Answer ... In the United States, a secured party or lessor, as applicable, may exercise remedies for initiating the possession or repossession of, and for disposing of, property through either judicial or non-judicial processes. The following focuses on the non-judicial remedies – although similar relief may be obtained through the courts where self-help remedies are not available or advisable. In general, remedies are divided between:
- obtaining possession of an aircraft; and
- disposing of or selling such aircraft.
Unless the parties expressly contract to bar self-help remedies, self-help is a statutorily permitted remedy for both secured financings (see Uniform Commercial Code (UCC) Section 9-609) and leases (see UCC Section 2A-525(2)) in almost every jurisdiction in the United States, provided that such remedy may be effected “without breaching the peace”. Although the statutes do not specifically delineate what constitutes a ‘breach of the peace’, using physical force to wrest control of the property away from the mortgagor/lessee is not permitted. There are no formal statutory requirements for initiating self-help possession/repossession of the property, other than the requirement that the subject secured financing or lease be in default.
While a lessor that repossesses an aircraft after a lease default is not subject to any restrictions on its ability to dispose of that aircraft, the UCC requires a secured party that repossesses an aircraft to comply with certain notice periods (in addition to any requirements of the underlying agreements). Furthermore, all aspects of the disposition should be made in a “commercially reasonable manner” as required by both the UCC and the Cape Town Convention (CTC). There are three types of non-judicial foreclosures of security interests of aircraft and other equipment collateral:
- a private foreclosure sale, where the secured party has identified a third-party purchaser of the collateral;
- a public foreclosure sale, pursuant to which the secured party makes the collateral available for sale by public auction; and
- a strict foreclosure, whereby the secured party retains the collateral in full or partial satisfaction of the secured debt (but partial satisfaction requires the express written agreement of a debtor, which is rarely obtained).
Private foreclosure sales and public foreclosure sales are governed by UCC Section 9-612, which requires 10 days’ notice to interested parties (the CTC has a similar 10 working-day notice requirement and for aircraft subject to the Geneva Convention, 30 days’ notice may be required).
For strict foreclosures, UCC Section 9-620 provides that a secured party may accept the aircraft collateral in full or partial satisfaction of the secured debt. Generally, strict foreclosures may be effected with 20 days’ notice, unless additional time is required under the terms of the related security agreement between the mortgagor and the secured party. Strict foreclosures, which are often used where the mortgagor is willing to permit foreclosure without objection and the secured party has not otherwise identified a buyer for the collateral, provide the most streamlined procedure in these circumstances, and the required notice period may be shortened with the mortgagor’s consent (at the time of the strict foreclosure).
A secured party could also pursue a judicial foreclosure under the laws of the applicable jurisdiction; however, given the higher costs and longer time periods required, most secured parties prefer to pursue non-judicial remedies.