AWG opinion clarifies CTC application for non-US debtors

The Aviation Working Group (AWG) has published a legal opinion it commissioned from two of the leading academics in the US to clarify the application of the Cape Town Convention (CTC) under Chapter 11 of the US Bankruptcy code involving a non-US debtor. Since any foreign airline in the world can potentially commence bankruptcy proceedings in the US, it was deemed necessary to definitely set what Cape Town requires in such cases where there is an increased likelihood of litigation. The expert opinion was provided by two of the leading academic in the US, professor Charles Mooney (University of Pennsylvania) and professor John Pottaw (University of Michigan). Professor Mooney was also the US government position coordinator during the development of the Cape Town Convention and its ratification by the US. When the Convention on International Interests in Mobile Equipment (Convention), the Cape Town Convention, and the Protocol thereto on Matters Specific to Aircraft Equipment (Protocol), were negotiated in South Africa in 2001, states were given the option to adopt either: Alternative A, which is based on the Section 1110 rules in the US that fixes a stay on enforcement action to 60 days; or Alternative B, which affords discretion to the court when to grant relief from the stay in insolvency proceedings. There is also a third option, which allows no declaration under the Protocol and the insolvency stay period is thus governed by domestic insolvency law. In more detail, Alternative A provides that upon an insolvency event, the debtor will cure all defaults or return the aircraft to the creditor by the earlier of within the 60 day waiting period of Section 1110 or the possession date proscribed by domestic insolvency law. This is in place to halt any manoeuvres by debtors to “Forum shop” by moving aircraft to more debtor-friendly jurisdictions. To date, some parties have been ‘reserving rights’ under the Cape Town Convention in these US bankruptcy cases, necessitating a definitive legal opinion. The legal opinion states unequivocally that a US bankruptcy court must apply the ‘Alternative A’ declaration made by the airline’s home country. Jeffrey Wool, secretary general of AWG, notes that “this independent expert opinion confirms, without qualification, that under US law a bankruptcy court is bound to apply the Alternative A declaration made by the home country of a foreign airline. The Cape Town Convention prevents forum shopping with the goal of circumventing Alternative A.” Wool adds that “the opinion should help ensure that all parties understand the baseline treaty requirements while negotiating restructurings in bankruptcy”. Access the full opinion on AWG’s website here (awg.aero)