‘Show me the money!’: The difficulty in enforcing payment in Aviation

Authors: Ann Bugeja, Clyde Bonnici & Tara Wismayer

Debt Collection in the Maltese Legal System

Where aviation-related claims for payment fall on deaf ears, and creditors are faced with intransigent debtors, Maltese law envisages a number of methods by means of which debts can be recovered forcibly in cases of debt recovery from aircrafts in Malta.

Where debts are uncontested and of an amount which is already established (‘certain, liquidated, and due’), the law allows creditors two expedient ways of debt-collection:

1. Where the debt is under €25,000, the creditor can serve the debtor with a judicial letter in terms of Article 166A of the Code of Organization and Civil Procedure, which if uncontested within 30 days of receipt, will have the same effect as a judgement in the creditor’s favour;
2. Where the debt is over €15,000, the creditor can open special summary proceedings, whereby if the debtor does not appear for the first sitting and show a prima facie defence, the case will be summarily decided in favour of the claimant.

Should the debt in question not qualify for either of these special procedures, or if these special procedures fail, a lawsuit would have to be filed so that the Court declares that the debt is due, and orders the defendant to pay the claim.

Should creditors still remain in default, the law envisages measures whereby the Court’s judgement can be enforced, which amongst others include the Warrant of Arrest of the Aircraft. This allows the Court, amongst other powers, to order the sale of the aircraft, so that the creditors may recover their debts from the proceeds.

Nevertheless, since there is no guarantee that the proceeds of the sale will cover all the debts of the aircraft, this will give rise to a competition of creditors, whereby creditors are paid in accordance with their ranking. Said ranking is carefully catered for by the Aircraft Registration Act.

The Aircraft Registration Act and Debt Recovery from Aircraft in Malta

The Aircraft Registration Act provides for various aspects relating to security over aircraft. In fact, Aircrafts and shares therein may, either by operation of the law or by mutual agreement between the parties, constitute and serve as collateral for any claims and/or debts to which an aircraft is subject.

Article 42 of the Aircraft Registration Act is one of the cornerstones of debt recovery from aircrafts in Malta. Article 42(1) of The Aircraft Registration Act lists a number of debts which by automatic operation of the law and without the need for registration grant a Special Privilege to the Creditor. This means that in debt recover from aircrafts, the creditors of these debts would have a preferential ranking (when compared to debts that are not so privileged) in recovering their dues from:

a. The proceeds of the sale of the aircraft,

b. From any proceeds from any indemnity arising from any mishaps, and

c. From any insurance proceeds.

Such debts are the following:

1. Judicial costs incurred in respect of the sale of the aircraft and the distribution of the proceeds thereof pursuant to the enforcement of any mortgage or other executive title;
2. Fees and other charges due to the Director General responsible for Civil Aviation in Malta arising under applicable law of Malta in respect of the aircraft;
3. Wages due to crew in respect of their employment on the aircraft;
4. Any debt due to the holder of a possessory lien for the repair or preservation of the aircraft to the extent of the service performed on and value added to the aircraft.

Article 742E of the Code of Civil Procedure provides that in the context of debt recovery from aircrafts in Malta, in the case of any claims giving rise to the aforementioned special privileges, the Civil Courts of Malta shall have jurisdiction in rem against aircrafts, that is, the claim is to be filed against the aircraft itself.

Article 42(2) of the Aircraft Registration Act then holds that the debts mentioned therein are secured by a Special Privilege on the aircraft and any proceeds that arise from any mishaps and any insurance proceeds other than from a liability policy, if registered in the International Registry after the effective date.

Such debts are the following:

• Taxes, duties and, or levies due to the Government of Malta in respect of the aircraft; and
• Wages and expenses for assistance or recovery in respect of the aircraft.

These debts therefore not only require registration, but shall only constitute a special privilege and enjoy preference of such right in relation to the aircraft if the claim is created by the owner of the aircraft or a person authorised by him.

Thus, there is a distinction between special privileges that must be registered and those that do not require registration. This distinction is made even clearer by the fact that, the privileges which require registration rank in the order set out above, that is, in the order set out in Article 42(1) of the Aircraft Registration Act, and in preference to all claims. The privileges requiring registration, on the other hand, shall, on registration, rank after the debts which do not require registration, but after, all debts secured by mortgages and charges in the International Registry prior to the date of registration. This establishes the following ranking:

1. Privileges that do not need registration, in the order listed in the law;
2. Debts secured by mortgages and charges in the International Registry prior to the registration of the privileges listed in (c) below;
3. Privileges that require registration.

The distinction between registrable and non-registrable privileges is key to effective debt recovery from aircraft in Malta, particularly where multiple creditors are involved.

Possessory Liens and Privileges

With respect to the ranking of creditors of an aircraft, the law envisages an important caveat when it comes to the ‘possessory lien’ which the law grants in the event of aircraft repairs or maintenance.

A possessory lien refers to the right of the creditor to remain in possession of the property under the lien, in this case the aircraft, until the debtor has satisfied his or her debt. This is provided for in Article 43 of the Aircraft Registration Act, which states as follows;

“Any aircraft repairer, aircraft manufacturer or other creditor into whose care and authority an aircraft has been placed for the execution of works or other purposes shall have a possessory lien on the aircraft as security for the works done on the aircraft to the extent of the service performed on and value added to the aircraft.”

Thus, following any repairs and/or maintenance, the creditor will have a possessory lien which will entitle him to retain possession of the aircraft until he is paid the debts due to him for such building, repairs or maintenance.

As already stated, the debts granting a special privilege without the need of registration rank in the order as they are listed in the law and in preference to all other claims. However, if a creditor ranking prior to the creditor enjoying the possessory lien wants to enforce his title, he may not constrain the creditor enjoying the possessory lien to release the aircraft until:

• The sums due to the creditor enjoying the possessory lien are unconditionally discharged; or
• The sums due to the creditor enjoying the possessory lien are otherwise secured to his satisfaction and in such a case, the creditor enjoying the possessory lien shall rank first on such security granted.

Thus, debts secured by a possessory lien shall, technically speaking, get paid first, followed by other non-registrable special privileges, followed by debts secured by mortgages or charges in the International Registry.

If the aircraft is voluntarily released (as opposed to by a court order or judicial sale by auction) from the custody of the creditor, the possessory lien shall be extinguished. Thus, in order not to lose ranking, it is very important for the holder of the possessory lien not to release the aircraft until the sums due to him have been paid. Once the aircraft is released, the creditor will still retain any privilege he may have, however, in order to recover his dues, he would have to go through the legal process of enforcing his debt against the debtor and lose the very preferential ranking which the possessory lien permits. 

Conclusion

Debt recovery from aircraft in Malta presents a distinct set of challenges, particularly when dealing with defaulting creditors in the aviation sector. Given that aircraft are high-value assets often subject to competing claims, the law attempts to bring clarity and order through a structured ranking of creditors and clearly defined enforcement mechanisms. By doing so, Maltese law provides a degree of certainty and protection for those seeking to recover debts, while ensuring that priority is given to those claims deemed most deserving under the legal framework.