain limitations. 

Borrowers can grant security to foreign lenders, such as a general moveable mortgage agreement, immoveable mortgage agreement and a share mortgage agreement.

Downstream, upstream and/or cross-stream guarantees are permitted in Romania. The law does not expressly provide any registration or corporate benefit requirements. However, for such corporate guarantees, the guarantor should have a corporate benefit, which is generally determined on a case-by-case basis, based on the transaction’s specification.

It is common for a lender to take share security over a domestic special-purpose vehicle (SPV) which owns the financed aircraft. In such a case, usually, the security is taken over both the shares in the SPV and the financed assets, together with all the other assets of the SPV. A pledge of share is recognised by the national legislation.

In Romania, negative pledges are prohibited. Any negative pledge clause is null and void and will not impose any obligation upon any party.

For the validity of intercreditor arrangements, a written agreement must be concluded, stating expressly the priority ranking and the subordination provisions.

In Romania the concept of a syndicated loan, including the role of an agent, is recognised. Romanian companies have access to such facilities, but they are not as common as in developed or emerging markets.

Even though it is not provided by the Romanian law, debt subordination is both permissible and recognised. Usually, debt subordination is contractually regulated by agreements concluded between debtors, creditors (junior and senior creditors). Nonetheless, such agreements must take into account the priority rankings determined by law.

The transfer or assignment of all or part of an outstanding debt under an English or New York law-governed loan is permissible only if such an operation is permitted by English or New York law. The transfer or assignment will be held valid by a domestic court if it will be valid under its governing law, either New York or English law.

The national legislation defines usury as loans with higher default interest, granted on a regular basis. These operations are strictly prohibited by law and constitute a criminal offence.

In a transaction concerning aviation finance, the typical forms of security are general moveable mortgage agreements, immoveable mortgage agreements or share mortgage agreements. The principal differences between these forms of security are given by the object on which the mortgage is carried.

The security interest that can be taken over an aircraft, or related collateral such as engines, is the security interest (mortgage) over movable assets. Such agreements are governed by the Security Interest Law and by the Civil Air Code.

Romanian legislation does not provide a concept of trust, but it has a similar concept, fiduciary (fiducia in Romanian). Fiduciary is the legal operation by which one or more settlors transfer present or future rights to one or more trustees, to the benefit of one or more beneficiaries. The fiduciary must be expressly stipulated by law or by notarised agreement.

According to the national legislation, the assignment of the rights and benefits arising from a lease agreement is possible only together with the assignment of the attendant obligations.

A security assignment or a guarantee, no matter what the applicable law is, will be enforceable if all the conditions of validity imposed by the respective law are respected. However, the Romanian courts will verify the validity of the agreement before issuing an order in respect thereof.

The security assignment must be concluded in written form, in the same form as the initial security agreement, meaning that if the initial security agreements were authenticated, the security assignment shall respect the authenticated form. The security assignment must be registered with the register of aircraft mortgages and charges for opposability to third parties. Not registering the security assignment with the register of aircraft mortgages and charges will affect the availability of the agreement. If applicable, the security assignment must be translated and notarised to register.

There are no domestic law security instruments that a financier should take in addition for an English or New York law-governed security assignment concluded in respect of an aircraft registered domestically.

An English or New York law-governed security assignment or a domestic law security instrument over an aircraft registered in Romania can be registered domestically with the register of aircraft mortgages and charges managed by Romanian Civil Aviation Authority.

The transfer of security interests over an aircraft and/or engine is recognised and regulated by the national law.

If the identity of the secured parties under a security assignment changes after its execution, the security interests are not jeopardised. In this case, the related modification into the register of aircraft mortgages and charges should be made.

A secured party under a security assignment cannot be deemed to be resident, domiciled, carrying on business or subject to any taxes as a result of it being a party to, or its enforcement of, the security assignment. Romanian legislation regulates such situations and does not impose any such conditions.

A domestic law mortgage over an aircraft is perfected if the mortgage agreement is concluded in accordance with the national legislation and the mortgage is registered with the register of aircraft mortgages and charges managed by Romanian Civil Aviation Authority.

The main difference between the security taken over an aircraft and that taken over spare engines is that the latter cannot be registered separately in the register of aircraft mortgages and charges.

The form of security used to take security over a bank account is the moveable mortgage over a bank account. The moveable mortgage will be perfected by the conclusion of the mortgage agreement and by fulfilling the publicity formalities (the registration of the mortgage with the Electronic Archive for Security Interests in Movable Property or by holding control over the bank account).

A third party cannot take or register a lien over an aircraft or engine, in relation to unpaid airport fees, navigation charges, customs duties, repairers’ costs, crews’ salaries, unless such a lien is stipulated by contractual agreement.

If the debtor fulfils its main obligation, the mortgage over an aircraft will be discharged within 30 days from the submission before the Romanian Civil Aviation Authority of the request and the complete documentation regarding the deregistration of the mortgage.

The Romanian Civil Aviation Authority manages the register of aircraft mortgages and charges. The aircraft mortgagee can be noted within the register of aircraft mortgages and charges and such registration has an opposability effect against third parties.

Statutory rights of detention such as possessory right of retention over an aircraft are stipulated in the national legislation and are enforceable against the owner or lessor if the legal requirements are met.

A potential purchaser of an aircraft should check the register of aircraft mortgages and charges managed by the Romanian Civil Aviation Authority to verify that an aircraft is free of encumbrances.

There are no major differences in enforcing a security assignment, a loan or a guarantee, as the enforcement triggers are common.

The domestic courts shall uphold a foreign law as the governing law of a finance or security document, given that the Romanian Civil Code states that the parties can choose the governing law. However, the conditions for validity, publicity and effects of movable mortgages are subject to the law of the place where the asset is located at the time the movable mortgage agreement is concluded.

Regarding the submission to a foreign jurisdiction, the domestic courts shall recognise the foreign judgments if (i) the judgment is final, (ii) the foreign judgment court is competent, and (iii) there is reciprocity between Romania and the foreign court regarding the effects of the foreign judgments. Even so, the recognition may be refused if: (i) the judgment is against Romanian private international law public order; (ii) the claim had already been solved or was under trial when the foreign court was notified; (iii) is irreconcilable with a previous foreign judgment which is likely to be recognised in Romania; (iv) Romania's domestic courts had exclusive competence to solve the cause; (v) the right of defence has been violated; or (vi) the judgment may be the subject of an appeal in the State in which it was pronounced.

In the light of Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012, a judgment given in an EU Member State is recognised without any special procedure required and enforceable without any declaration of enforceability being required. The only conditions imposed are to provide a copy of the judgment which satisfies the conditions necessary to establish its authenticity, together with a certified issued by the court of origin.

Regarding the recognition and enforcement of a foreign arbitral award, the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), ratified by Romania on 13 September 1961, stipulates similar provisions.

Regarding non-EU jurisdictions, the provisions of the Romanian Procedural Code shall apply, in compliance with the conditions mentioned in Choice of Foreign Laws.

A secured party can take physical possession of the aircraft to enforce a security agreement/aircraft mortgage only with the lessee’s or operator’s consent or by a court order.

There are no specific courts competent to decide enforcement actions under a security agreement/aircraft mortgage. The claims will be adjudicated in accordance with the common rules of general, material and territorial competence.

Our national law provides a special procedure, similar to a summary judgment, by which the court can establish temporary measures pending final resolution. The conditions to be complied with in order to obtain such a decision are as follows: (i) the matter adjudicated has to be urgent and would be considered urgent if the lessor's right would be harmed by delay if not protected, if the damage is imminent and otherwise might not be recovered or if it is necessary to set aside any obstacle that might be encountered in enforcement proceedings; or (ii) the lessor must appear to be entitled to the right claimed. This urgent and temporary procedure could take from a few days up to a few months. 

There is no restriction on a secured party under a security agreement/aircraft mortgage obtaining a judgment in a foreign currency.

If the secured party chooses to follow the judicial procedures before the domestic courts, a stamp duty tax must usually be paid. The amount will be determined based on the amount of the debt or the value of the asset subject to litigation.

There are currently no proposals before the legislative relating to the purchase, sale, lease or debt finance of an aircraft registered domestically and/or involving a domestic party.

FURTUNĂ ȘI ASOCIAȚII

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010458, Bucharest
Romania

+4 031 425 67 49

+4 031 425 67 49

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Law and Practice in Romania

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Furtună și Asociații is a new law firm on the Romanian market founded by trend-setter professionals in Aviation and Airport Infrastructure. The team of seven lawyers consists of experienced litigators and consultants united by the desire to tackle creatively complex legal issues with emphasis on technical law areas. The aviation practice is best known for two things: firstly, the scope of aviation projects covered, ie assistance and representation in all the proceedings involving aviation accidents, assistance with the financing, construction and authorisation of international airports, assistance on matters related to the manufacturing of aviation equipment, advisory services on buying, selling and registration of aircraft, legal clearance for aviation shows, as well as regulatory drafting, and secondly, the ability of the lead partner Mihai Furtună to assemble and co-ordinate multidisciplinary teams of lawyers and technical experts in order to handle highly complex cases in civil and criminal proceedings successfully.