This article was written by John Canning, Dale Rayner and Tim Nelmes.
In January 2018, the Aviation Working Group (“AWG”)1 as part of its review of closing opinion practice, released a revised Form of Cape Town Convention Closing Opinion. The aim of the review was to provide further guidance and consistency in the approach legal practitioners adopt in respect of Cape Town and the State of Registry Jurisdiction.
The AWG was founded in 1994, with stated aims of contributing to the development and acceptance of policies and laws that:
facilitate advanced international aviation financing and leasing, and
address inefficiencies in aviation financing.
Since its introduction in 2001 the Cape Town Convention on International Interests in Mobile Assets and its Protocol on Matters Specific to Aircraft Equipment (together Cape Town) has sought to provide greater certainty to both financiers and lessors through:
the introduction of a register of “international interests”2 in aircraft objects (aircraft, aircraft engines, helicopters);
the adoption of a priority regime in which:
(i) registered international interests have priority over unregistered interests;
(ii) earlier registrations have priority over later registrations; and
(iii) parties can determine priorities by registering subordination arrangements;
As Australia has adopted Cape Town including Alternative A of Article XI, the Protocol will apply in its entirety to all types of insolvency proceedings. The Protocol will prevail over any “insolvency proceedings” in Australia (e.g. voluntary administration which could otherwise create a moratorium on enforcement). This allows a financier or lessor with security to repossess and sell an aircraft after expiry of the 60 day waiting period even if insolvency proceedings are ongoing (unless the debtor or administrator cures all other defaults other than the opening of the insolvency proceeding).
A Cape Town Closing Opinion is intended to confirm for a financier or lessor the registration and priority of their international interests and the enforceability of the various default remedies under the Convention.
The AWG has recommended and King & Wood Mallesons have developed over time a market leading opinion that provides coverage to concerned parties in the key areas of:
the applicability of the Convention in Australia;
the form of IDERA required by the local aviation authority (“CASA”);
the enforceability of an IDERA following recordation by CASA;
the registration and priority of interests on the International Registry; and
the further benefits and protections of the Cape Town Convention.
While a Cape Town Closing Opinion is invariably issued for the comfort of financiers and lessors, the impact of Cape Town has not been limited to financiers alone. For airlines and other aircraft operators the impact of Cape Town's improved enforcement remedies has translated into better pricing.
In the Australian market where Cape Town's Alternative A insolvency regime has been adopted the enhanced financier protection has enabled Australian aircraft operators to achieve impressive pricing on their capital markets financings of aircraft.
1 King and Wood Mallesons sits on the Legal Advisory Panel Member of the Aviation Working Group - http://www.awg.aero/.
2 International Interests include certain title, security and other rights in aircraft objects that can be registered at the International Registry. To be international interests, they must be given to a:
a) lessor under a lease;
b) chargee under a security agreement; or
c) lessor/seller under a conditional sale or hire purchase agreement.