Malta Set to Ratify the Cape Town Convention And Aircraft Protocol
Date: 6th July, 2010
Dr Nicky Vella Falzon, partner in the Aviation law department, has just published the article below.
MALTA SET TO RATIFY THE CAPE TOWN CONVENTION AND AIRCRAFT PROTOCOL
The Government of Malta has set the foundations for the ratification of the Cape Town Convention on International Interests in Mobile Equipment and the Aircraft Protocol thereto (the Cape Town Treaty). On the 22 June, 2010 Parliament approved and published the Aircraft Registration Act which amongst other things includes the legislative framework for the implementation of the Cape Town Treaty into Maltese law. The Act will come into force at a date yet to be announced by the Minister responsible for Transport but indications are that this will be sooner rather than later.
The decision to accede to Cape Town was taken on the back of a wider objective which Government has set for itself, namely to attempt to mirror the successes achieved in the maritime sector by building an aircraft registry of repute and attracting foreign aircraft owners and operators to register their aircraft in Malta. In fact the Aircraft Registration Act does much more than just lay down the foundations for accession to the Cape Town Treaty. It modernises legislation relating to aircraft registration and creates a specific regime for security over aircraft. The Act widens somewhat the qualifying requirements for the registration of aircraft in Malta and also introduces notions of fractional ownership and ownership through trustees which are much needed developments in view of modern trends in aircraft ownership.
In so far as the security regime is concerned the Act establishes that an aircraft is a particular class of movable forming a separate and distinct asset within the estate of its owner thereby providing separate security in so far as claims to which the aircraft is subject are concerned. In case of insolvency of the owner of an aircraft, therefore, all claims to which the aircraft may be subject will have preference over the said aircraft in relation to all other debts of the estate. The law recognises different types of security interests over aircraft including those of a seller (where there is a conditional sale with title reservation), those of a lessor under a lease agreement, mortgages, special privileges, possessory liens and international security interests (under Cape Town). This new security regime builds upon and improves the security available in respect of aircraft today which applies with reference to security over vessels under the Merchant Shipping Act. With the implementation of the new Act a separate and specific security regime for Aircraft will be created.
On top of this of course is the ratification of the Cape Town Treaty. Put simply the intent behind the Treaty is to facilitate the acquisition and financing of aircraft. The Treaty is credited with five key objectives. Firstly, it provides for the creation of so-called “international interests” in aircraft which essentially are rights competent to owners, lessors, lessees or financiers of aircraft and which are given recognition in the various contracting states (hence “international interests”). Secondly, the Treaty establishes an International Registry which, true to the technological era we are living in, is an electronic registry fully accessible on-line. The Registry, which is physically located in Ireland, provides right holders the faculty of having their international interests over aircraft registered publicly thus giving notice to third parties of such interests. Furthermore, registration has the effect of preserving priority over certain unregistered interests and over creditors generally in case of insolvency of the aircraft owner or operator. Thirdly, the Treaty seeks to provide creditors with a range of remedies for enforcement of their rights or interests over aircraft including means for speedy interim relief, at times without the necessity of judicial intervention. More generally, the fourth and fifth objectives of the Treaty are to ensure that the particular needs of the aircraft finance sector are met and to provide financiers and creditors in the aviation market greater confidence when granting credit. In effect it has also had the benefit of making credit cheaper to obtain, thus benefitting borrowers and financiers alike.
It is hoped that the Aircraft Registry Act and accession to the Cape Town Treaty will go some way into making Malta a more attractive jurisdiction for the registration of aircraft. Malta already provides a very attractive package to foreign investors and has positioned itself as a preferred jurisdiction for the holding of assets and investments. With its attractive personal and corporate tax regime, a full imputation system of corporate tax providing shareholders with substantial tax refunds on distributions of dividends, an excellent holding regime, VAT exemptions for lessors and operators and a wide network of double taxation treaties Malta is in with the heavy-weights. Add to this Malta’s EU and Eurozone membership, its geographical location, reliable legal framework, a highly competent professional and technical workforce and an efficient IT infrastructure. The ingredients are right and possibly as the world seems to be making its way out of the financial crisis and prospects for the rest of 2010 and 2011 looking good, so is timing. Whether or not Malta will also succeed in attracting aircraft to its revamped registry is yet to be seen, but certainly the legislative framework is now geared up for that.
However, on a more practical level if Malta is to make a success of its aircraft registry it needs to go beyond legislative intervention. The current set up of the Aircraft Registry, currently housed within the Department of Civil Aviation’s premises in Luqa, requires additional resources and space, possibly a total relocation. Furthermore, local expertise required to deal with the technicalities of aircraft registration and licensing is scarce and possibly that expertise will need to be imported at least for the first few years. It is understood that Government has taken this challenge on board and is addressing infrastructural requirements as it prepares for the Act to go ‘live’.
