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Creating a New Scheme: Improving the Law on Secured Transactions

As noted earlier (Sect. 2.1.4), the Cape Town Convention adopted a novel approach to drafting. Different from the traditional approach of finding a “compromise” without a bias on any of the divergent domestic laws, or of playing “give and take” game in which each camp makes a concession on some issues, the drafters focused on the conditions facilitative to asset based financing and incorporated them in the Convention.

This approach is useful, among others, on issues where existing laws are outdated or too complicated. It is also critical when the prevailing view on the issue is in fact detrimental to the practice of asset based financing. These issues are discussed in the following sections.

Modernisation of Filing System for Security Interests

The Design of Aircraft Registry

As already noted, most jurisdictions have a registry to record security interests in aircraft under the existing domestic law. It does not mean, however, that those existing domestic registries are similarly designed. Rather, there is a large variety in the manner how they are designed.

First, the registry can be indexed by the asset (aircraft) or by the debtor. Where the domestic registry for rights in aircraft exists, it is usually indexed by the aircraft. Such asset-based registries are found in Finland (register maintained by the Finnish Transport Safety Agency (TraFi)), Germany, Greece (records maintained by the Civil Aviation Authority), Italy, Japan and Switzerland.[1] In the United States, while the filing system under UCC Article 9 is debtor-based, security interests in aircraft are recorded with the aircraft-based file with the FAA, and the same is true with the recordation of secured transactions over railway rolling stock with STB.[2]

Where the relevant registry is not specific to aircraft, there are both possibilities. The Registry of Pledges in Poland, for example, is an asset-based registry. So is Spain’s Registry of Movables.[3] On the other hand, the Canadian Registers under the PPSA (in common law provinces) and the Code civil (of Quebec) are debtor- based. In France, the registry for hypotheque in aircraft is asset-based, but there is another registry for financial lease (credit-bail) based on the Code monetaire et financier. The latter registry is debtor-based.[4]

Some jurisdictions have a system for registering a floating charge. By its nature, a floating charge can only be registered in the debtor-based registry. In England, most charges, fixed or floating, must now be registered with the debtor-based Register of Company Charges, if the debtor is a company or a limited liability partnership. Failure to do so will make the charge void against a liquidator, an administrator or creditor of the company.[5] In Malaysia, a charge used to be registered in the debtor-based registration under subsection 108 (3) of the Companies Act 1965 (Act 125) prior to its accession to the Cape Town Convention.[6] Under these systems, the transaction parties have to consult two registries, an asset-based registry for aircraft mortgages and a debtor-based registry for floating charges. In both Malaysia and the United Kingdom, the Cape Town Convention has now simplified the system.[7]

Secondly, some jurisdictions has a notice filing registry, while others not. A notice filing registry accepts filing without reviewing it. As a result, there is no guarantee that the filed security interest truly exists or is validly constituted. The United States (the UCC filing), Canada (both PPSA registries in common law provinces and the registry under the Code civil of Quebec) and South Africa maintain notice filing registries.[8]

Other jurisdictions have title-registry, under which the application is reviewed by the registrar. The application for registration is accepted only after the registrar is convinced that a valid security interest has been created. The registry for registered pledges in Poland and the Registry of Movables in Spain are of this type.[9] Aircraft specific registries of several jurisdictions, such as Italy or Switzerland, are not notice filing system, but entail review by the registrar.[10]

Still another variant is the document recordation system of the FAA and STB in the United States. It is different from simply filing a notice of financing agreement in that the transaction document itself is recorded. However, the system differs from the aircraft specific registries in many other jurisdictions in that the FAA or STB does not review the recorded document to check whether the security interest is validly constituted.[2]

  • [1] See Chaps. 12, 14, 15, 16, 17 and 20.
  • [2] See Chap. 11.
  • [3] See Chap. 18.
  • [4] See Chap. 3.
  • [5] See Chap. 4.
  • [6] See Chap. 6.
  • [7] In Malaysia, the International Interests in Mobile Equipment (Aircraft) Act 2006 (Act 659),which implements the Convention and Aircraft Protocol in Malaysia, explicitly excludes the application of the debtor-based registration of a charge under subsection 108 (3) of the Companies Act1965 (Act 125).
  • [8] See Chaps. 3, 9 and 11.
  • [9] See Chap. 10.
  • [10] See Chaps. 16 and 20.
  • [11] See Chap. 11.
 
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