South Africa: Aircraft mortgages legislation in South Africa

Prior to the Convention on the International Recognition of Rights in Aircraft Act, 59 of 1993 ("the Act"), the only way to establish security over a movable asset such as an aircraft was by way of a notarial bond registered in the Deeds Office.

With the implementation of the Security by Means of Movable Property Act, the position of a holder of a special notarial bond was strengthened. Any special notarial bond over specified corporeal movable property, registered after the commencement of this Act, despite no delivery having taken place, is deemed to have been pledged to the mortgagee just as if it has been expressly pledged and delivered to him. The mortgagee now enjoys a real right of security over the asset.

In the absence of a system of registration of aircraft mortgages in South Africa, an informal arrangement developed whereby lessors, banks and other parties having a financial interest in an aircraft, gave notice of such interest to the Commissioner of Civil Aviation, who recorded such interests in the aircraft register. Although such notice had no statutory force, it constituted notice to a third party who examined the register, but it did not constitute constructive notice.

In one of the most significant developments in South African aviation law, the Act which was passed in 1993, came into operation on 1 January 1998 pursuant to a notice in the Government Gazette. The Act provides for the application in South Africa of the Convention on the International Recognition of Rights in Aircraft, 1948 (commonly known as the "Geneva Convention"). In essence, the Act provides for the registration of mortgages over aircraft and the creation of a register of aircraft mortgages to be kept by the Director-General: Transport.

The Act provides both foreign and local lenders who finance the acquisition of aircraft by South African operators with an alternative way of securing their interests, by allowing a mortgage to be created over an aircraft or part thereof. The register is to be created by the Director-General: Transport, in which mortgages over an entire aircraft or part thereof, as security for a loan or other debt, will be recorded. The mortgage is created in a document called the "deed of mortgage" and provided the deed is submitted by the mortgagor and the prescribed fee is paid, the Director-General is obliged to record the mortgage in the register. The mortgages are to be recorded in the order in which the deeds are produced to the Director-General.

Once the mortgage has been registered, the mortgagee has a right of preference, and notwithstanding the provisions of the Insolvency Act 24 of 1936 or any other statute, this right is unaffected by any act of insolvency committed by the mortgagor. If the mortgagor is a company, then the mortgagee's rights will not be affected by the company being wound up after the date on which the mortgage was registered. The mortgagee is entitled to recover in any court with competent jurisdiction the amount owing under that particular mortgage. At the time of judgment or afterwards, the court may order that the mortgaged aircraft or share therein be sold in execution of the judgment.

The mortgage of an aircraft can be transferred by deed of cession to any person and the Act also permits the registered owner of a South African aircraft to mortgage such aircraft outside of South Africa.

Section 14 of the Act empowers the Minister of Transport to promulgate regulations. The aim of the regulations is to establish a system for recording mortgages over aircraft. These regulations contain:

• the prescribed forms which the documentation relating to the registration of mortgages must take;
• the procedure to be followed for the submission of the requisite documents to the Director-General for registration; and
• the information that is to be contained in the register of aircraft mortgages.

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