Extension Of The Cape Town Convention To The Cayman Islands And Its Implications For Aircraft Financing

Its legislature having passed the enabling legislation, the Cayman Islands is poised to have The Convention on International Interests in Mobile Equipment and the associated Protocol to the Convention on International Interests in Mobile Equipment on matters specific to aircraft equipment (together known as the "Convention") come into force in the jurisdiction as early as August, 2015 - an event long sought after by Cayman Islands aviation finance attorneys.

The UK was among the original parties who signed the Convention in November, 2001 in Cape Town, South Africa. Although the Aircraft Protocol came into force in 2006, and had been ratified by many of its original signatories, it was not until 2014 that the UK Government took the policy decision to ratify the Convention. Due to its constitutional status as a British overseas territory, the Convention could directly apply to the Cayman Islands only following ratification of the Convention by the UK and extension to the Cayman Islands at its request.

Enabling Legislation

While it awaited ratification and extension of the Convention by the UK in 2009, the Cayman Islands enacted The Cape Town Convention Law, 2009 the aim of which was to mimic the principles and framework for the registration, recognition and enforcement of international interests contained in the Convention in the absence of the Convention actually being in force in the Cayman Islands. At a date to be appointed by the Governor of the Cayman Islands, The International Interests in Mobile Equipment (Cape Town Convention) Law, 2015, (the "Implementation Law") which will implement the Cape Town Convention in the Cayman Islands, will be brought into force and repeal and replace The Cape Town Convention Law, 2009.

How the Convention Works

The Convention established a standardised international legal framework for the creation and registration of international interests in helicopters, airframes and aircraft engines which constitute "aircraft objects". An "international interest" means any interest in an aircraft object that is held by a creditor that is either: (a) granted by the chargor under a security agreement; or (b) vested in a person who is the conditional seller under a title reservation agreement; or (c) vested in a person who is the lessor under a leasing agreement. Whether an interest falls within one of these three broad categories is determined by applying the Convention's own definitions and autonomous rules of interpretation, and not by reference to the domestic law of any Convention State or territory. Registration on the International Registry is not...