First court decision implementing insolvency provisions of CTC

In a recent matter handled by Gowling WLG (Canada) representing a Canadian Aircraft Financing Company, a Canadian court order implemented, for the first time, "Alternative A" of the insolvency provisions set out in the Convention on International Interests on Mobile Equipment and the Protocol on the Convention on International Interests on Mobile Equipment on Matters Specific to Aircraft Equipment. Alternative A provides many advantages to the secured creditor as it grants more in-depth protection than otherwise available to a secured creditor under bankruptcy and insolvency laws. The debtor has two options upon the occurrence of an "insolvency event" as defined in the Cape Town Convention.

The implications of this choice

1. Upon the occurrence of an insolvency-related event, the insolvency administrator or the debtor, as applicable, shall give possession of the aircraft object to the creditor no later than the end of the waiting period; 2. The registry authority and the administrative authorities in the Contracting State shall make available to the creditor the default remedies provisions stipulated in Article (9) of the Protocol no later than five working days after the date on which the creditor notifies such authorities that it is entitled to procure those remedies, which include a. procure the de-registration of the aircraft; and b. procure the export and physical transfer of the aircraft object from the territory in which it is situated.

The Transaction: In 2017, a helicopter company (the "Helicopter Company") sought an Initial Order under the CCAA. The Aircraft Financing Company was one of the Helicopter Company's secured creditors and had first-ranking security over eight helicopters (the "Helicopters") owned and/or operated by the Helicopter Company, with subordinate security in all other assets that were registered at the Registry. In these circumstances we determined that, the remedies of the Cape Town Convention had to be applied. The CCAA proceedings constituted an "insolvency-related event" as defined in the Aircraft Protocol and enabled the Aircraft Financing Company to benefit from the remedies provided in the Cape Town Convention, in particular, Alternative A. Canada chose to ratify the Cape Town Convention and to adopt Alternative A. As such, a Canadian court had to comply with the obligations under the Cape Town Convention and enforce a security/international interest duly registered in the Registry. In light of the arguments of Gowling WLG professionals, the Aircraft Financing Company was permitted to sell the Helicopters, and for the first time a Canadian Court recognized the application of the Alternative A remedy. The buyers of the Helicopters also had to deal with the deregistration process. The Aircraft Protocol allows an irrevocable deregistration and export request authorization for an Aircraft Object, from a civil registry of the Aircraft Object as a remedy for default by a debtor. In this Transaction, a court order confirmed the transfer of title free and clear of all rights and ordered all regulatory authorities to effect the change of ownership.

Conclusion: In practice, the application of the Cape Town Convention is not as simple as intended. Not all Contracting States, when faced with a situation where the Cape Town Convention is applicable, recognize and apply the Cape Town Convention as expected by ratification. Indeed, the recognition and scope of the Cape Town Convention are not the same for all Contracting States. However, in Canada, the Transaction has set a precedent for the procedure to be followed by other Canadian courts in similar circumstances.

Source: https://gowlingwlg.com/en/insights-resources/articles/2019/insolvency-provisions-of-the-cape-town-convention/