Lithuania has ratified the Cape Town Convention
Today, the Lithuanian Parliament has ratified the Convention on International Interests Related to Mobile Equipment (the Convention) and its Protocol on Matters Related to Aircraft Equipment (the Protocol), adopted in 2001. November 16 Cape Town. These international treaties are usually called The Cape Town Convention (the CTC).
Almost a hundred countries have ratified the CTC, and it is widely applied in practice in aviation asset transactions.
The Convention aims to improve the Lithuanian aviation industry's business environment and increase the competitiveness of Lithuanian aviation companies in the global aviation market. It is also expected that additional protections to aircraft owners and financiers established in the CTC will attract aviation asset managers and aircraft leasing companies.
In principle, the ratification of CTC is a long long-awaited and very welcome step. The appearance of Lithuania on the Cape Town Convention map can stimulate the Lithuanian aviation market. However, to maximize the benefits of the Convention and enjoy actual effect on aircraft financing costs and export credit guarantees provided by the OECD, the ratification must include several additional aircraft-specific declarations.
The most important one - is the rule providing that in case of bankruptcy of the aircraft lessee, the aircraft will be returned to the owner within 60 days.
This was not done in the ratification stage. However, since the Convention and the Protocol have been previously ratified by the European Union, Lithuania could implement this provision by supplementing the law on insolvency of legal entities currently in force in Lithuania.
It is also worth mentioning that the ratification of the Convention can be supplemented at a later stage, which is rather usual practice. Other contracting states have often amended their declarations under the Convention after the initial ratification.
Lithuanian ratification declarations
When ratifying the Convention and the Protocol, the contracting state must make one mandatory declaration (according to Article 54(2) of the Convention) stating that any remedy available to the creditor under any provision of the Convention which is not there expressed to require application to the court may be exercised without leave of the court.
Accordingly, Lithuania has made this statement. It is expected that this provision will grant additional security to aircraft owners and lessors in case of forced repossession of an aircraft. However, it should be noted that in the event of a dispute between the parties, and the lessee‘s resistance to redelivering the asset, the court order would be required to enforce the aircraft owner’s rights.
Upon ratification of the Convention and the Protocol, Lithuania has also made the declaration by Article 39 (1)(a) of the Convention, stating that any restraining measures established under Lithuanian law have priority over interests registered in the international register established by the provisions of the Convention. Thus, for example, an aircraft mortgage registered in Lithuania will have priority over liens registered with the International Registry established under the Convention.
Also, a declaration under Article 39(1)(b) of the Convention was made, ensuring that currently effective legislation granting rights to national aviation authorities (air navigation organizations, airports) detain the aircraft for overdue debts for navigation, landing/take-off services, is maintained.
Under Article 40 of the Convention, Lithuania has determined that a non-consensual right or interest arising under the laws of the Republic of Lithuania in which an object is subject to attachment or seizure shall be registrable under the Convention as if the right or interest were an international interest and shall be regulated accordingly.
Lithuania has not ratified Article XIII of the Protocol related to aircraft irrevocable deregistration and export request authorization (the IDERA) and registration thereof with the aviation authority. The IDERA mainly should serve as an additional tool for the aircraft owners and financiers making state institutions promptly cooperate with the party in whose favour such an authorization is issued and help to implement the remedies granted by Protocol – aircraft deregistration, export and physical repossession and ferry from the country of registration.
Although this specific power of attorney was not anchored in the Lithuanian legal system, in practice aircraft lessors require the lessee to issue a similar form of irrevocable power of attorney, but it is not registered in the aircraft register, as there is no legal ground for that.
The practical benefits of such a deregistration and export authorization have not yet been encountered, since according to the aircraft registration rules in force in Lithuania, an application for deregistration of an aircraft can be submitted by the owner of the aircraft, and the lessee's consent is not required.
The impact on Lithuanian business
It is customary that aircraft or aircraft engine lease agreements contain a provision for the lessee's obligations to comply with CTC registration if the Convention is ratified in the lessee’s country at any time during the lease term. Therefore, it is likely that aircraft and engine lessors will request their current lessees to register the international interests arising from the currently effective aircraft or aircraft engine leases with the International Registry.
The airlines and asset traders, established in Lithuania should arrange for the registration of business accounts with the International Registry. We, at AVERUS, maintain the Professional User Entity (PUE) account and can assist with necessary registrations.
A more detailed procedure for the implementation of the Convention is expected shortly, when the CTC implementing legislation will be presented. Lithuanian Government and its subordinate institutions are obliged to prepare accompanying legal acts by 30 June 2024.
