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Bermuda Upgrades to First Class with the Cape Town Convention

July 2016 Julie E. McLean

Bermuda is a well-known and respected jurisdiction for financing and registering aircraft. Accordingly, the government of Bermuda recognised that being party to the Convention on International Interests in Mobile Equipment and the related Protocol regarding Aircraft Equipment (known as the “Cape Town Convention”) was essential to retain its position as a leader in this field. On 25 July 2016, the Bermuda Senate gave final approval to the Bermuda International Interests in Mobile Equipment (Cape Town Convention) Act, 2016 with the Governor’s assent being gazetted on 4 August, 2016. This domestic legislation will mean that the Cape Town Convention can now be extended by the United Kingdom to Bermuda. Such extension will likely take place in early 2017.

What is the Cape Town Convention and why does it matter?

Essentially, the Cape Town Convention creates an international legal framework to facilitate asset based financing and leasing by providing certainty in respect of the financing and security of moveable objects such as aircraft. The Convention defines “aircraft objects” as aircraft frames, aircraft engines and helicopters. As aircraft are capable of being flown all over the world and not necessarily in the place where they are registered, multiple jurisdictions and multiple legal systems are often relevant to any financing or security in respect of such aircraft. The consequence of this is higher creditor risk and therefore higher costs of financing. The Cape Town Convention provides a framework in which the right of debtors and creditors (regardless of location) have certainty. That certainty results in increased flow of capital by expanding financing opportunities at reduced costs. The economic benefits to lessors, lessees and financing parties are substantial.

How does the Cape Town Convention work?

Under the Cape Town Convention, an electronic International Registry has been created, which is open twenty-four hours a day, seven days a week. Creditors with an “international interest” in an aircraft object can register their interest on the International Registry provided that the debtor is located in and/or the aircraft is registered in a “Contracting State”.

A “Contracting State” is a jurisdiction which has ratified the Cape Town Convention. Currently there are 71 Contracting States to the Cape Town Convention. It should be noted that as an overseas territory, Bermuda is not a Contracting State but rather a “territorial unit” of a Contracting State, namely the United Kingdom. International interests registered on the International Registry take priority over subsequently registered interests and also have priority over non-registered interests over the same assets. It is possible to vary such priority by registering subordination agreements on the International Registry.

Creditors can also file irrevocable deregistration and export authorisations (“IDERAs”), which are necessary in any default scenario where the creditor will need to enforce their security.

In addition to ease of registration, the International Registry also provides greater transparency as potential creditors can easily search the Register to identify prior security interests already granted.


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Bermuda Upgrades to First Class with the Cape Town Convention


Julie E. McLean
Director, Global Head of Aviation Finance Practice

Bermuda   +1 441 299 4925


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