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The Solution Provided by the Cape Town Convention

The Cape Town Convention’s rule on the insolvency proceedings is nuanced. The Base Convention leaves the matter to the applicable law, while the Protocols provide two (the Luxembourg Rail Protocol provides three) alternatives for a Contracting State to opt in by declaration. It is apparent that the Cape Town Convention does not aim to unify rules on this issue. A chosen alternative must be applied in its entirety, without allowing a Contracting State to cherry-pick, though the declaration of a Contracting State may apply different alternatives to different types of insolvency proceedings.[1] Then, as one of the alternatives to opt in, Alternative A of each Protocol closely traces sections 1110 and 1168 of the Bankruptcy Code of the United States. The latter is a unique legislation, very different from the laws in majority of the jurisdictions, but has been well reputed for facilitating the growth of EETC market.

The rules on the insolvency proceedings under the Cape Town Convention do not distinguish a security interest and a conditional seller’s title and a lessor’s right. However, it should be noted that the remedies that a creditor can exercise, whether with little qualification under Alternative A or subject to conditions under other Alternatives (or applicable law, when none of the Alternatives is opted in), are determined by the rules on the enforcement in general and, therefore, are different depending on whether the international interest is a security interest or a title of a conditional seller or a lessor.

Because of the expectation that opting in to Alternative A will replicate the reputation that the American law has entertained, most of the States Parties of the Aircraft Protocol have opted in to Alternative A. In Canada, the federal laws on insolvency (Bankruptcy and Insolvency Act (Loi sur la faillite et l’insolvabilite),137 Companies’ Creditors Arrangement Act (Loi sur les arrangements avec les crean- ciers des compagnies),V3i and Winding-up and Restructuring Act (Loi sur les liquidation et les restructurations)139) were amended in order to implement Alternative A fully, since the latter federal laws were not compatible with Alternative A in that, for example, the secured creditor must notify its intention to exercise its right in advance and could be subject to a suspension.140 In contrast, Malaysia made no reference to the exclusion of existing insolvency statutes in the implementing law (International Interests in Mobile Equipment (Aircraft) Act of 2006), despite the fact that there could have been modifications to the rules in insolvency law by opting in to Alternative A. Still, the compliance with the Convention and Aircraft Protocol will be ensured by the general clause in the same Act providing that the Base Convention and Aircraft Protocol prevails in case of conflict with any domestic law.141

Among the States Parties, the United States did not make any declaration under Article XI of the Aircraft Protocol. As a result, according to Article 30(2) of the Convention, the applicable law determines the status of the international interest. It is easy to see that the United States will suffer no disadvantage if section 1110 of the Bankruptcy Code applies.

Finally, in Europe, the European Community (now the European Union) claimed competence on the Protocol insolvency provisions under the Treaty on the Functioning of the European Union. Therefore, the European Community as a Regional Economic Integration Organisation acceded to the Base Convention and the Aircraft Protocol, and approved the Luxembourg Rail Protocol, to the extent these matters are concerned.142 In doing so, the European Community made no declaration as to the alternatives on insolvency proceedings under the two Protocols. Still, a member state of the European Union can amend its insolvency law to make it in line with the Alternative A, and the insolvency law as so amended will apply as [2] [3] [4] [5] [6] [7]

the applicable law in the absence of choice of any Alternative.[8] In this way, just as the United States applying section 1110 of the Bankruptcy Code, a European state can enjoy the same benefits as expected from opting in to Alternative A.

  • [1] Article XXX (3) of the Aircraft Protocol; Article XXVII (3) of the Luxembourg Rail Protocol;Article XLI of the Space Protocol.
  • [2] R.S.C., 1985, c. B-3.
  • [3] R.S.C., 1985, c. C-36.
  • [4] R.S.C., 1985, c. W-11.
  • [5] See Chap. 3.
  • [6] See Chap. 6.
  • [7] See Article 48 of the Base Convention; Article XXVII of the Aircraft Protocol; Article XXII ofthe Luxembourg Rail Protocol.
  • [8] Cf. Article 4 of the Appendix 2 to the ASU.
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