Home Law Implementing the Cape Town Convention and the Domestic Laws on Secured Transactions
Special Rules for the Equipment Used for a Public Service
The Aircraft Protocol does not apply to aircraft objects, if the airframe, aircraft engine or helicopter is used in military, customs or police services. In this sense, it excludes the aircraft objects from the sphere of applications in its entirety. The Luxembourg Rail Protocol and Space Protocol, on the other hand, do not exclude objects used for public services, as these types of equipment are more often used for what might be considered as public services or for both public and commercial purposes at the same time (as with dual use space assets). As a result, a problem arose in these two Protocols on how to reconcile the public interests and financier’s demands.
The Luxembourg Rail Protocol introduced an opt-in provision that allows a Contracting State to declare that the “rules of its law in force at that time which preclude, suspend or govern the exercise within its territory of any of the remedies ... in relation to railway rolling stock habitually used for the purpose of providing a service of public importance (‘public service railway rolling stock’).” The condition for precluding, suspending or otherwise governing the exercise of remedies is that the money is paid to the creditor every month in the amount specified under the domestic law in force or the amount of market lease rental, whichever is larger. The system appears similar to the German Law in respect of Measures for the Maintenance of the Operation of Railways Providing Public Transportation of 1934. It is an exchange for the prevention of repossession by the creditor vis-a-vis the assured payment of compensation. One of the primary drafters of the Luxembourg Rail Protocol warns that opting in to this provision could limit the ability to finance from the market severely and that a Contracting State is advised to make careful consideration before opting in.
Under the Space Protocol, the provision limiting the exercise of remedies when the space asset is used for providing a public service is not an option by declaration. When the space asset is used for providing a public service in a Contracting State, that Contracting State may register a public service notice with the International Registry. Once such a public service notice is registered, the creditor with an international interest registered after the public service notice (or had knowledge of the agreement to provide a public service) may not render the space asset unavailable for the provision of the public service during a certain period of time by exercising the remedies. The idea is obviously to ensure some time to coordinate on how best to continue the use of the space asset and maintain the public service after the debtor becomes insolvent. As in the case of public service exemption under the Luxembourg Rail Protocol, this mechanism could compromise the appetite of the capital market severe. Because the register of a public service notice is made on the basis of an agreement between the debtor, public service provider and the Contracting State, the creditor might require the debtor not to agree on the public service notice as a covenant of the loan or lease agreement.
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