Aircraft Mortgage & Security Interests under Maltese Law

Aircraft Mortgage & Security Interests under Maltese Law

The Aircraft Registration Act, 2010 (the “Act”) regulates inter alia the registration of aircraft mortgages.

The Act also implements the provisions of the Cape Town Convention on International Interests on Mobile Equipment and its Aircraft Protocol (the “Convention”) which facilitates financing of aircraft by providing increased protection for secured creditors.

Title to an aircraft may be divided between co-owners in specified fractions or percentages.  Each fractional interest may be financed by a different creditor which takes security over the particular fractional interest it has financed.

Fractional interest in aircraft may also be treated as separate international interests under the Convention, and each fractional interest in an aircraft or aircraft object may be registered separately in the International Registry.

Security registered in the National Aircraft Register

It shall be lawful for a mortgage to be executed and registered in favour of a security trustee appointed or acting under a trust for the benefit of creditors and such security trustee shall be recognised as the mortgagee of the particular mortgage and shall be entitled to exercise all the rights in relation to that mortgage as are accorded to mortgagees

An aircraft may constitute a security for a debt or other obligation either by agreement or by operation of the law, such as special privileges.  All registered mortgages, any special privileges and all actions and claims to which an aircraft may be subject shall not be affected by the bankruptcy and/or insolvency of the mortgagor and such mortgage, privilege or claim shall have preference on the said aircraft, over all other debts, claims or interests of any other creditor of the owner’s estate.

An aircraft shall comprise the following:

  • all data, manuals and technical records, and
  • the airframe, all equipment, machinery and other appurtenances as accessories belonging to the aircraft which are on board or which have been temporarily removed therefrom, and
  • any engines owned by the owner of the aircraft whether attached to the aircraft or not, as well as any replacement engines which are designated for use on the aircraft and owned by the owner of the aircraft but temporarily not attached to the aircraft.

Engines and separate items on or in an aircraft may themselves be secured for the payment of a debt.

Any security over the aircraft shall not extend to any engine attached to the airframe which is not also owned by the airframe owner.

A registered aircraft may be made a security for any debt or other obligation by means of an instrument creating a mortgage executed by the mortgagor in favour of the mortgagee and registered in the National Aircraft Register by the Director General of Civil Aviation.

It shall be lawful for a mortgage to be executed and registered in favour of a security trustee appointed or acting under a trust for the benefit of persons to whom a debt or other obligation is due and such security trustee shall be recognised as the mortgagee of the particular mortgage and shall be entitled to exercise all the rights in relation to that mortgage as are accorded to mortgagees.

In the event of default on the part of the mortgagor, the mortgagee shall, without the leave of any court, upon giving notice in writing, which notice may be given by means of an electronic communication or served at the registered office of the debtor, to the following remedies:

  • be entitled to take possession of the aircraft or share therein;
  • have power absolutely to sell the aircraft or share in respect of which he is registered;
  • have power to apply for any extensions, pay fees, receive certificates and generally do all things in the name of the owner in order to maintain the status and validity of the registration of the aircraft;
  • have the power to lease the aircraft so as to generate income therefrom; and
  • have the power to receive any payment of the price, lease payments, and any other income which may be generated from the management of the aircraft.

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 National Aircraft Register.

A registered mortgage shall be an executive title where the debt it secures is a debt certain, liquidated and due; or where a maximum sum is secured thereby is expressly stated in the mortgage instrument and such figure is recorded in the register.

A foreign mortgage shall be recognised as a mortgage with the status and all the rights and powers specified under Maltese law subject to certain conditions.

International Interests registered in the International Registry in accordance with the Convention

All registered mortgages shall rank after any international interest, prospective international interest and other right or interest which is registered in the International Registry on such aircraft or share therein irrespective of the date and time of registration in the international registry

Pursuant to Malta’s accession to the Convention, interests in airframes, aircraft engines or helicopters which are granted by a chargor under a security agreement, or vested in a person who is the conditional seller or in the lessor of an aircraft, may be registered in the International Registry and are regulated by the National Implementing Law contained in the First Schedule of the Act.

All registered mortgages shall rank after any international interest, prospective international interest and other right or interest which is registered in the International Registry on such aircraft or share therein irrespective of the date and time of registration in the international registry.

A mortgage registered before the 1st October 2010 (date of entry into force of the Act) shall retain its priority over any international interest which may be registered in the International Registry.

An international interest registered in the International Registry shall be recognised and enforceable under the laws of Malta and it shall not be mandatory to register such security also in the National Aircraft Register.  A creditor may however request that the security interest be also registered in the National Aircraft Register.  In this case the international interest shall be operative in its own merits and in the case of any conflict or discrepancy the international interest shall always prevail over the registration in the National Aircraft Register.  Moreover where a creditor has registered an international interest in the International Registry it shall be lawful for the debtor (being the registrant and/or the owner of the aircraft) to execute and file a prohibitory notice in favour of one or more creditors which shall be entered in the National Aircraft Register prohibiting the registration of security interests in the said register without the consent of the creditor in favour of which the international interest has been registered.

Without prejudice to any default remedies which may be applicable by virtue of the First Schedule, the holder of a security right which is registered in the International Registry shall, in the event of default of any term of the security agreement and upon giving notice in writing to the debtor, be entitled to the following remedies:

  • have the power, without leave of the court, to terminate the agreement and take possession or control of the aircraft to which the agreement relates; or
  • apply to the court to authorise or direct either of these acts.

A security interest which is registered in the International Registry shall be an executive title where:

  • it secures the rights of a seller under a conditional sale with reservation of ownership rights; or
  • it secures the rights of a lessor under a lease agreement.

Additional Remedies

In the event of default chargee may, to the extent that the chargor has at any time so agreed, exercise any one or more of the following remedies:

  • take possession or control of any aircraft object charged to it;
  • sell or grant a lease of any such aircraft object;
  • collect or receive any income or profits arising from the management or use of any such aircraft object.

A chargee may alternatively apply for a court order authorising or directing any of the afore-mentioned acts.

A chargee proposing to sell or grant lease of an aircraft object must reasonable prior notice (ten or more working days’) in writing of the proposed sale or lease to interested persons (debtor, guarantor, any person having rights in or on the aircraft object).

Moreover, a creditor may, subject to the prior written consent of the holder of any registered interest ranking in priority to that of the creditor, to the extent that the debtor has at any time so agreed:

  • procure the de-registration of the aircraft; and
  • procure the export and physical transfer of the aircraft from the territory where it is situated.

Pending final determination of its claim and to the extent that the debtor has at any time so agreed, a creditor is entitled to obtain from a court speedy relief in the form of such one or more of the following orders as the creditor requests:

  • preservation of the aircraft object and its value;
  • possession, control or custody of the aircraft object;
  • immobilisation of the aircraft object;
  • lease or, except where covered by sub-paragraphs (a) to (c) management of the aircraft object and income therefrom; and
  • if at any time the debtor and the creditor specifically agree, sale and application of proceeds therefrom.

In the cases of (a) to (c) speedy relief means no more than ten calendar days from date of application for relief.

In the cases of (d) and (e) speedy relief means no more than thirty calendar days from date of application for relief.

The Act offers increased remedies and protection to holders of security interests in the sense that upon the insolvency of the debtor (in cases where Malta is the primary insolvency jurisdiction), the insolvency administrator or the debtor, as applicable, shall, be required to:

  • grant possession of the aircraft to the creditor by the end of a waiting period of thirty days; or
  • cure all defaults and agree to perform all future obligations under the security agreement.

Contact Be. Legal Advocates to find out more about the registration of Aircraft mortgages and security interests in Malta

About Dr Doran Magri Demajo

Dr Doran Magri Demajo is a Partner at Be Legal and is primarily responsible for corporate law, employment law, financial services and Maritime law.
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