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Questionnaire for Session III D. at the Vienna Congress 2014 of AIDC

by Dr See Eng Teong,

[Questions for a national reporter in a Party Jurisdiction]

Note: VS- Dr See Eng Teong; MG- Mary George

  • 1. Registration system
  • (a) VS: In the absence of the Cape Town Convention registration system, the governing principle would probably have been the first to create a charge or mortgage and the priority would be prima facie based on registration of the charge/mortgage, if permissible under either the Companies Act or other relevant legislation, subject to any prior charge that would have been recognized in equity.
  • (b) VS: Not sure about railway rolling stocks and space assets but a charge created over an aircraft would be registrable under s 108(3) of the Companies Act 1965. A mortgage created over an aircraft might also be registrable under Regulation 158 of the Civil Aviation Regulations 1996.
  • (c) VS: There are two separate issues here. In respect of the issue of registration against an asset, neither the Companies Act 1965 nor the Civil Aviation Regulations seem to expressly state whether registration is against a debtor or an asset though it appears that the two laws are more person-oriented as opposed to asset-oriented. In respect of the issue of accuracy of the information provided, Regulation 158(2) of the Civil Aviation Regulations does require attachment of a certified true copy of the mortgage.
  • (d) VS: Don’t quite understand this question.
  • 2. Enforcement of a security interest
  • (a) VS: It appears that an agreement on private enforcement of an international interest, similar to that provided for in the Cape Town Convention, was valid and enforceable.
  • (b) VS: Such a clause would be valid even in absence of Cape Town Convention. Based on principle of freedom of contract the parties to an agreement were free, subject to legal or statutory prohibitions otherwise which were and are rare, to define their terms of dealing in the agreement.
  • (c) VS: [Q1] Subject to any statutory intervention in respect of these three types of vehicles prior to the enforcement of the Cape Town Convention (which was probably none), a security agreement might spell out the exact remedies that would be available to the creditor/parties in the event of a default. [Q2] Subject to statutory intervention in respect of these three types of vehicles prior to enforcement of Cape Town Convention (which was probably none), a security agreement could spell out the order of application of the proceeds from the realization of the secured assets and the usual order was to satisfy the statutory authorities (if any), secured creditors, unsecured creditors (if any), and any balance would be returned to the debtor.
  • 3. Treatment of Security Interests under the Insolvency Procedure[1]
  • (a) VS: Dr Mary George reported that Malaysia declared Alternative A. If it does, were the rules provided by the chosen alternative different from the treatment of a security interest under the domestic insolvency law of your jurisdiction in the absence of the Convention? If no alternative is chosen, what was the reason for doing so?
  • (b) VS: Alternative A of Article XI of the Aircraft Protocol appears to be different from the insolvency process.
  • (c) VS: Based on Alternative A of Article XI of the Aircraft Protocol, the rule would be different in the absence of the Cape Town Conv.
  • 4. General Consideration[2]
  • (a) VS: It may or may not be usual to conduct an economic analysis prior to designing a law, whether on secured transactions or other private laws more generally. No idea whether any economic analysis was conducted prior to becoming a Party to the Cape Town Convention.[3]
  • (b) VS: Not sure but doubtful. The terms and conditions of financial institutions are more or less settled and they hardly negotiate on their terms, subject to State intervention or where the borrower is a large company or wields strong non-business influence. In most situations the determining factor tends to be the creditworthiness of the borrower.
  • (c) MG: The Federal Constitution of Malaysia has a dualist-transformation approach to the implementation of international treaty law and hence subscribes to the idea that international law rules must be incorporated into domestic law once a State is Party to a convention for the implementation of rights and obligations as the case may be, except where reservations or declarations are made thereto. There is no specific mention that the way to gain the economic benefits of the Cape Town Convention is through domestic implementation of its provisions. However, it could be inferred that based on the above, that the benefits of a Convention are obtained only when found in domestic law.

  • [1] All three Protocols provide alternatives that differ in the extent of the power that the creditor canexercise in case of insolvency of the debtor. However, even under an alternative less favourable tothe creditor (Alternative B), the insolvency administrator or debtor in possession shall either cureall defaults and agree to perform all future obligations or give the creditor the opportunity to takepossession of the secured object. Alternative C of Art.IX of the Rail Protocol seems to be the onlyexception, which enables the insolvency administrator or the debtor to apply to the court for anorder suspending its obligation.
  • [2] Anthony Saunders, Anand Srinivasan, Ingo Walter & Jeffrey Wool, The Economic Implicationsof Secured Transactions Law Reform: A Case Study, University of Pennsylvania Journal ofInternational Economic Law, Vol. 20, p.309, at 324
  • [3] Jeffrey Wool, Treaty Design, Implementation, and Compliance Benchmarking EconomicBenefit - a framework as applied to the Cape Town Convention, [2012-4] Uniform Law Review,633.
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