Protecting Aircraft Assets Following Default

Integrated Aviation Finance School.

Jackson Chow & Judy Tan, 12 January 2015, Shenzhen

William KK Ho & Co.

Protecting Aircraft Assets Following Default

Agenda

1. Review of Transaction Documentation (Security Documentation)

2. Notice of Default

3. Locating the Aircraft & Repossession

4. Security Interests and other Prior Interests

5. Sale

6. Deregistration

7. Foreign Jurisdictions

8. PRC Case Study

William KK Ho & Co.

1. Review of Financing Documentation Has an Event of Default occurred?

Default

Can the default be cured, grace periods expired

Quiet Enjoyment Covenant – is this being breached?

2. Security Documentation Enforceability of security documentation Legal Opinions Security Packages

William KK Ho & Co.

3. Notice of Default Accuracy of default notice Service of notice

4. Locating the Aircraft and Repossession Repossession - Is a court order necessary? Locating the Aircraft Maintenance of insurances, aircraft maintenance; incurring costs in

connection with Aircraft – who pays?

William KK Ho & Co.

5. Security Interests and other Prior Interests Prior interest? Repairman’s, maintenance, storage, repair, aviation charges

6. Remedies and Power of Sale Aircraft mortgage usually will provide for an express power of sale Private Sale Pre-judgment court sale

7. Deregistration Deregistration of the Aircraft as a condition to sale

William KK Ho & Co.

8. Foreign Jurisdictions Local Law Advice

Enforcement of local law securities – court appointed orders

Compliance with local law requirements regarding repossession

Liaison with regulatory authorities

Deregistration

Choice of law and jurisdiction

Peculiar Jurisdictional Requirements

Foreign Conventions Cape Town Convention – Creditors may exercise certain default remedies – sale,

receive income from profits grant a lease

Remedies exercisable without a court order, unless Contracting State has declared otherwise

William KK Ho & Co.

PRC Case Study - Repossession of Aircraft

Recent Cases

PRC Mortgages PRC Mortgage is effective between Mortgagor and Mortgagee upon execution

Registration of Mortgage with CAAC – security perfection - ensures notice against third parties

Mortgage created on a leased aircraft - lease remains unaffected

Enforcement of the mortgage should not be affected by the existence of the lease, provided that the mortgage is duly registered with CAAC – NOTE quiet enjoyment covenants

William KK Ho & Co.

Remedies

Enforcement of Judgment “self-help” remedies are not available under Chinese law.

A creditor or lessor intending to retake possession must resort to judicial proceedings via a Chinese court.

William KK Ho & Co.

Summary - PRC Judicial Process

Lessor/mortgagee to file an application for enforcement with the court of the first instance

Lessor or Mortgagee is required to pre-pay any court charges

property preservation orders may be granted (provided that Lessor/Mortgagee provide property preservation guarantee).

Evidence of claims to be submitted; Evidence of defence to be submitted.

Any evidence must be checked and verified before it can be taken as a basis for ascertaining a fact

Chinese translation is required if the transaction documents are not in Chinese

If application for enforcement accepted, the Chinese court could issue an enforcement order to lessee/mortgagor.

William KK Ho & Co.

Enforcement of Foreign Judgments

Can an English or New York court judgment be recognized and enforced in China As a general principle, the reciprocal recognition of foreign court judgments

arises either by treaty between the PRC and country where such foreign court is located

In practice, bilateral treaties for recognition and enforcement of foreign judgments are only existent between China and a few countries (France and Spain, USA (only for criminal) for example); no such arrangement with many of the major trading partners including the UK, Japan,or Germany

William KK Ho & Co.

Foreign Arbitration Determinations A foreign arbitration award can be recognized and enforced in China

“Arbitration” clause in the lease agreement or aircraft mortgage can be an alternative option

The PRC is a party to the New York Convention on the Reciprocal Recognition of Foreign Arbitral Awards (“New York Convention”)

William KK Ho & Co.

Part 2: Protecting the Asset in a Default situation

Basic checklist

1. Review of Financing Documentation & Security Documentation

2. Notice of Default

3. Locating the Aircraft & Repossession

4. Security Interests and other Prior Interests

5. Sale

6. Deregistration

7. Foreign Jurisdictions

8. PRC Case Study

Protecting Aircraft Assets Following Default

William KK Ho & Co.