Spain's accession to the Aircraft Protocol of the Cape Town Convention

Spain's accession to the Aircraft Protocol on 27 November 2015, of the Cape Town Convention (CTC), was published in the Spanish Official Gazette (BOE) on 1 February 2016. The Aircraft Protocol on international interest in mobile equipment will come into force on 1 March 2016.

The accession to the Aircraft Protocol lays to rest a lengthy process started on 28 June 2013, when Spain formally acceded to the CTC, and puts an end to a somewhat peculiar situation where the lack of accession to the Aircraft Protocol rendered the application of the CTC in Spain impossible in practice.1 The EU had ratified the CTC and Aircraft Protocol in 2009 and both were in theory in force in all EU Member States in respect of those aspects on which the EU as such is competent, hence adding to the confusion.

The ratification of the Aircraft Protocol brings into full force a framework for an international standard for the protection of ownership rights and creditors' interests in aircraft in Spain (airframes, engines and helicopters). The ultimate purpose of the CTC system is to offer creditors the highest possible degree of certainty when financing high-value equipment (which, by its nature, has no single, fixed location), introducing a legally certain, homogeneous, effective and speedy enforcement system that should reduce risks for creditors in aircraft cross-border financing transactions and, consequently, borrowing costs for debtors, thus facilitating the access to financing for the acquisition of high-value aircraft equipment and ultimately leading to the so-called "Cape Town Discount".

There are two key elements that need to be borne in mind when analysing if and to what extent Spain's accession to the Aircraft Protocol has achieved this purpose:

• the declarations made in order to disapply or modify certain aspects of the CTC and/or the Protocol; and
• the changes that need to be made to Spanish law in order to comply with the regime set out in the CTC and Protocol.

IDERA (Irrevocable Deregistration and Export Request Authorisation)

The CTC includes a declaration-based system which allows the acceding States to deposit numerous opt-in and opt-out declarations. When acceding the CTC, Spain made the declaration, provided for by Article 54 (2), confirming that any remedies under CTC may only be exercised with leave of the relevant court. In practice, this declaration meant that Spain disapplied the self-help remedies set out in the CTC for the enforcement of security interests since they would require leave of the relevant court, hence slowing down the process and making it less efficient and more cumbersome.

However, the accession to the Aircraft Protocol declares that in respect of deregistration and export request authorisation, the Spanish declaration under Article 54(2) of the CTC will not be applicable and thus Spain will apply Article XIII of the Aircraft Protocol regarding the deregistration and export remedies as part of an enforcement action, without the requirement to exercise such remedies with leave of the applicable court.

Such remedies (specified in Article IX of the Aircraft Protocol), known as IDERA, allow for the deregistration of the aircraft (as defined in the Aircraft Protocol) and the export and physical transfer of the relevant airframe, aircraft engine or helicopter from the territory in which it is located, and shall be authorised by the debtor by means of the issue and registry of an irrevocable IDERA in the form of an Annex attached to the Aircraft Protocol in favour of the "authorised party", which is the sole body that can exercise such deregistration right.

These remedies have great importance in practice, as they enhance creditors' protection and allow for a quick repossession of the aircraft.

Mobile Equipment Registry as authorising entry point to the International Registry

As anticipated by the sixth additional provision of Royal Decree 384/2015, of 22 May, approving the Register of Civil Aircraft's Rules, the accession instrument states that the Mobile Equipment Registry (Registro de Bienes Muebles) is the Spanish authorising entry point to the International Registry (an electronic registration system for the perfection and priority of international interests) in relation to security interests over airframes and helicopters registered in Spain (as regards security interest related to aircraft engines, the use of the entry point is permitted but not compulsory, and hence they can be directly registered with the International Registry).

Pursuant to article XIX of the Aircraft Protocol, national entry points are mere transmitters to the International Registry of the information required for registration of the international security interest. As an authorising entry point (as opposed to direct entry points), the Mobile Equipment Registry should limit its functions to the issue of a Unique Authorisation Code (UAC) on the security interest over airframes or helicopters registered in Spain. Thus, the Mobile Equipment Registry cannot exercise control over the transmission of information which may distort the CTC's system or impose further material or formal requirements for registration.

In this regard, the procedure set out in the sixth additional provision of Royal Decree 384/2015 may create a mismatch with the system provided for in the CTC, imposing a prior national registration for the transmission of the relevant information to the International Registry, and foreseeing that the Mobile Equipment Registry shall be the one transmitting the information to the International Registry and not simply the UAC that the parties to the transaction or their representatives will then use to directly register the security interest with the International Registry, as established in the CTC.

Thus, the following months will be key to ascertain the necessary amendments that need to be made to the Spanish legal system to ensure the correct integration of the Mobile Equipment Registry as the Spanish entry point in the CTC's system and to the compatibility of the actual implementation solutions with the CTC's principles and rules and the functioning of the International Registry.

Declarations under the CTC

The accession instrument also includes declarations under Articles 39(1)(a)-(b), 40 and 53 of the CTC, which shall take effect on 1 June 2016:

• Article 39.1(a) of the CTC allows the parties to the CTC to specify by way of declaration which categories of non-consensual right or interest (other than those affected by article 402) will rank pari passu with or ahead of the rights of the holder of a registered international interest pursuant to the laws of the particular country. Spain has made use of this ability and has included among the above all non-consensual rights and interests that pursuant to Spanish law would rank ahead over a guarantee or security equivalent to a registered international interest, and such priority in raking will be applied both in and out of an insolvency situation and regardless of whether it was registered prior to or after Spain's accession. This declaration follows the same structure as declarations made by other parties (e.g. the US) in this respect and, rather than listing specific rights, makes a general and hence all-encompassing reference to those rights that enjoy preference by Spanish law, thus giving rise to a certain degree of construction to be made by scholars and courts in due course. This ability to let certain rights "escape" the rules of the CTC and Protocol introduces a number of heterogeneous features that have been widely criticised as contradictory to the efforts of the CTC to create a fully comprehensive, homogeneous and uniform playground.
• Declaration under Article 39(1)(b): nothing in the CTC shall affect the rights of Spain, a state entity, an intergovernmental organisation to which Spain is a party or other private provider of public services to seize or detain an object under the laws of Spain for payment of amounts owed to Spain or to such entity, organisation or provider directly relating to services in respect of that object or another object.
• As regards non-consensual rights or interests that may be registered pursuant to Article 40 of the CTC, Spain has specified that both: (i) the rights of a person who has obtained a court order authorising the seizure of an aeronautical object in partial or total compliance with a court ruling; and (ii) encumbrances or other rights of a State entity linked to unpaid taxes or charges may be registered with the international registry as if they were international interests and subject to the regulation thereof. Therefore, although these rights are non-consensual and by nature cannot typically be qualified as international interests, they will be subject to the same regime as such interests to the extent they are registered pursuant to the provisions of Article 40.
• Declaration under Article 53: the relevant courts for the purposes of the CTC shall all be competent courts and authorities under Spanish law. The query that clearly arises here is that according to Article 1 of the CTC a court will be deemed a "court of law or an administrative or arbitral tribunal" determined by the relevant party, while in our view the reference to "competent authorities" under Spanish declaration is intentionally vague and may include notaries therein.

Insolvency regime

Spain has not made the "Alternative A" insolvency declaration which would allow the application of the Aircraft Protocol's special insolvency regime, as a result of a reserve of competence by the EU (Council Decision 2009/370/EC) which prevents EU Member States from making any declaration concerning the options and scope of this Article XI of the Aircraft Protocol. Such declaration is one of the "qualifying declarations" which need to be made by the acceding states in order to obtain the so-called "Cape Town Discount", which thus can now only be achieved by Spain indirectly by means of an amendment to the Spanish Insolvency Act.

Notes
_{1 As set out by Article 6.1 of the CTC, the CTC and each of its Protocols conform a single instrument that needs to be construed jointly.
2 i.e. those that may be registered.}