Aviation Finance & Leasing 2021 Comparisons

Last Updated July 30, 2021

Law and Practice

Authors



Fenech & Fenech Advocates was established in 1891 and is today one of the largest top-tier multidisciplinary law firms in Malta, recognised as a leader in practice areas including corporate/commercial, aviation, financial services, taxation, litigation, mergers and acquisitions (M&A), shipping and maritime law, telecoms, media and technology (TMT) law, international trade and employment. The firm has a long-standing aviation practice advising some of the biggest aircraft lessors in the world, national airlines, owners, managers, lessees, financers and aircraft MRO facilities. Expertise spans structured sale/leaseback transactions, financed leases, sale and purchase deals, management operations, aircraft registrations and insurance claims, giving the firm a thorough knowledge of the aviation business. Legal services are complemented by a full-service licensed corporate services provider, Fenlex, offering company incorporation, trust, directorship, accounting and compliance services, amongst others.

VAT

According to the Fifth Schedule to the VAT Act, the supply of aircraft destined to be used by airline operators for reward chiefly for international transport of passengers and/or goods is exempt from value-added tax.

Stamp Duty

An aircraft or any part thereof is not a chargeable asset for the purposes of the Duty on Documents and Transfers Act (DDTA) and, accordingly, the transfer of an aircraft or any part thereof falls outside the scope of the DDTA. Conversely, and with reference to the sale of an ownership interest in an entity that owns an aircraft or a part thereof, the DDTA does bring to charge the transfer of marketable securities, as defined at the rate of 2% subject to any available exemptions.

Income Tax and Capital Gains Tax

An aircraft, or part thereof, does not fall within the list of chargeable assets for capital gains tax purposes and, accordingly, assuming that an aircraft, or a part thereof, is booked as a fixed asset for accounting purposes then the transfer of said assets would fall outside the scope of capital gains tax in Malta. Where a Maltese entity owns an aircraft or part thereof, which is booked as a current asset for accounting purposes (ie, "Stock in Trade"), then in such a case the revenue generated from the transfer of said assets would be deemed to be income and would be subject to tax in Malta.

The Income Tax Act (ITA) brings to charge an exhaustive list of assets that includes the transfer of securities, as defined. For the purposes of the ITA, securities are defined “as shares and stocks, and such like instruments that participate in any way in the profits of the company and whose return is not limited to a fixed rate of return […].” Therefore, the transfer of securities or an interest in a partnership (eg, owning an aircraft or part thereof) would be subject to capital gains tax in Malta, subject to any applicable exemptions.

If executed outside of Malta and in a language which is neither English nor Maltese, it is advisable for a sale agreement to be translated, certified, notarised or legalised to be enforceable against a domestic party.

Under Maltese law, the act that constitutes “transferring title” to an aircraft, engine or other installed parts is the private sale/purchase agreement entered into by the parties, the terms and conditions of which, together with any usages of trade, prevail over the provisions of the Maltese Civil Code. This agreement, which transfers the interest of the seller in the aircraft object to the buyer according to its terms, must:

  • be in writing;
  • relate to an aircraft object of which the seller has power to dispose; and
  • enable the aircraft object to be identified in conformity with the First Schedule to the Aircraft Registration Act (Act) which substantively reproduces the text of the Convention on International Interests in Mobile Equipment (Cape Town, November 2001) (Convention) and the Protocol to the Convention in Matters Specific to Aircraft Equipment (Aircraft Protocol).

The sale/purchase agreement is normally followed by a bill of sale drawn up for the purpose of recording the transaction contemplated by the agreement between the parties. 

Provided they belong to the same transferring owner, the sale/purchase agreement would extend to include all installed parts, like an APU, unless specified otherwise in the agreement.

The sale of the ownership interest in an entity that owns an aircraft or engine will be recognised for what it is: a change in the shareholders of the company owning the asset and by implication a change in the beneficial ownership of the asset.

The transfer of title to an aircraft or engine physically delivered in Malta will be recognised in the event that the bill of sale is governed by English or New York law pursuant to and subject to Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I Regulation).

With regards minimum substantive requirements, the bill of sale will be recognised if it is substantively valid according to the law by which it is governed. However, the bill of sale or any condition therein must not be manifestly incompatible with the public policy (ordre public) of Malta.

If executed outside of Malta and in a language which is neither English nor Maltese, it is advisable for a bill of sale to be translated, certified, notarised or legalised to be enforceable against a domestic party.

The Act imposes an obligation on the Director General responsible for Civil Aviation in Malta (Director General) to record in the Malta Aircraft Register (Register) the full name, address, email address and telephone number of the natural or legal persons having ownership rights on the aircraft. The Act also imposes an obligation on the registrant to inform the Director General of any change in the particulars that were furnished when the application for the registration of the aircraft was made. Accordingly, evidence of a change in ownership will need to be given to the Director General forthwith or within five working days of a demand in writing from the Director General.

The Director General will generally require a certified true copy of the bill of sale in English and if emanating from outside the European Union (EU), it will also need to be notarised and apostilled.

A bill of sale is not subject to any consent from any government entity nor are any government applications or consents required as a pre-requisite to the execution and delivery of a bill of sale in relation to an aircraft or engine registered in Malta.

No taxes or duties are payable for executing and/or delivering a bill of sale or consummating the sale of the ownership interest in an entity that owns an aircraft or engine while it is located in Malta, or over international waters or is in transit to/from Malta.

All types of aircraft leasing and leasing of engines or parts are permissible under Maltese law to the extent that they are not in breach of public policy and will be enforceable in accordance with their terms.

A lease involving either a domestic party or an asset situated in Malta can be governed by a foreign law pursuant to and subject to the Rome I Regulation.

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

There are no exchange control rules existing in Malta that could prevent rent payments under a lease or any repatriation of realisation proceeds if such lease in enforced by a foreign lessor.

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

A lessor does not have to be licensed or otherwise qualified in Malta to do business with a Maltese lessee.

There are no mandatory terms required to be in a lease (or ancillary documents thereto) governed by English or New York law that would not typically already be included. However, where the lease agreement is required to be submitted for the purpose of registration of the aircraft (if the aircraft is leased), the Director General (unless an exception is granted) will require that the agreement refer only to Maltese registration marks, which can be reserved in advance of delivery of the aircraft to the lessee.

Tax and other withholding gross-up provisions are permissible and enforceable in Malta.

A lease agreement providing that parts of an aircraft or engine installed or replaced after its execution will be subject to the terms thereof is valid and binding without requiring any further steps or formalities.

Under Maltese law, where two items belonging to different owners have been united in such a manner as to form a whole but can nevertheless be separated without considerable damage to either of them, each of the owners shall retain the ownership of their own item and shall be entitled to demand separation. Furthermore, under the Act, where an engine has been attached to an airframe that is not also owned by the airframe owner, each of the owners shall retain the ownership of their respective item and the engine shall not accede to the airframe.

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

The Director General is under an obligation to record the full name, address, email address and telephone number of the natural or legal persons having ownership rights on the aircraft, the ownership rights in the aircraft when held by a trustee as well as the details of any international interests registered on the aircraft in the international registry established by virtue of the Convention (International Registry) and subsequently all transactions relating thereto.

According to the Act, the Director General will also note in the Register, if requested to do so by the registrant or by any other interested person, the lessor rights relating to the aircraft or an engine when the lessor is a person different from the owner.

Where information is inserted in the Register by means of a record or a notation, that information becomes public and is considered to be within the knowledge of third parties.

The Register is an operator register. Thus, the aircraft may be registered in Malta in the name of the aircraft operator even if the said operator is not also the owner. However, in the case of an owner who is not also the operator, such owner may only register the aircraft if the aircraft is under construction or is temporarily not being operated or managed.

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

Registration of Lease and Lessor’s Interest in the Register

As such, a lease agreement is not required to be registered in the Register. However, the Director General is required to record, among other things, the full name, address, email address and telephone number of the natural or legal persons under whose name the aircraft is registered  and in what  capacity  the  registrant has registered the aircraft, including if it is acting under a temporary title such as a lease. The lease agreement must be submitted with the other required technical and legal documentation to the Director General for the aircraft to be registered. A lessor’s interest will only be registered in the Register as described in 2.3.1 Notation of Owner’s/Lessor’s Interests on Aircraft Register

Consequences for Failing to Register the Lease and Lessor’s Interest

The application for registration for an aircraft will not be processed and a certificate of registration will not be issued if the relative lease agreement is not submitted to the Director General. If the lessor’s interest is not recorded in the Register, that information will not become public and will not be considered to be within the knowledge of third parties.

Government Applications or Consent

A copy of the lease agreement must be filed with the Director General if the aircraft is registered in Malta by an operator under temporary title.

Formalities

Lease agreements are not registered in the Register as such. However, they are required to be submitted with the relevant application form for aircraft registration and other supporting documents so that the details thereof can be recorded in the Register.

The Estimated Time Period for Completion

Provided that all the necessary documents are in order and the aircraft is in the required technical condition, with advance co-ordination with the Authority for Transport in Malta (the "Authority"), aircraft registration can occur immediately after delivery to the lessee.

For the lease agreement to be submitted for the purposes of registration of an aircraft, the agreement must:

  • be in English. If in any other language, it must be accompanied by a certified translation;
  • contain the date as to when the agreement was made and its duration;
  • be a certified true copy and, if executed outside Europe it should be legalised and apostilled; and
  • make reference solely to the Maltese registration marks and not to the previous registration marks of the aircraft unless an exemption is granted by the Director General.

Signatures (and initials on each page) must be authenticated.

There are no taxes or duties payable in respect of the submission of the lease agreement.

Most, if not all, aircraft habitually based in Malta are also registered in the country.

Subject to any exemption which the Director General may provide, the submission of certain documents in original form, translated, notarised and/or authenticated is required before the application for registration of an aircraft is processed and accepted. These include the lease agreement as aforesaid (if the aircraft is leased), a certificate of insurance issued by an insurance company certifying that an insurance policy has been bought and showing an abstract of the most important provisions of the insurance contract. Such certificate must be in its original format and contain a valid date and signature between the insurer and the insured.

In addition, the Director General requires evidence that the requirements imposed by the Act relating to registration marks and the fire-proof plate have been fulfilled. However, the Director General shall, at all times, require at least the following documents before issuing the certificate of registration:

  • the bill of sale or other proof of ownership of the aircraft which must be:
    1. a certified true copy of the original;
    2. notarised and apostilled if originating from outside the EU; and
    3. accompanied by a certified translation if it is not in English; and
  • a de-registration certificate or formal notification by the civil aviation authority of the State in which the aircraft was previously registered (if the aircraft was previously so registered) in its original format and showing the registered encumbrances, if any.

A foreign lessor is not liable to pay any taxes under Maltese law simply by virtue of the fact that they lease an aircraft or engine to a Maltese lessee.

The ITA provides that where a person owns, leases, or operates any one or more aircraft(s) or aircraft engine(s) (irrespective of the country of registration of the said aircraft or aircraft engine) that is used for, or employed in, the international transport of passengers or goods, any income of such person that is derived or otherwise arises from the ownership, leasing, or operation of such aircraft or aircraft engine is deemed to have arisen outside Malta regardless of whether the aircraft may have called at, or operated from, any airport in Malta.

Where the lessor is deriving income that does not fall under the above provision, the determination as to whether such income would be considered to arise in Malta would depend on a number of factors, including the terms of the lease (wet lease or dry lease), where the aircraft is based, the tax residence of the lessee/lessor and the provisions of any applicable double tax treaties.

In the event that there is indeed a charge to tax, tax will be withheld at source by the resident payer upon payment to a non-resident payee unless authorisation is obtained from the Commissioner for Inland Revenue (CIR) to withhold tax at a lower rate or to refrain from withholding tax altogether.

Liabilities in respect of aircraft or engine maintenance and operations can be imposed on a foreign lessor if and as stipulated in the lease agreement which will be enforceable in accordance with its terms.

The doctrine of strict liability applies very limitedly in Malta since its non-contractual liability regime (tort law) is largely fault-based. 

The aircraft cannot be attached by creditors of the lessee since it is not owned by the lessee. The lessee only has a right of possession and use of the aircraft during the lease period.

A lessor is not given any priority unless his or her interest is registered as an international interest in the International Registry or constitutes a foreign security interest that is recognised under the Act. If not so registered or recognised, the lessor will rank pari passu with other unprivileged creditors of the lessee as stipulated by the Act. However, certain privileges will take priority over a registered international interest.

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

Mandatory insurance coverage requirements are those prescribed by EU Regulation 785 of 2004 on insurance requirements for air carriers and aircraft operators as well as the Civil Aviation (Insurance Requirements for Air Carriers and Aircraft Operators) Order (Subsidiary Legislation 499.41).

Reinsurances can be placed outside Malta for full coverage.

It is a general principle of law that contracts shall only be operative as between the contracting parties. Thus, if a reinsurer has bound himself directly in favour of an insured party to make good for losses then a "cut-through clause" should be enforceable in Malta. To the extent that the reinsurer has not bound themselves directly in favour of the insured party and the arrangement is agreed between the insured and the original insurer only, there are doubts as to the enforceability of the cut-through clause as the provision grants rights to the insured who is not a party to the reinsurance contract.

Assignments of insurances/reinsurances are permitted under Maltese law.

Restrictions on Lessor’s Ability to Terminate an Aircraft Lease

There are no restrictions under Maltese law on a lessor’s ability to terminate an aircraft lease. However, if the lessor terminates the lease for reasons that are not contemplated in the agreement, or generally valid at law, the lessee may seek damages for breach.

Restrictions on Lessor’s Ability to Re-export the Aircraft

There are no restrictions under Maltese law on a lessor’s ability to re-export the aircraft. However, transporting the aircraft out of Malta will be subject to certain authorisations to fly. The lessor must be in possession of a recorded irrevocable deregistration and export request authorisation (IDERA) issued in their favour by the registrant of the aircraft in the form set out in Annex 1 of the Second Schedule to the Act or any other recorded deregistration power of attorney (PoA) issued in their favour by the registrant of the aircraft. In addition, the lessor must, together with the other steps outlined in 2.8.1 Deregistering Aircraft in this Jurisdiction, certify and submit supporting documents to the satisfaction of the Director General that all registered international interests ranking in priority to that of the lessor have been discharged or that the holders of such interests have consented to the deregistration and export of the aircraft.

Restrictions on Lessor’s Ability to Sell the Aircraft

There are no restrictions under Maltese law on a lessor’s ability to sell the aircraft following termination of the lease agreement provided that the lessor has title and capacity to sell the aircraft. 

Location of the Aircraft

It should not be necessary for the aircraft to be physically located in Malta for termination of the lease or the sale of the aircraft to take place. However, the Act defines the word “export” as the export and physical transfer of an aircraft from the territory of Malta.

If the lessee is in default under the lease and the lessor dissolves or terminates the lease in accordance with the law, the lessor would be entitled to take physical possession of the aircraft without the lessee’s consent. It should be noted that the rights competent to a lessor to terminate a lease in the event of a default by the lessor are exercisable also by a mortgagee of the aircraft. The aircraft can be repossessed without the need for judicial intervention. To the extent that the support of the court is required, the court is bound to render full support as expeditiously as possible.

Malta does not have any specialised courts to decide aviation disputes.

Summary Judgment

The provisions relating to special summary proceedings in the Code of Organisation and Civil Procedure (COCP) will apply, inter alia, in relation to a claim:

  • for the recovery of a debt which is certain, liquidated and due and not consisting in the performance of an act; or
  • for the eviction of an operator, lessee or other occupants, including any members of their staff from aircraft.

In instituting such summary proceedings, the lessor must, in the court application, declare that in their belief there is no defence to the action. The said court application must be in writing in the prescribed form and sworn under oath.

Injunctive Relief

There are a number of precautionary warrants available to a lessor by way of interim/injunctive relief pending final judicial determination. These include the right to freeze or attach assets of the lessee as security for monetary claims and the right to arrest the aircraft or aircraft engine. The purpose of the latter is to secure a debt or claims or to secure the rights of the lessor in the context of a dissolution or termination of the aircraft lease by the lessor as a result of a default on the part of the lessee and the subsequent repossession of the aircraft.

The demand for the issue of any of the said acts must be made by an application and contain:

  • the origin and nature of the debt or claim sought to be secured;
  • in the case of a debt, the amount of such debt and, where applicable, judicial costs; and
  • in the case of a warrant of arrest of an aircraft or engine, said warrant shall be sued out by means of an application on the prescribed form which shall state in a clear manner such particulars to enable the identification of the aircraft/the aircraft engine, the name of the authority under whose control the arrested aircraft/engine may be as well as their location.

The application has to be confirmed on oath by the lessor who, inter alia, has to:

  • bring the action in respect of the claim within the time prescribed by law; and
  • 15 days prior to the application for the precautionary act, call upon the defendant to pay the debt or provide sufficient security.

Injunctive relief can be typically obtained from the Court within two business days or less.

Other Relief

Following judicial determination of a lessor or mortgagee’s claim, apart from an executive warrant of arrest of aircraft, a new executive warrant was recently introduced for the ejectment or expulsion from the aircraft of the operator, lessee or other occupants, including any members of their staff, within a period of not less than four and not more than eight days from the day they are so enjoined by the court executing officer. In default, the operator, lessee or other occupants, including any members of their staff will be removed from the aircraft concerned. For the purpose of executing the aforesaid warrant, the aircraft indicated therein will be detained in Malta.

Maltese courts will be expected to uphold:

  • a foreign law as the governing law of an aircraft lease subject and pursuant to the Rome I Regulation;
  • the submission to a foreign jurisdiction with regards an aircraft lease subject to and pursuant to Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Recast Regulation); and
  • a waiver of immunity by the parties of such lease.

Final Judgment of a Foreign Court

In civil and commercial matters, domestic courts will recognise and enforce a final judgment of an EU member state court without re-examination of the matter pursuant to and subject to the Brussels Recast Regulation. In the case of a final judgment delivered by a court of a non-EU member states, the domestic courts will recognise and enforce such a judgment without re-examination of the matter in accordance with and subject to any relevant multilateral or bilateral arrangement between Malta and the respective country in which the foreign court is located or, failing this, in accordance with and subject to national law being Articles 826 and 827 of the COCP.

Arbitral Award

Foreign arbitration awards to which the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927 apply will be enforced by the courts of Malta upon their registration with the Malta Arbitration Centre (MAC). The Arbitration Act lays down that such awards shall be treated as executive titles and enforceable in Malta in the same manner as if such award were a domestic arbitration award. Recognition and enforcement of the award may be refused in the instances stipulated by the Arbitration Act.

Money judgments awarded by the courts of Malta are denominated in the lawful currency for the time being of Malta, being the euro. However, the courts of Malta ordinarily accede to specific applications for the currency to be converted into and expressed in a foreign currency with the rate of exchange, typically but not always, obtained at the time when the obligation was due and not at the time of delivery of the judgment.

Recovering Default or Compound Interest

As a general rule, the Maltese Civil Code restricts the charging of interest up to 8% per annum. Compounding of interest is not enforceable in Malta unless the obligation to pay interest is due for a period of more than one year and certain procedures prescribed in the said Code are followed. Limitations on the rate of interest and the compounding thereof do not apply however to certain debts or obligations which are:

  • secured by a mortgage over; or
  • due under a lease of a ship or aircraft, including an aircraft engine, whether registered in Malta or otherwise and whether governed by Maltese law or otherwise.

Charging Additional Rent Following Termination of Lease for Default

There are no limitations under Maltese law on a lessor’s ability to charge additional rent following termination of lease for default (including where the lessee fails to return the aircraft). However, certain provisions in the lease agreement relating to additional rent payable in a default scenario, may be re-characterised by the Courts of Malta as another agreement (such as an agreement on additional rent being characterised as a penalty clause), which would then be subject to certain limitations or discretions applicable to the re-characterised transaction.

In enforcing an aircraft lease, a lessor is required to pay judicial costs which are generally determined based on the value of the claim. No taxes related to the aforesaid enforcement are due.

Unless required by the lease agreement, a lessor is not required by Maltese Law to comply with any mandatory notice period to terminate an aircraft leases.

Generally, immunity does not apply in the context of commercial activities outside of official state functions. 

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

Unlike other leases, aircraft leasing under Maltese law is characterised by party autonomy whereby the relationship between the parties is governed, primarily, by the agreement between them in accordance with its terms. In the case of conflict with the provisions of the Maltese Civil Code, the terms and conditions of the aircraft lease agreement will prevail.

The concepts of contractual assignment and of novation are recognised under Maltese law.

Validity of an Assignment or Novation Agreement Governed by New York Or English Law

A New York or English law-governed assignment and assumption agreement or novation agreement (or deed) will be held valid by a Maltese court pursuant to and subject to the Rome I Regulation.

Lessee’s Consent for Assignment or Novation of Lessor’s Rights

With regards to an assignment governed by Maltese law, the lessee’s consent is not required. Lessee must acknowledge the assignment in writing unless lessee is formally notified of the assignment by judicial letter.

With regards to novation, the lessee’s consent would be required if the said novation were governed by Maltese law.

Mandatory Terms Required to Be Included in an Assignment or Novation Agreement

Certain mandatory terms must be included in an assignment governed by Maltese law. For instance, the assignor is not answerable for the solvency, whether present or future, of the debtor unless they have expressly bound themselves thereto.

In a novation governed by Maltese law, no mandatory terms are required but novation is not to be presumed; the intention to effect it must clearly appear.

If executed outside of Malta, it is advisable for an aircraft and/or engine lease agreement and assumption/novation to be certified, notarised or legalised to be enforceable against a domestic party and to be accompanied by a certified translation if the agreement is not in English or Maltese.

Filing or Registration of an Aircraft and/or Engine Lease Assignment and Assumption/Novation

An aircraft and/or engine lease assignment and assumption/novation does not have to be registered or filed in the Register. However, the registrant of the aircraft is obliged to inform the Director General in writing of any change in the particulars which were furnished to the Director General upon application being made for the registration of the aircraft or the title thereto or the termination of the operator’s temporary title. 

Failing to give notice as aforesaid constitutes an administrative offence under the Act and the Authority may:

  • issue a warning in writing to such person; or
  • impose an administrative penalty on such person.

Requirement for Government Applications or Consent

An aircraft and/or engine lease assignment and assumption/novation is not subject to any consent from any government entity, nor are any government applications or consents required as a prerequisite 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 payable in respect of such assignment and assumption/novation agreement, or as a consequence of an original or copy being brought into Malta either physically or electronically.

Malta would not regard such a transfer as tantamount to a transfer of the legal title to the aircraft as this can only occur through a sale/purchase agreement as specified in 1.2.1 Transferring Title.

Persons who can Deregister an Aircraft in Malta

The registrant or any person in whose favour a recorded  IDERA or PoA has been issued by the registrant can deregister an aircraft registered in Malta.

The Steps to Achieve such Deregistration

In case the registrant of the aircraft wishes to deregister it, they must make a written request to the Director General to this effect. However, an aircraft for which there is a recorded IDERA may not be deregistered on the request of the registrant as aforesaid unless that IDERA is the subject of a revocation in terms of Annex 4 to the Second Schedule of the Act or the holders thereof have consented to the deregistration. The same applies when the aircraft is the subject of an undischarged mortgage or an international interest. It will not be deregistered as aforesaid unless all holders of such mortgages or international interests have also consented to the registration.

In the event that deregistration is to be effected by a person other than the registrant:

  • the registrant of the aircraft must first have issued an IDERA substantially in the form set out in Annex 1 to the Second Schedule to the Act or PoA in favour of that person be it the owner or lessor of the aircraft or a mortgagee (Authorised Party) and submit such IDERA or PoA for recordation in the Register in accordance with the procedure outlined in 2.10.3 Application of Article XIII of the Protocol on Matters Specific to Aircraft Equipment;
  • the Authorised Party may appoint a certified designee (Certified Designee) with respect to the IDERA by filing a designation with the Authority substantially in the form set out in Annex 2 to the Second Schedule to the Act or any delegate with respect to the PoA, as the case may be, whose details shall also be recorded in the Register;
  • a request must be submitted to the Authority substantially in the form set out in Annex 3 to the Second Schedule to the Act, identifying a recorded IDERA in the Register and signed by the Authorised Party or Certified Designee or, if the Authorised Party or Certified Designee is not a natural person, by any person duly authorised to represent the same including by means of a power of attorney;
  • if the request indicates that it was signed in Malta, then it will be accepted by the Authority without additional formalities. If it indicates that it was signed outside Malta, it will be accepted by the Authority if notarised locally to the satisfaction of the Director General and the latter may in their discretion also ask that the document is duly apostilled or legalised; 
  • the Authorised Party, their delegate or Certified Designee must certify in accordance with the Act and submit supporting documents to the satisfaction of the Director General that all registered international interests ranking in priority to the Authorised Party have been discharged or that the holders of such interests have consented to the deregistration and export of the aircraft; and
  • subject to applicable aviation safety laws and regulations (which do not include any requirement for the issuance of an export certificate of airworthiness or for any documents in the possession of, or any action by, the operator of the aircraft), the Authority will honour a request for deregistration and export of the aircraft submitted as aforesaid by effecting the deregistration of the aircraft and taking all action within its power to effect or facilitate the export of the aircraft:
    1. expeditiously and, in any case, no later than five working days following receipt of the request;
    2. without the consent or approval of the registrant or any other person or entity or the consent or approval of any court or administrative or other order or decision of any kind or any need for the Authority to investigate external facts or impose additional requirements; and
    3. regardless of whether the Authorised Party or its Certified Designee is in possession of the aircraft.

An aircraft owner, mortgagee or lessor cannot apply for the deregistration of the aircraft without being in possession of a recorded IDERA or PoA issued in their regard by the registrant and without following the steps as outlined in 2.8.1 Deregistering Aircraft in this Jurisdiction.

See 2.8.1 Deregistering Aircraft in this Jurisdiction and 2.8.2 Lessee’s/Operator’s Consent.

The deregistration process should be swift if the lessor produces the documents outlined previously, the lessee co-operates with the lessor and the authorities and there are no registered interests on the aircraft in question.

The Authority provides advance assurances to an aircraft owner, mortgagee or lessor as to the prompt deregistration of the aircraft on the IDERA itself wherein the Authority, by countersigning the IDERA, confirms that the Authorised Party, or Certified Designee as the case may be, may procure the deregistration of the aircraft from the Register on written demand without the consent of the registrant and that, upon such demand, the authorities in Malta shall co-operate with the Authorised Party, or Certified Designee as the case may be, with a view to the speedy completion of such action.

A fee of EUR50 is payable on application for deregistration.

A PoA will be recognised and there are no specific formalities required for its validity except that it is issued by the registrant of the aircraft and that there is no other IDERA or PoA registered in the Register. For a PoA to be enforceable against a domestic party, it must be submitted to the Director General so that its details and the details of any delegate under the said PoA are recorded in the Register. It is also advisable for it to be translated, certified, notarised, legalised if executed outside of Malta and if drawn up in a language which is not English or Maltese.

Proof of identity of the person empowered under such PoA together with proof that it was signed by the registrant or the person duly authorised to represent them, as well as supporting documents to the satisfaction of the Director General that all registered international interests ranking in priority to the Authorised Party have been discharged or that the holders of such interests have consented to the deregistration and export of the aircraft.

A PoA does not have to be governed by the Laws of Malta.

A PoA is granted by way of security. Thus, if expressed to be irrevocable, it cannot be revoked by the grantor without the consent of the person in whose favour the POA is issued.

Without the Lessee’s Consent

An aircraft owner, mortgagee or lessor may export the aircraft only if such owner, mortgagee or lessor is in a possession of and presents a registered and valid IDERA or PoA issued in their favour by the registrant of the aircraft and the necessary steps outlined in 2.8.1 Deregistering Aircraft in this Jurisdiction have been followed. 

Without the Owner’s or Lessor’s Consent

If empowered by the mortgage deed, a mortgagee can procure the export of the aircraft without requiring consent of the mortgagor or lessor.

Steps at the Time of Negotiating the Lease or Mortgage

An IDERA and/or PoA should be issued in favour of the owner, mortgagee or lessor, as a condition precedent to the lease.

Physical Location of Asset

There should be no need for the asset to be physically located in Malta at the time of deregistration. However, with regards exporting the aircraft, the Act defines the word “export” as the export and physical transfer of an aircraft from the territory of Malta.

No aircraft export permits/licences are needed to export an aircraft from Malta. However, transporting an aircraft out of Malta will be subject to certain authorisations to fly.

A nominal fee will be charged where a permit to fly or export conformity statement is required to be issued by the Authority.

There should be no significant practical issues that an aircraft owner or mortgagee or lessor should be aware of in respect of the deregistration of aircraft in Malta. Proof of removal of registration marks must be provided to the Authority.

The primary law and statutory regime in Malta governing restructurings, reorganisations, insolvencies and liquidation with regards a lessee incorporated in Malta is the Companies Act (CA) and the regulations made thereunder.

Certain provisions in the Act, including Articles 23 and 36 of the First Schedule, specifically regulate certain matters related to the insolvency of a debtor whereby a debtor includes a lessee under an aircraft lease agreement.

Voluntary and Involuntary Restructurings and Reorganisations

Under the CA, the following procedures are contemplated.

  • Compromise or arrangement between a company and its creditors: a procedure whereby the court orders a meeting between the debtor company and its creditor(s) for the negotiation of a compromise. If said compromise meets the approval of creditors and the debtor company, it will be binding thereon.
  • Out-of-court voluntary mediation: an out-of-court compromise or arrangement between the debtor company and its creditors by unanimous agreement and through the intervention of a mediator chosen by the parties themselves. 
  • Company recovery procedure: it gives companies in financial difficulty the opportunity to recover by means of a moratorium on court actions against it. However, a Maltese company whose main object or function is to own, hold, operate, charter, manage or lease any aircraft or aircraft engine (including automatically  a company which is or was in possession of an Air Operator’s Licence) cannot seek protection of the company recovery procedure, thus giving preference to airline creditors.

Insolvencies and Receivership

If a company is no longer viable, the CA provides for the following types of insolvency procedures:

  • creditors’ voluntary winding up; or
  • dissolution and winding up by the court.

With regards to the creditors’ voluntary winding up, the shareholders of a company decide to dissolve the company in instances where the directors thereof do not certify that the company is solvent. Thus, the winding up happens under the control of a liquidator appointed by the creditors.

In the case of dissolution and consequential winding up by order of the court, such order may be made if, inter alia, the relevant company is unable to pay its debts. Dissolution and winding up in this case take place under the control of the court.

In the case of a winding up of a company by the court, the CA provides for the appointment of an official receiver. The official receiver is appointed, primarily, for the purpose of carrying out such investigations as deemed appropriate and submitting to the court, if they think fit, a preliminary report as to, inter alia, the causes of the failure of the company and whether further enquiry is desirable as to any matter relating thereto.

The official receiver may also be appointed as the provisional administrator of the company before the winding up order is made and will assume the role of liquidator after a winding up order is made until a liquidator is officially appointed and whenever there is a vacancy in the said role.

Article 24 of the First Schedule to the Act, which substantively reproduces the text of the Convention and the Protocol, provides that where the aircraft object is situated in Malta and Malta is not the primary insolvency jurisdiction, the Maltese Courts shall, in accordance with the laws of Malta, co-operate to the maximum extent possible with foreign courts and foreign insolvency administrators in carrying out the provisions of Article 23 of the First Schedule to the Act providing for remedies on insolvency.

As an EU member state, Malta is required to implement the provisions of Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings. The said Regulation, which also covers pre-insolvency proceedings such as rescue, adjustment of debt, reorganisation or liquidation, sets out EU-wide rules to establish:

  • which court has jurisdiction over an insolvency case;
  • the applicable national law; and
  • recognition by all other EU countries of a judgment opening insolvency proceedings in one EU country.

Malta has not adopted the UNCITRAL Model Law on Cross-Border Insolvency.

A PoA or an IDERA will survive the liquidation of the lessee in that it will continue to be binding on the liquidator.

With regards to whether the lease will be set aside and whether the lessor will be prevented or delayed from repossessing the aircraft on termination of the lease, see 2.9.7 Imposition of Moratoria in Connection with Insolvency Proceedings.

The aircraft will not be deemed to be part of the lessee’s property and the liquidator will be obliged to pay the lessor out of the assets of the company, if any, in accordance with the rules relating to ranking of creditors. See also 2.4.6 Priority of Third Parties’ Rights.

The main risks for a lender depend on whether or not security for the loan exists. In the case of an unsecured loan, the lender will rank pari passu with other creditors with the risk of recovering only a part of the debt.

With regards registered mortgages, special privileges and all actions and claims to which an aircraft may be subject, such shall not be affected by the bankruptcy and, or insolvency of the mortgagor or owner happening after the date on which the mortgage was created or the special privilege, action or claim arose.

As a general rule, creditors cannot take legal action against a company in liquidation unless authorised to do so by the competent court. However, an exception exists with respect to a lessee in the context of a lease of an aircraft. Maltese law provides that such a lease shall be immediately dissolved or terminated by the lessor at any time in the event of a default which includes the insolvency of the lessee. Such dissolution or termination allows the lessor, after notice to the lessee, to take possession of the aircraft (including an aircraft engine) without first obtaining court authorisation.

Apart from the methods outlined in 2.9.2 Overview of Relevant Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership. with regards to liquidation, a Maltese lessee can also be dissolved and wound up when the shareholders thereof resolve to dissolve it and in the opinion of the directors the said company is solvent.

Ipso facto defaults are recognised and can form the basis on which an aircraft is repossessed during a lessee insolvency proceeding.

With regards to the impact on the aircraft and the lease rentals, see 2.9.5 Other Effects of a Lessee’s Insolvency.

With regards to the lease security deposit and the maintenance reserves (whether classified as reserves or supplemental rent), this would depend upon whether such deposit and reserves have been transferred to the lessor or not. In the latter case, such are expected to fall within the general pool of assets for distribution to creditors generally according to their ranking.

The Convention and the Protocol have the force of law in Malta. It is not necessary to obtain “authorised entry point” codes (AEP) for registering international interests.

Malta has made declarations under Articles 39 (1) (a) and (4), 40, 53 and 54 (2) of the Convention.

Article XIII of the Protocol applies domestically.

The procedure for submitting and recording the IDERA in the Register is as follows.

The IDERA has to be submitted in writing to the Authority substantially in the form set out in Annex 1 to the Second Schedule of the Act identifying an aircraft registered or to be registered in the Register and signed by the registrant of the aircraft, or if the registrant is not a natural person, by a person who is duly authorised to represent the registrant including by means of a power of attorney.

Two copies of such an IDERA are to be submitted to the Authority and the latter will acknowledge receipt of that IDERA by executing one such copy and returning it.

If the IDERA indicates that it was signed in Malta, it will be accepted by the Authority without additional formalities. However, an IDERA that indicates that it was signed outside Malta will be accepted by the Authority if notarised locally to the satisfaction of the Director General and the Director General in his discretion may also ask that the IDERA is duly apostilled or legalised.

Unless the aircraft has not yet been registered in the Register or if another recorded IDERA for that aircraft has not been revoked, the Authority will:

record the IDERA within two working days of receipt;

promptly confirm that recordation is complete; and

issue a declaration stating that pursuant to the recordation of the IDERA the Authority undertakes not to deregister the aircraft, unless consented to by the Authorised Party or their Certified Designee if so recorded as the case may be.

The Maltese courts have had very little experience in enforcing the Convention since its ratification thereof in 2010. In one case, the courts were asked to consider whether the arrest of an aircraft by an Italian creditor in terms of detention rights provided under Italian law and enforced in Malta in virtue of Regulation 44/2001 EC (predecessor of the Brussels Recast Regulation) was incompatible with the rights of a lessor who was in the process of repossessing the aircraft in terms of his rights under the Convention.

While the matter was resolved amicably pending final judicial determination of the issue, it appeared that the courts were inclined to give precedence to European Union law over the provisions of the Convention in this case.

Malta is not a party to the 1948 Geneva Convention on the International Recognition of Rights in Aircraft and neither is it a party to the 1933 Rome Convention on the Unification of Certain Rules relating to the Precautionary Attachment of Aircraft. 

There are no restrictions on foreign lenders financing an aircraft locally or on borrowers using the loan proceeds, provided that the lender is not carrying out the business of a credit or financial institution in Malta through any form of physical presence in the Maltese territory.

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

Borrowers are permitted to grant security to foreign lenders.

In terms of Article 136 of the CA, a company is allowed to guarantee the obligations of a third party provided this is not prohibited by its memorandum and articles of association.

It is advisable for a lender to take share security over a domestic special purpose vehicle (SPV) that owns the financed aircraft. Article 122 of the CA provides for the pledging of securities. In the case of a private company, the right to pledge is excluded unless specifically allowed by its memorandum and articles of association.

A negative pledge is recognised under Maltese law as an undertaking not to perform specific actions.

An intercreditor arrangement shall be valid and enforceable between the relevant parties if made in writing without the need of any other formality or registration. However, in order to have effect in relation to third parties, such arrangement must be registered:

  • in the ship registry by means of an annotation;
  • in the Register by means of an annotation;
  • in all other cases, at the Public Registry by means of a note.

Such public registrations are not required for the agreement to be binding between the parties and are accordingly rarely made.

The concept of agency and the role of an agent under a syndicated loan are recognised.

There are no prohibited methods of debt subordination.

The transfer or assignment of all or part of an outstanding debt under an English or New York law-governed loan is permissible and recognised subject and pursuant to the Rome I Regulation.

See 2.6.8 Limitations on Lessors’ Actions Following Termination.

The typical forms of security and recourse granted in an aviation finance transaction domestically come in the form of:

  • a mortgage over the aircraft in terms of the Act;
  • an international interest over aircraft objects in terms of the Convention;
  • a recorded IDERA and/or PoA issued in favour of the financing entity by the registrant of the aircraft; and
  • a pledge over the shares of the borrowing SPV.

Under Maltese law, an aircraft or aircraft engine may constitute security for a debt or other obligation either by agreement (including a mortgage or a pledge) or by operation of the law (special privileges). However:

  • any security over the aircraft shall not extend to any engine attached to the airframe when such engine does not belong to the owner of the airframe who has granted the security;
  • with regards to a mortgage, only a registered aircraft or a share in such aircraft may be the subject of a mortgage and such will attach to any proceeds from any indemnity arising from any mishaps as well as any insurance proceeds (except for an indemnity payable under a liability policy);
  • with regards to an international interest in terms of the Convention, such interest applies in respect of aircraft objects (airframes, aircraft engines or helicopters); and
  • with regards to aircraft engines and other separate items belonging to the debtor, the creditor may request that these be transferred/assigned to their benefit by way of security or request that they are pledged in his favour. Such engines or separate items may also be encumbered by means of a general hypothec over all of the assets of a debtor existing at the time. 

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

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

It is possible to assign the rights and benefits only without also assigning the attendant obligations of the lessor under an aircraft lease.

A security assignment or a guarantee governed by English or New York law will be fully enforceable subject to and pursuant to the Rome I Regulation.

Article 2095F of the Civil Code lays down the requisite formalities for the validity of a security assignment under Maltese law. Ownership of the property is acquired by the creditor as soon as the debtor and/or the transferor and the creditor enter into an agreement in writing designating the following:

  • the property being transferred;
  • the secured obligations, which may be existing or future obligations; and
  • the rights of the transferee in the event of default as stipulated in the agreement.

A transfer by way of security operates as a transfer with regard to third parties:

  • in the case of debts and rights against an obligor, when the obliger is notified of or acknowledges the assignment; or
  • in the case where the rights consist of property, there is no obligor and the title to said property is registered in a public registry, when the transfer is registered in the relevant register.

Failure to comply with the above-mentioned formalities would result in an invalid and unenforceable security assignment.

If executed outside of Malta, it is advisable for a security assignment to be translated, certified, notarised or legalised to be enforceable against a domestic party.

Where a security assignment governed by English or New York law is taken in respect of an aircraft registered in Malta, no Maltese law security instrument is required. To make Cape Town filings, it is not mandatory to have a domestic law security instrument and/or to make local law filings. The costs for executing a domestic law security instrument and complete local law filings depend on the type of security in question.

Security assignment agreements do not need to be registered. There is a voluntary registration system whereby if the security assignment has been registered on the International Registry, the registrant of the aircraft may request that the Director General insert a note of the existence of the international interest on the Register. Where copies of agreements are submitted to the Director General, a certified true copy of the original will suffice if the document was signed in Europe. Otherwise the copy must be certified, notarised and apostilled.

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

A change in the underlying beneficiaries of the security trust held by the trustee will not jeopardise the security assignment.

Under Maltese law, the security trustee has an independent right to the secured debt.

A secured party under a security assignment would not be deemed to be resident, domiciled, carrying on business or subject to any taxes by reason of being a party to, or its enforcement of, such security assignment.

A mortgage over an aircraft or a share therein is provided on a statutory form and must be executed by the owner of the aircraft or its duly authorised representatives (mortgagor) in favour of its creditor or security trustee (mortgagee) in the presence of, and attested by, a witness or witnesses.

Subsequently, the mortgage must be submitted to the Director General for registration. The Director General must record such mortgage in the order of time (day and hour) in which it is produced to him for that purpose as well as any other relevant details or instructions.

There is no difference between the form of security (or perfection) taken over an aircraft and that taken over spare engines except that mortgages cannot be registered with regards to the latter alone.

Security over a bank account (such as a lease receivables account) is created through a contract of pledge which is perfected once notice has been given by a judicial act served on the bank or once the bank has acknowledged the pledge in writing.

Certain third-party debts are secured by a special privilege over the aircraft or engine in terms of and subject to the conditions of Article 42 of the Act. Such third-party debts include:

  • wages due to crew in respect of their employment on the aircraft;
  • any debt due to the holder of a possessory lien for the repair and preservation of the aircraft to the extent of the service performed on and value added to the aircraft;
  • the expenses incurred for the repair and preservation of the aircraft to the extent of the service performed on and value added to the aircraft; and
  • taxes, duties and/or levies due to the government of Malta in respect of the aircraft.

A fleet lien is not recognised under Maltese law.

Generally, a special privilege grants the person, in whose favour it may arise, priority over other creditors. Without prejudice to the rights of a holder of a possessory lien, it does not entitle such person to take possession of the aircraft or engine but may constitute the basis for an action in rem against the aircraft or engine. A claimant having an action in rem against an aircraft or engine may also procure the issue of a precautionary warrant (or an executive warrant, following judicial determination of the claim) of arrest against the aircraft or engine in accordance with the provisions of the COCP.

A privilege is capable of registration in terms of Article 31 of the Act.

A possessory lien is extinguished once the aircraft is voluntarily released from the custody of the creditor. With regards to mortgages, the Director General shall, on production of a duly signed and attested mortgage deed together with a receipt for the secured money, make an entry in the Register to the effect that the mortgage has been discharged.

There is no separate register of mortgages and charges. Mortgages are registered in the Register in the name of the mortgagee or security trustee. The day and hour in which mortgages are produced for registration are also recorded with the result that if there is more than one mortgage registered in respect of the same aircraft or share, the mortgagees shall be entitled in priority, one over the other, according to the date and the time at which each mortgage is recorded in the Register.

A registered mortgage shall attach to the aircraft or share therein in respect of which it is registered until it is discharged and, inter alia, entitles the mortgagee or security trustee to exercise the rights reserved for mortgagees by virtue of the Act.

Statutory rights of detention or non-consensual preferential liens can arise over an aircraft. However, these do not extend to the fleet.

A potential purchaser of an aircraft can search the Register to verify whether that aircraft is free of registered encumbrances.

Given that in the event of a security by title transfer the creditor is already in possession and the legal owner of the security, on enforcement, they will have the right, by notice in writing to the debtor, to realise the property held by selling the property or (if so agreed) by setting off or netting its value and applying such value in discharge of the secured obligations.

As a general rule, an assignee can only exercise the rights assigned to him after due notice of the assignment has been given to the debtor by means of a judicial act. However, where an assignment is made by way of security, there is no requirement for notice to be given by judicial act and any writing, including by electronic means, will suffice.

Domestic courts will uphold a foreign law as the governing law of a finance or security document pursuant and subject to the Rome I Regulation and the submission to a foreign jurisdiction pursuant and subject to the Brussels Recast Regulation.

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

A secured party should be able to take physical possession of the aircraft to enforce a security agreement/aircraft mortgage without the lessee’s or operator’s consent where this was specifically provided in the security agreement/aircraft mortgage and/or where a recorded IDERA or PoA issued in their favour by the registrant is in place and the necessary steps outlined in 2.8.1 Deregistering Aircraft in this Jurisdiction have been followed.

Enforcement action disputes would fall within the competence of the Civil Courts.

See 2.6.4 Summary Judgment or Other Relief.

See 2.6.7 Judgments in Foreign Currencies.

In enforcing a security arrangement/aircraft mortgage, a secured party is required to pay judicial costs which are generally determined based on the value of the claim. No taxes related to the aforesaid enforcement are due.

Lenders should be aware that the special privileges listed in Article 42 of the Act rank in preference to all other claims whether they be secured by a duly registered mortgage, international interest or a recognised foreign mortgage.

See 2.6.13 Other Relevant Issues.

The answers provided herein reflect recent amendments to the Act and various related legislation introduced through Act No. XXXVII of 2021entitled "An Act to amend various laws relating to aircraft registration" which came into force on 26 July 2021.

Fenech & Fenech Advocates

198 Old Bakery Street
Valletta
VLT 1455

+356 2124 1232

info@fenechlaw.com www.fenechlaw.com
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Law and Practice in Malta

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Fenech & Fenech Advocates was established in 1891 and is today one of the largest top-tier multidisciplinary law firms in Malta, recognised as a leader in practice areas including corporate/commercial, aviation, financial services, taxation, litigation, mergers and acquisitions (M&A), shipping and maritime law, telecoms, media and technology (TMT) law, international trade and employment. The firm has a long-standing aviation practice advising some of the biggest aircraft lessors in the world, national airlines, owners, managers, lessees, financers and aircraft MRO facilities. Expertise spans structured sale/leaseback transactions, financed leases, sale and purchase deals, management operations, aircraft registrations and insurance claims, giving the firm a thorough knowledge of the aviation business. Legal services are complemented by a full-service licensed corporate services provider, Fenlex, offering company incorporation, trust, directorship, accounting and compliance services, amongst others.