The Convention and Protocol entitle the creditor holding an international interest to exercise certain agreed remedies (Articles 12 to 15).
The remedies are usually triggered by the occurrence of a “default” which is vaguely defined in Article 17 as a default that substantially deprives the creditor of what it is entitled to expect under the agreement constituting the international interest. Article 17 works as a fall back provision if the debtor and the creditor have not agreed what constitutes a default. The relevant agreements should therefore contain a specific clause specifying that the occurrence of any of the stipulated events of default/termination events will constitute a default for the purposes of Article 17. The parties to a transaction can further agree whether or not remedies which are available can be exercised (to the extent that they do not specifically require application to a court) extra-judicially (i.e., without application to a court and the granting of a court order and referred to as “self-help”). There is however an overriding principle governing the use of self-help remedies, which is that a Contracting State may at the time of ratification of the Protocol declare that the applicable remedy can be exercised only with court approval (see Article 70 (2)).
Remedies for chargees under security agreement
A chargee has, in the event of a default, the right:
- to take possession or control of the charged aircraft object;
- to sell or lease the charged aircraft object; or
- to collect or receive income derived from management or use of the charged aircraft object.
The chargee has to give written notice to “interested persons” regarding any proposed sale or lease of the charged aircraft object within a reasonable time prior to the sale or lease. Interested persons are the debtor, any guarantor and any other person having rights in or over the charged aircraft object who has given notice to the chargee of such rights. In addition to the above there is a right for the chargee and all interested persons to agree that the ownership or other interest of the chargor in the charged aircraft object shall vest in the chargee and the chargee may also apply to the court for a vesting order (Article 13). Vesting, whether voluntary or by a court order, may be useful in a case where recourse of the chargee to the chargor of the charged aircraft object is limited to the value of security provided by the chargor.
Remedies for lessors/conditional sellers
A lessor/conditional seller has, in the event of a default, the right:
- to terminate the relevant agreement; and
- to retake possession of the relevant aircraft object. Possession is only a self-help right, unless the Contracting State has made a declaration at the time of ratifying the Protocol that leave of the court is required.
Remedy for assignee
The remedies available to an assignee where an assignment by way of security has been granted and the assignor is in default are broadly the same as the remedies given to the holder of an international interest on a debtor's default.
Remedy of deregistration
On enforcement by a creditor, the relevant aircraft object will usually need to be deregistered from the aircraft nationality register on which it has been registered. The Chicago Convention 1944 forbids an aircraft to be registered on two different nationality registers at the same time. The Convention and Protocol provide the creditor with the right to deregister, export, and transfer an aircraft object from where it is located (Article 15). These rights are conditional on the agreement of the debtor (usually contained in the relevant agreement) and with the consent of the holders of any registered interest ranking in priority to the creditor. If the creditor seeks to exercise its rights to deregister etc without leave of the court then it must give written notice to interested persons within a reasonable time.
The Convention and Protocol specify five categories for interim relief for the creditor subject to (i) the agreement of the debtor (which can be given in advance eg, in the relevant lease, security agreement or title retention agreement), and (ii) to the creditor providing satisfactory evidence of default to the court. These categories relate to:
- preservation of the aircraft object and its value (e.g., storage);
- granting of possession/custody of the aircraft object to the creditor;
- immobilisation of the aircraft object;
- leasing out of the aircraft object or sale of the aircraft object; and
- application of its proceeds.
Relief, in the form of an order, is granted by the court which is required to grant “speedy” relief. The relevant Contracting State must specify a period of working days within which relief should be granted following an application by a creditor. Before making its order the relevant court may require that notice of the request for interim relief be given to interested persons.