CAPE TOWN CONVENTION IN A NUTSHELL
The Cape Town Convention on International Interests in Mobile Equipment ("CTC") is a multinational convention intending to harmonize and standardize transactions, involving certain movable assets. The CTC establishes global requirements and standards in terms of registration of sales contracts, leases, security interests as well as setting out legal remedies for events of defaults.
As of today, 74 states are parties to the CTC, yet the CTC has been ratified/accepted or approved by 62 of them.
EXCITING HISTORY OF TURKEY'S BECOMING A PARTY TO THE CTC
How Turkey has ratified the CTC/Protocol?
Turkey signed the CTC and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment ("Protocol") on November 16, 2001 and approximately after 10 years following the execution, the Turkish Council of Ministers ratified the CTC and the Protocol with a decree as published in the Official Gazette on July 4, 2011 and numbered 2011/1926.
The subject Decree of the Turkish Council of Ministers set out that the CTC and the Protocol would come into effect in Turkey as of December 1, 2011, and that had been the case for Turkey.
Upon CTC and the Protocol's entering into force as of December 1, 2011 in Turkey, several steps have been taken forward by different parties in order to ensure their full implementation in the Turkish territory.
Given the existence of substantial conflicts between the Turkish laws and the provisions of the CTC/Protocol, Turkey had to spend considerable efforts to incorporate the CTC/Protocol into its local laws. As a matter of fact the general principle under Turkish law is that in case of a conflict between a piece of law and a regular international treaty, they are both deemed to be at the same level in terms of hierarchy of laws. On the other hand, however, Turkish Constitution provides that international treaties in the area of fundamental rights and freedoms will have primacy over any conflicting Turkish laws. Nonetheless, Turkey's efforts on harmonizing its local laws in order for them to comply with the CTC/Protocol terms have helped all the parties interested in Turkey to understand and honor the terms of the CTC/Protocol.
Inspiring Actions of Turkey to Standardize Its Local Laws
With its outstanding motivation to harmonize the local laws and the terms of the CTC/Protocol, Turkey has made significant changes in its then existing legislation which can be outlined as follows:
As an initial step, a new article has been introduced into the Turkish Civil Aviation Law ("CAL") on July 12, 2012; the purpose of which was to bring further clarification that the CTC/Protocol would have primacy over the local laws in case of any conflict between the provisions of the CTC/Protocol and the existing Turkish legislations. This newly added article was a repetition of Article 90/4 of the Constitution, yet it helped to put the third parties on notice that the CTC and the Protocol have duly been ratified and their terms will prevail in case of existence of any conflicts between their terms and existing Turkish laws.
Following such amendment on the CAL, on April 1, 2013 a Directive on implementation and enforcement of the IDERA was introduced by the Flight Operation Directorate of the CAD which was then published in the CAD's official website. Obviously, the issuance of this Directive was quite an important step taken on the implementation of the provisions of the CTC, given the fact that IDERA is the essential tool for the interest holders to exercise their remedies under the CTC. As a result of Turkey's continuous efforts to ensure the full implementation of the CTC/Protocol and eliminate the practical problems that the parties face during this process; a brand new and updated IDERA Directive entered into force on July 7, 2014, the purpose of which was to provide further clarity for the CAD on how to honor the duly issued IDERA forms.
Furthermore, a Circular came into effect in Turkey on July 31, 2013 as issued by the Association of Financial Leasing, Factoring and Financing Companies (who is the current competent legal authority for the registration of cross-border financial lease agreements) ("Association") and this Circular regulates the registration methods and principles of cross border financial lease agreements under Turkish Law. While doing so, the Circular provides for a specific provision on implementation of the CTC by stating that the Association will de-register the lease agreements from its records, in the event that the applying party provides a certificate as issued by the CAD stating that in case a lessor attempts to exercise its remedies under the CTC, the Association will not be able to refrain from de-registration of the financial lease agreement from its records.
This year, the Omnibus Bill1 ("Omnibus Bill") (Torba Yasa) dated February 6, 2014, clarified on how claims of the interest holders should be executed at the execution and bankruptcy offices in Turkey. The Additional Article 2 (Ek Madde 2) as introduced by the Omnibus Bill to the Law on Execution and Bankruptcy2 (Icra ve Iflas Kanunu) now clearly states that the claims arising from Article 8/1(a) and Article 10/1(a) of the CTC can be raised by the interest holders before the Ankara Execution Offices (Ankara Icra Daireleri) only. Consequently, (i) the creditors can take possession or control of any object charged to the same in the event of a default of the debtor pursuant to Article 8/1 (a) of the Convention and (ii) the Conditional Seller or the Lessor can re-possess or control of any object related to a title reservation agreement or a leasing agreement in the event of default pursuant to Article 10/1(a) of the Convention but in any case through Ankara Execution Offices.
Accordingly, the authority for the execution of claims of the interest holders have been assigned to only one particular execution office in Turkey, in Ankara, the capital city of the country, in which the CAD is located as well, for the cases where the contract provides that the terms of the CTC/Protocol will apply. Obviously, because the implementation of CTC is quite a unique practice, the Turkish legislator felt the necessity to structure a one-stop agency for a repossession in order to facilitate the process and eliminate most of the arguments made by certain practitioners in the sector that enforcement of CTC terms would not be understood and possibly made by the execution authorities in Turkey.
All these major changes in the local laws of Turkey are the results of a substantial progress on recognition/implementation of the CTC/Protocol in Turkey by other governmental/quasi-governmental authorities other than the CAD.
Very Important Achievement!
On October 20, 2014 Turkey was added to the list of states ("Cape Town List") as defined under the Sector Understanding on Export Credits for Civil Aircraft ("ASU"), which stands for the states qualifying for the reduction of the minimum premium rates and consequently whose airlines are eligible to enjoy the Cape Town Treaty discount. In order to deserve this, Turkey has made the declarations which it must have made under the CTC/Protocol and did not make the declarations which it should not have made. On the other hand, Turkey's making or not making the necessary declarations under the CTC/Protocol was not enough for participating in the Cape Town List and enjoying the Cape Town Treaty discounts. Turkey's implementing the terms of the CTC and the Protocol without exception has led Turkey's success to participate in the Cape Town List.
Regarding the procedures in this respect: ASU provides for the framework of predictable, consistent and transparent use of officially supported export credits for the sale or lease of aircraft and other aircraft engines and spare parts. Therefore, the terms and conditions for being listed in the Cape Town List are set out under the ASU, together with the procedures to be pursued for participation of a state in the Cape Town List. Because Turkey is included in the Cape Town List of countries as of October 20, 2014, now the airlines in Turkey, desiring to obtain financing for aircraft with the involvement of export credit agencies will enjoy a discounted rate to the applicable fee as required to be charged by the export credit agencies under the terms of the ASU.
Turkey's entrance into this Cape Town List is obviously a big success given the fact that only 21 countries have accomplished to participate in this list so far. This success of Turkey will noticeably affect in the aviation sector in Turkey in a very affirmative way since obtaining finance with the assistance of export agencies is a preferred financing method for the airline companies from all around the world. Furthermore, for the financings to be obtained from the capital markets, Turkey's being in the Cape Town List will have a positive effect in increasing the ratings to be made by the rating agencies.
1 Omnibus Bill numbered 6562, published in the Official Gazette dated February 19, 2014 and numbered 28918.
2 Law on Execution and Bankruptcy dated June 6, 1932 and numbered 2004 published in the Official Gazette dated June 19, 1932 and numbered 2128.
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