Enforcement of security interests and repossession of aircraft in Norway – a brief practical note
Advokatfirmaet Simonsen Vogt Wiig, Oslo
The aviation industry came to a standstill in connection with the Covid-19 virus, and this has hit the airlines worldwide. We have seen a number of airlines defaulting on their lease agreements and loan facilities. The question of how to enforce security interests or repossess an aircraft has sadly turned out to be a question of interest for the lessors and the lenders worldwide.
The aim of this note is to give a brief outline of the legal position of enforcing security interests and repossessing aircraft in Norway, and to lenders who have a security interest in such aircraft.
In summary, the Scandinavian countries are all fully Cape Town compliant and provide for the necessary legal framework for a quick and rather easy route for enforcement if proven necessary. Since 2016, all Scandinavian countries (Denmark, Norway and Sweden) have been parties to the Cape Town Convention on International Interests in Mobile Equipment of 16 November 2001 and its Protocol on Matters Specific to Aircraft Equipment (collectively referred to as the ‘CTC’). Norway has been a party to the CTC since 2011.
Norway has opted for (i) the 60-day stay period in Alternative A of Article XI of the Protocol and (ii) the system of filing Irrevocable De-registration and Export Request Authorisations (IDERA), authorising a specified entity to take the necessary steps to remove an aircraft from its registry.
The mentioned stay period means that in case of insolvency, a liquidator will not be entitled to invoke a stay period of more than 60 days. Under the legal framework, this will be the maximum ‘waiting period’ for any lessor to repossess an aircraft pursuant to a lease agreement registered as an International Interest with the International Registry (the ’IR’) in accordance with the CTC. The same applies for a lender seeking to enforce a security interest over an aircraft. Having said this, it should be mentioned that from a Norwegian law perspective, one would expect a liquidator to act much quicker than this, and the 60 days constitute a maximum waiting period. As we will touch upon below, the lessors and the lenders will normally be able to deregister and export the aircraft regardless of any insolvency proceedings, and it is the practicalities of the repossession itself that potentially need to be clarified with the liquidator in case of insolvency.
Norway has also opted for the self-help remedy provided for by the CTC. This means that no court decision or approval by any government would be necessary for a lessor or a lender to enforce an International Interest registered with IR. This is an important function of the CTC, which provides for a speedy recovery or enforcement of a security interest in an aircraft.
As the aircraft registry in Norway is an owner´s registry (and not an operator´s registry like for example in Ireland or the UK), it is in principle only the registered owner of the aircraft that is entitled to deregister the aircraft. In case of operational leases, the registered owner is normally the lessor itself, and the lessor has therefore full control of the deregistration and repossession process.
For financed aircraft, an IDERA in favour of the lenders (often represented by a security trustee) would normally have been filed with the aircraft registry. For the security trustee to be able to effectively enforce its security interest and thereby (i) repossess, (ii) deregister and (iii) export an aircraft from Norway, the IDERA must be issued by the registered owner and recorded with the aircraft registry. This is standard practice for all financed aircraft registered in Norway. This is something all lenders and/or security trustees should check is in order.
In case of financed aircraft, we still see from time to time that lenders have registered local law mortgages with the Norwegian aircraft registry, in addition to the International Interest registered with the IR. This is, however, not necessary as a mortgage registered as an International Interest with the IR will take precedence over any local law filings.
The registration of a local law mortgage may also turn out to be the very factor that complicates and slows down the process of enforcing a security interest. Under Norwegian law, an aircraft may not be deregistered before such local law mortgage has been discharged. For this to take place, the secured party needs to deliver the physical mortgage deed in original to the aircraft registry, together with an application for discharge. As it may take some time to locate the original mortgage deed and courier this to the aircraft registry, this may delay the enforcement of the security interest. I have more than once experienced that the security trustee is not able to locate the original mortgage deed. If this turns out to be the case, this could severely slow down the process. It might therefore be useful for the lenders to check whether they have registered any local law mortgages, and make sure that they know where all original mortgage deeds are located.
It should also be noted that in order for a lessor or a security trustee to deregister an aircraft in Norway, an application from the lessor, or the beneficiary under an IDERA, must be produced to the aircraft registry in original, duly notarised and apostilled. It may therefore be good advice to any lessor or lender considering the possibility of taking steps to prepare for the eventuality of such process to provide its local counsel with a Power of Attorney to file the necessary applications on its behalf.
In conclusion, I believe that lessors and lenders with aircraft operating in Norway, or in any of the Scandinavian countries, are as well protected as possible in the present circumstances, not at least due to all Scandinavian countries having ratified the CTC in the most ‘creditor friendly’ manner.