Over the past two months, we have seen a burst of case law that may impact the rights of aircraft lessors under schemes of arrangement, restructuring plans and the Cape Town Convention (as defined below) and how these rights may dovetail. Set out below is a summary of some of the headline points arising in respect of recent case law in relation to these questions.
1. Aircraft lessors are a single class
On 20 January 2021, the English High Court made an order convening a meeting of a single class of creditors for the purpose of considering a scheme of arrangement in respect of Malaysia Airlines' leasing wing. The Court held that the lessors constituted a single class of creditors for the purposes of a scheme of arrangement. The fact that such lessors may end up with different rights as a result of the scheme taking effect was not sufficient to fracture the class. It was important here that each lessor had been given the same options pursuant to the terms of the scheme, including the option to recover its aircraft and receive a termination payment.
This is a useful tool for airlines considering whether or not to use an English law scheme to address financial difficulties as it provides that dissenting lessors can be crammed down.
2. Schemes and restructuring plans as "insolvency-related events"
The question of whether UK schemes of arrangement and restructuring plans constitute insolvency proceedings (and therefore, insolvency-related events) has come under scrutiny in the context of aviation-related cases, due to the effect of this categorisation under the Convention on International Interests in Mobile Equipment and the associated aircraft protocol (together, the Cape Town Convention).
Cape Town Convention
The Cape Town Convention governs the rights of lessors and other persons holding international interests in aircraft. On ratifying the Cape Town Convention, the UK amended its insolvency laws, through the International Interest in Aircraft Equipment (Cape Town Convention) Regulations 2015 (the Regulations).
Amongst other things, the Regulations deal with the effect of an "insolvency-related event" (the first limb of which is the "commencement of insolvency proceedings") on the parties to an "agreement" and the rights and remedies available to a relevant creditor in those circumstances. A significant consequence of an "insolvency-related event" is that "no obligations of the debtor under the agreement may be modified without the consent of the creditor": if this applied to schemes and restructuring plans, the creditor cram down provisions become redundant and lessors must each be dealt with on a bilateral basis.
Schemes of arrangement do not constitute "insolvency-related events"
At the convening hearing of the Malaysia Airlines scheme, without ruling on the issue (as no creditor had raised an objection to the scheme pursuant to the Regulations), the Court commended the airline's submission that schemes do not constitute an "insolvency-related event" for the purposes of the Cape Town Convention. By the time of the sanction hearing, all creditors had consented to the scheme and so the Court did not consider this point in detail.
Restructuring plans fall within the bankruptcy exception
On 17 February 2021, the decision to convene a meeting of creditors in respect of Gategroup's restructuring plan was handed down. Zacaroli J held that a Part 26A restructuring plan falls within the bankruptcy exception in the Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial matters (the Lugano Convention). Coincidentally this case is aviation-related as Gategroup provides airline catering services. The Lugano Convention and the Cape Town Convention are obviously different pieces of legislation but, the decision is of interest here because of the similarities between the types of proceedings (set out in the table below) which fall within (i) the bankruptcy exception under the Lugano Convention and (ii) insolvency-related events for the purposes of the Cape Town Convention.
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