Is the Cape Town Convention the Right Choice for the Isle of Man?

Commonly known and referred to as the Cape Town Convention (‘the Convention’), the Convention on International Interests in Mobile Equipment and its Protocol on Matters Specific to Aircraft Equipment, which were signed in Cape Town on 16, November 2001 is an international treaty intended to standardise transactions involving moveable property.

Following ratification of the Convention by a number of contracting states, including the United State of America, Russia and China, ratification of the Convention was undertaken by the United Kingdom (‘UK’) on 27th July, earlier this year.

There is a provision within the Convention which allows for it to be extended to ‘territorial units’ of contracting states, i.e. the UK can give the Isle of Man the ability to enact the Convention under Manx Law; this has led to a consultation being submitted by the Isle of Man’s Department of Economic Development, for the adoption of the Convention by the Isle of Man.

On the back of the Isle of Man’s success in promoting its Aircraft Register as one of the most successful private aircraft registries in the world, many in the industry agree this to be the next logical step for the Island’s aviation industry. It has even been questioned whether non-ratification of the Convention could put their continued success as an aircraft registration jurisdiction of choice at risk. In an inherently risk adverse world it is important for finance, legal and insurance houses to feel secure – would they be as supportive in the promotion of the Island as a jurisdiction of aviation excellence without it?

So what is the Cape Town Convention?…The Convention aims to reduce the cost of raising finance for large, high value mobile assets which routinely cross borders and is designed to facilitate asset-based financing and leasing of aviation equipment, expand financing opportunities; ultimately reducing costs. It provides an over-arching framework for the financing of this asset type whilst addressing issues commonly associated with the financing of this specific type of asset.

Unique from traditional aircraft finance and registration documents, it provides for an internationally agreed legal order for the creation, enforcement, registration and priority of security in high value mobile equipment (i.e. aircraft), giving international financiers assurance that the documentation and registration of their security interests in contracting states will be secure in the event of a debtor’s insolvency.

The Convention provides standard resolutions in the event of default by a debtor including, but not limited to, the ability to take possession or control of an object, sell or grant a lease of an object, and collect or receive any income or profits arising from the management or use of the object.

Additionally, the Aircraft Protocol provides creditors with additional reassurance in that it modifies the Convention to meet particular requirements of aircraft financing and leasing, including the ability to require the removal of an aircraft from the national civil aircraft register and to export it. This applies to: aircraft which can carry at least eight people or goods in excess of 2,750 kilograms; aircraft engines with thrust exceeding 1,750 pounds-force (7,800N) or 550 horsepower (410kW); and helicopters carrying five or more passengers.

However, borrowers will also benefit; the uniformed documentation and recording of their international interests will provide certainty to creditors and therefore a reduction in the complexities associated with cross border transactions used by both them and airlines alike and they will also be afforded the ‘Cape Town Discount’, a discount in interest costs which is made available in countries which have the Convention in operation or that are contracting states; consequently reducing the overall costs associated with the borrower’s aircraft’s registration.

With the above in mind, is the decision for the Isle of Man to join the Convention the right one?

In my opinion, yes it is…Not only will the Isle of Man be rewarded through the support of borrowers, financiers and airlines looking to them as their jurisdiction of choice, it will provide both them and the Island with a coherent legal framework, which in itself can only be beneficial to the Island and its efforts to maintain its position as a leading jurisdiction for aircraft registration.

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