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Ireland to Adopt ‘Alternative A’ Insolvency Remedies Set Out in Cape Town Convention

AUTHOR(S): Chris Quinn, Gerry Thornton
PRACTICE AREA GROUP: Aviation Finance and Transportation
DATE: 01.10.2014


The State Airports (Shannon Group) Act 2014 (the “Act”) was signed into law on 27 July 2014.  The Act is further evidence of the Irish government’s commitment to the aviation finance and leasing sector and further bolsters Ireland’s position as a centre of excellence in aviation.

The Act amends the existing International Interests in Mobile Equipment (Cape Town Treaty) Act 2005, to provide for the implementation of the insolvency regime set out in ‘Alternative A’ in Article XI of the Protocol to the Cape Town Convention, in respect of aircraft objects. This will replace Ireland’s domestic insolvency laws with respect to aircraft objects, and will provide more security and certainty to creditors upon the occurrence of an insolvency related event of default.

‘Alternative A’ requires the insolvency administrator or debtor (airline/owner), by the end of the ‘waiting period’ or any earlier date the creditor (lessor or lender) would be entitled to possession of the aircraft object, to either:

  • give possession of the aircraft object to the lessor or lender; or
  • cure all defaults other than a default constituted by insolvency proceedings and agree to perform all future obligations under the relevant agreements.

The Act currently specifies a ‘waiting period’ of 60 days. The primary benefit of adopting ‘Alternative A’ is that it provides the lender/lessor and the airline/owner or the insolvency administrator with a clear deadline by which the aircraft object must be returned to the lender/lessor or retained by the debtor or airline or the insolvency administrator. The 60 day ‘waiting period’ is a significant departure from current Irish domestic insolvency laws, which can, in certain circumstances, freeze a creditor’s enforcement rights for a period of between 70 – 100 days, whilst a company is in examinership and has court protection from its creditors.

Why is the adoption of ‘Alternative A’ important for Ireland?

The implementation of ‘Alternative A’ by Ireland:

  • confirms Ireland’s position as a centre of excellence in aviation;
  • makes Ireland an attractive location for investors to lend into, as the legal regime obliges an airline to cure the default or return the aircraft object in the event of insolvency of the airline;
  • should facilitate the offering of bonds and asset backed securities backed by aircraft assets. Such bonds and debt securities should obtain higher ratings from credit rating agencies which in turn should bring interest cost savings for airlines and lessors.

As of the time of writing, the required ministerial order implementing ‘Alternative A’, pursuant to the Act has not yet been made. It is anticipated that the required order will be made during the final quarter of 2014. We will provide a further update at the appropriate time.



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