Cloudy Skies: Will Ireland be an important hub
12 January, 2021
for global aviation disputes?
- Ireland’s long established position in the global aviation industry has led to many global aviation finance structures involving Irish based lessors and Irish special purpose vehicles. While the governing law for financial arrangements between financiers and aircraft lessors is generally English or New York law, Irish law often governs the suite of security documents.
As debt deferral or forbearance agreements granted at the beginning of the pandemic expire and lessees’ / operating airlines’ ability to service debt obligations to financiers / lessors are hard to meet with few planes in the air, industry stakeholders are considering their next steps.
Financiers and lessors (as the case may be) have two stark options: renegotiate terms (as many have already done) or enforce their security.
Lessees may terminate existing lease agreements, seek to return leased assets or explore restructuring / insolvency options.
While the vast majority of lessors and financiers have not taken enforcement steps as yet, it seems likely that a continued deferral of obligations / waiver of events of default will not continue, especially if a scramble for assets among competing creditors occurs in the coming months. Once a financier moves against a lessor it may create a domino effect of enforcement actions, causing a lessor to pursue its lessees.
Unless insolvency protection is available for Irish lessors (through examinership or schemes of arrangement – dealt with in our next article) Ireland’s Commercial Court will be a venue for enforcement actions. It is also likely that where values of aircraft have fallen steeply, refinancing of aircraft may not be sufficient to largely satisfy debts as once was the case and steps will be taken to enforce against any assets based in Ireland.
The Commercial Court is likely to hear a whole host of aviation-related actions, including enforcement actions and airframe / engine repossessions. Disputes may arise regarding material adverse / force majeure clauses. Frustration of contract may well be argued. Supply / maintenance contract disputes will arise where aircraft have been stored or maintained for months and resources may not be available to discharge such costs. Lien disputes and Cape Town Convention disputes (outlined below) also seem likely to arise.
The Commercial Court has already dealt with a number of high value aviation restructurings including that of Nordic Aviation Capital earlier this year which involved more than $5 billion of debt with over 85 lenders. CityJet successfully exited an examinership process which had involved €500 million of debt when the airline satisfied the “reasonable prospect of survival” test, among other factors. In December, the High Court affirmed the appointment of an examiner, Kieran Wallace, to a number of companies in the Norwegian Air Group as well as the Oslo based parent company of the group, Norwegian Air Shuttle ASA. The examinership process is still ongoing and is before the Court again on 22 January.
Thorny conflicts of laws questions may arise. Close attention will be paid to a lessee’s Centre of Main Interest, especially if it is moved to secure the benefits of favourable insolvency protection regimes.
The International Registry of Mobile Assets (the “Registry”) is based in Dublin, Ireland. It enables organisations to register and secure commercial interests in aircraft assets. The Registry is used to electronically record international interests for the purpose of establishing the priority of interests. Interests are generally registered as a matter of contract on a consensual basis as shortly after an aviation finance and leasing transaction.
Claimants may seek to establish an interest in aircraft assets by registering non-consensual interests on the Registry. It may well be the case that not all interests may be bona fide or clear cut where parties seek to achieve leverage. Equally non-consensual interests could be legitimate i.e. mechanics may seek to register liens arising from non-payment of fees.
The Commercial Court has jurisdiction to make an order directing the Registrar to discharge an interest registered on the Registry:
1) when a party has failed to respond to a demand to discharge a registration on the Registry; or
2) where a party fails to comply with an order of a court requiring that party to amend or
discharge a registration
A recent case (1) heard by the Commercial Court under the jurisdiction granted by the Cape Town Convention (the “Convention”) involved the registration by Business Aviation Limited (“BAL”) of three non-consensual interests (“NCIs”) over an airframe and two engines owned by Unicredit Global Leasing (“Unicredit”). Mr. Justice McDonald noted the importance of the integrity of the Registry and stated that interested parties should be able to rely on the Registry as an “accurate reflection of the registrable rights or interests affecting an aircraft”.
In considering the first of Unicredit’s three grounds for the discharge of the NCIs, Mr. Justice McDonald noted that there are two factors to consider in determining whether the Convention
1) whether the relevant “debtor” is situated in a contracting state to the Convention; or
2) whether the relevant aircraft is registered in a contracting state.
Neither the “situation” of BAL nor the country in which the aircraft objects were registered were contracting states to the Convention. No connection to the Convention arose and no foundation for the registrations arose. Mr. Justice McDonald ordered BAL to discharge the registrations and directed that the Registrar discharge the registrations in the event that BAL failed to do so within 48 hours of the order being made.
1 Unicredit Global Leasing Export GMBH v Business Aviation Limited and Aviareto Limited  IEHC 139
It seems likely that Ireland’s Commercial Court will serve as a key venue in multi-jurisdictional aviation disputes, whether as the main forum (if the dispute relates to Irish based defendants / assets or the Convention) or as an important satellite forum in the context of a larger claim before the courts of London, New York, Hong Kong or Singapore.
- Flynn O’Driscoll’s cross departmental aviation disputes team comprising of aviation, insolvency and dispute resolution professionals are ready to assist financiers, leasing companies, airlines or any other stakeholder who may have a query in relation to an ongoing or potential dispute.
- Further details of our team can be found here.
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