The Cape Town Convention and Entry Points
AEPs and DEPs
The Cape Town Convention allows for any state to designate an entity within its territory as the entry point (EP) through which information shall or may be transmitted to the International Registry (IR). Where a Contracting State has so designated such an entity, any registration made which seeks to circumvent the applicable entry point will be invalid, provided that as discussed below, there is an important exception to this rule.
The current version of the Regulations promulgated in connection with the Cape Town Convention (the Regulations) currently allows for two categories of designated entry points. One is an "authorizing entry point" (or AEP), which authorizes transmission of information required for registration under the Cape Town Convention to the IR. In this case, the entity designated as the AEP would provide the party seeking to effect a registration with a unique authorization code (UAC), which is required to be included with the information submitted to the IR in order to properly effect the registration of an interest. The other type of entry point is a "direct entry point" (or DEP), and in this scenario the information related to an applicable interest is directly transmitted to the IR by the DEP as opposed to the registry user seeking to effect such registration. Designated AEPs and DEPs are not part of the IR, and their operations are governed exclusively by national law.
As there exists a system of nationality of registration for airframes and helicopters, the declaration to utilize an EP made by the applicable Contracting State of registration is the relevant EP for purposes of determining compliance with the aforementioned rules. As there is no system of nationality registration in respect of aircraft engines, the use of EPs cannot be made compulsory.
The countries that currently have an AEP regime are Albania, Brazil, China, Mexico, Ukraine, the United Arab Emirates (which initially adopted the DEP regime), the United States of America and Vietnam (the AEP Contracting States). There is currently no country utilizing the DEP approach.
In practice, local counsel in the applicable AEP Contracting State will usually obtain the UACs – partly because they have a direct and established working relationship with the national aviation authority (as the AEP) and partly because they will be providing any required Cape Town legal opinion (and, as a result, will want to know that the AEP procedure has been followed properly).
Experience in Brazil
A good example of some of the potential issues that could arise in connection with the designation of an AEP comes from the experiences in Brazil. When Brazil first ratified the Cape Town Convention, it made a declaration authorizing the use of an AEP for filing interests in respect of airframes and helicopters. Brazil designated the Brazilian Aeronautical Registry as its AEP for purposes of issuing UACs. Nothing, however, prohibits a Contracting State from imposing its own requirements, and restrictions to its EP and Brazil's rules may be the most restrictive in this regard. Brazil's regulations promulgated in connection with the issuance of UACs require a potential registry user seeking to obtain a UAC to (i) provide personal information to the local registry authorities, (ii) provide a written undertaking to not only comply with applicable Brazilian authority rules and regulations but also to comply generally with applicable law, and (iii) submit to criminal and civil liability for the misuse of any UAC.
UACs in Brazil were first made available in April 2014; however, Brazil's ratification of the Cape Town Convention predated that date by several years. So what is the impact of having made a declaration to have an AEP but not making UACs available for a considerable period after that? Would any registration made without such a code during the period in which such codes were not made available be nonetheless invalid? Fortunately, the Cape Town Convention regulations provide some guidance here in that they explicitly provide that a registration is not invalid if, in the case of an AEP, an authorization code is not obtainable under its procedures based on the facts of the transaction to which it relates (which was clearly the case in Brazil).
Transaction context
Experience on a recent transaction serves as a further reminder as to the potential pitfalls involved in the AEP process and the importance of effective management of that process.
The transaction in question involved the refinancing of a Mexican-registered aircraft that was (and still is) owned by a European lessor; and required closing to happen on a fixed date – being the date upon which the original financing was due to be repaid in full (primarily via a new bank loan) at maturity. One of the conditions to the new financing was a requirement for the registration of prospective international interests in relation to the aircraft, which of course pre-supposed the availability of UACs.
All parties were aware of the need to obtain UACs and of the need to obtain them on time because of the hard-stop refinancing date. As such, an early request was made to Mexican counsel to obtain the UACs from the Dirección General de Aeronáutica Civil (the Mexican aviation authority), but despite this the UACs were not produced by the refinancing date (and for purposes of this article, we assume that the regulation referred to above in connection with the Brazilian experience would be inapplicable here in that the UACs were available under the existing procedures). This caused significant stress and uncertainty on the transaction, closing delays and additional costs.
Conclusion
It is critical to consider the implications of any involvement of an EP on a transaction as their involvement could give rise to delays which may impede on the parties' ability to successfully close the subject transaction. Transaction parties need to plan carefully for this process, including by:
- clearly communicating any hard deadlines to all parties, including local counsel;
- instructing local counsel that have experience of the EP process and who know how to work successfully with the applicable authority;
- instructing local counsel early enough;
- communicating well with local counsel; and
- asking local counsel to advise of any applicable minimum time requirements for registration and/or production of the UACs; and of any applicable local or national public holidays that might affect timing.
If you have questions about this update, please contact Gavin Hill at +44 (0)20 3667 2910, Lev Gantly at +44 (0)20 3667 2923, or any Vedder Price attorney with whom you have worked.
Click below to download the complete newsletter featuring this article.
Vedder Thinking | Articles The Cape Town Convention and Entry Points
Newsletter/Bulletin
January 2015
AEPs and DEPs
The Cape Town Convention allows for any state to designate an entity within its territory as the entry point (EP) through which information shall or may be transmitted to the International Registry (IR). Where a Contracting State has so designated such an entity, any registration made which seeks to circumvent the applicable entry point will be invalid, provided that as discussed below, there is an important exception to this rule.
The current version of the Regulations promulgated in connection with the Cape Town Convention (the Regulations) currently allows for two categories of designated entry points. One is an "authorizing entry point" (or AEP), which authorizes transmission of information required for registration under the Cape Town Convention to the IR. In this case, the entity designated as the AEP would provide the party seeking to effect a registration with a unique authorization code (UAC), which is required to be included with the information submitted to the IR in order to properly effect the registration of an interest. The other type of entry point is a "direct entry point" (or DEP), and in this scenario the information related to an applicable interest is directly transmitted to the IR by the DEP as opposed to the registry user seeking to effect such registration. Designated AEPs and DEPs are not part of the IR, and their operations are governed exclusively by national law.
As there exists a system of nationality of registration for airframes and helicopters, the declaration to utilize an EP made by the applicable Contracting State of registration is the relevant EP for purposes of determining compliance with the aforementioned rules. As there is no system of nationality registration in respect of aircraft engines, the use of EPs cannot be made compulsory.
The countries that currently have an AEP regime are Albania, Brazil, China, Mexico, Ukraine, the United Arab Emirates (which initially adopted the DEP regime), the United States of America and Vietnam (the AEP Contracting States). There is currently no country utilizing the DEP approach.
In practice, local counsel in the applicable AEP Contracting State will usually obtain the UACs – partly because they have a direct and established working relationship with the national aviation authority (as the AEP) and partly because they will be providing any required Cape Town legal opinion (and, as a result, will want to know that the AEP procedure has been followed properly).
Experience in Brazil
A good example of some of the potential issues that could arise in connection with the designation of an AEP comes from the experiences in Brazil. When Brazil first ratified the Cape Town Convention, it made a declaration authorizing the use of an AEP for filing interests in respect of airframes and helicopters. Brazil designated the Brazilian Aeronautical Registry as its AEP for purposes of issuing UACs. Nothing, however, prohibits a Contracting State from imposing its own requirements, and restrictions to its EP and Brazil's rules may be the most restrictive in this regard. Brazil's regulations promulgated in connection with the issuance of UACs require a potential registry user seeking to obtain a UAC to (i) provide personal information to the local registry authorities, (ii) provide a written undertaking to not only comply with applicable Brazilian authority rules and regulations but also to comply generally with applicable law, and (iii) submit to criminal and civil liability for the misuse of any UAC.
UACs in Brazil were first made available in April 2014; however, Brazil's ratification of the Cape Town Convention predated that date by several years. So what is the impact of having made a declaration to have an AEP but not making UACs available for a considerable period after that? Would any registration made without such a code during the period in which such codes were not made available be nonetheless invalid? Fortunately, the Cape Town Convention regulations provide some guidance here in that they explicitly provide that a registration is not invalid if, in the case of an AEP, an authorization code is not obtainable under its procedures based on the facts of the transaction to which it relates (which was clearly the case in Brazil).
Transaction context
Experience on a recent transaction serves as a further reminder as to the potential pitfalls involved in the AEP process and the importance of effective management of that process.
The transaction in question involved the refinancing of a Mexican-registered aircraft that was (and still is) owned by a European lessor; and required closing to happen on a fixed date – being the date upon which the original financing was due to be repaid in full (primarily via a new bank loan) at maturity. One of the conditions to the new financing was a requirement for the registration of prospective international interests in relation to the aircraft, which of course pre-supposed the availability of UACs.
All parties were aware of the need to obtain UACs and of the need to obtain them on time because of the hard-stop refinancing date. As such, an early request was made to Mexican counsel to obtain the UACs from the Dirección General de Aeronáutica Civil (the Mexican aviation authority), but despite this the UACs were not produced by the refinancing date (and for purposes of this article, we assume that the regulation referred to above in connection with the Brazilian experience would be inapplicable here in that the UACs were available under the existing procedures). This caused significant stress and uncertainty on the transaction, closing delays and additional costs.
Conclusion
It is critical to consider the implications of any involvement of an EP on a transaction as their involvement could give rise to delays which may impede on the parties' ability to successfully close the subject transaction. Transaction parties need to plan carefully for this process, including by:
- clearly communicating any hard deadlines to all parties, including local counsel;
- instructing local counsel that have experience of the EP process and who know how to work successfully with the applicable authority;
- instructing local counsel early enough;
- communicating well with local counsel; and
- asking local counsel to advise of any applicable minimum time requirements for registration and/or production of the UACs; and of any applicable local or national public holidays that might affect timing.
If you have questions about this update, please contact Gavin Hill at +44 (0)20 3667 2910, Lev Gantly at +44 (0)20 3667 2923, or any Vedder Price attorney with whom you have worked.
Click below to download the complete newsletter featuring this article.
