Bermuda: Bermuda Upgrades To First Class With The Cape Town Convention

Last Updated: 27 July 2016
Article by Julie McLean
Most Read Contributor in Bermuda, July 2019

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 effective date expected to be imminent. 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 the fourth quarter of 2016.

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.

What does it mean for Bermuda?

Bermuda is already a leading aviation financing jurisdiction with numerous Bermuda companies used to finance and register aircraft. Bermuda is also the jurisdiction of choice for aviation asset backed securitizations. This is due to its sophisticated infrastructure, strong legislative structure and a respected department of civil aviation (with close to 770 aircraft on the Bermuda Aircraft Register). Being a party to the Cape Town Convention will further strengthen this position.

With the majority of aircraft on the Bermuda Aircraft Register being registered in the commercial category, the ability to secure financing at lower costs and potentially with the "Cape Town Discount" will facilitate the purchase of new aircraft by a number of airlines operating in the jurisdictions where Bermuda already has an "Article 83 bis" treaty in place (currently the Russian Federation, the Republic of Uzbekistan and the Republic of Azerbaijan).

As an overseas territory of the United Kingdom, Bermuda courts would have followed the law set out in the Blue Sky case1. This case provided that even if the parties had contractually agreed that the governing law of a mortgage is English law, if the jurisdiction where the aircraft was physically situate at the time the mortgage affixed did not recognise such a mortgage under its conflict of laws principles, the mortgage would not be valid (the "lex situs rule"). Bermuda has followed the UK's lead and included in its domestic legislation a provision making it clear that where an international interest has been validly created and registered under the Cape Town Convention, it shall have effect in Bermuda regardless of the lex situs rule.

Declarations Made by Bermuda – Creditor Friendly

Although Bermuda is an overseas territory of the UK, it was able to elect which declarations it wishes to make under the Convention. Conyers Dill & Pearman played an active role in the industry group which worked with the government and the Bermuda Department of Civil Aviation ("BDCA") to determine which declarations should be made. Many of the declarations made are creditor friendly and include the following:

  • Bermuda has elected to adopt Alternative A, which means that upon the occurrence of an insolvency event, the debtor must either give up possession of the aircraft to the creditor or cure the default within a set time period. The debtor is obligated to preserve the aircraft and maintain it and its value until such time as the creditor takes possession. Alternative A also means that a creditor can exercise self-help and does not need to obtain permission from the courts before taking possession.
  • Adoption of Alternative A is one of the conditions required to comply with the OECD Aircraft Sector Understanding, which provides for a discount of up to 10% for a borrower in a Contracting State when applying for export credit finance (the so-called "Cape Town Discount").
  • Adoption of IDERAs whereby, rather than the creditor having to apply to the court in order to deregister and export an aircraft, the debtor will provide an IDERA at the time of financing which is registered with the BDCA. The creditor will then become the sole person capable of exercising the deregistration and export rights.
  • Speedy relief: the Bermuda courts will grant interim relief pending final determination within 10 calendar days to creditors applying for preservation of the aircraft.

Local Security Filings

Currently, mortgages granted over an aircraft or an aircraft engine that is either owned by or leased to a Bermuda incorporated company can be registered on the Mortgage Registry maintained by the BDCA. Likewise, other security granted by the Bermuda company in respect of the aircraft (such as assignment of lease proceeds) can be registered at the Bermuda Registrar of Companies. Although most of these security documents will constitute an "international interest", which can be registered on the International Registry, it is expected that most parties will elect a dual registration procedure and register on both the International Registry and the local registers. This will be beneficial in circumstances where:

  • the aircraft may need to be repossessed in a non-Contracting State that does not recognise the Cape Town Convention;
  • the debtor does not consent to registration on the International Register (no consent is needed to register on the Bermuda domestic registers); or
  • it turns out the security did not actually constitute an "international interest" or should not have been registered under the Cape Town Convention.

Practically speaking until such time as there is case law supporting the application of the Cape Town Convention, most creditors will adopt the more cautious route of dual registrations.

Flying First Class

The extension of the Cape Town Convention to Bermuda will be welcomed by airlines, financiers and leasing companies alike. It will enhance Bermuda's already strong reputation for being "first class" in the offshore world for aircraft financings and registrations.


1 Blue Sky One Ltd. & Ors -v- Mahan Air and Anor [2009][EWHC] 3314 (Comm)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions