The Registration & Enforcement of Mortgages and Other Security Interests Over Malta-Registered Aircrafts

16 Aug 2011

19 min read


Following its success in the maritime sector, Malta has undertaken an ambition to replicate that success in the area of aircraft registration.  Complex aircraft finance transactions often share many characteristics with ship finance in the sense that both involve assets of great value which may be utilised to grant significant security to financiers and both industries are intrinsically international in nature.  Moreover aircraft and ships, unlike most physical and moveable assets, require registration.

The Malta Aircraft Registration Act, 2010 (the “Act”) came into force on 1st October 2010 and its aim is to regulate the aircraft registration, mortgages and other security interests. Prior to the Act, security interests were registered in the National Aircraft Registry as mortgages. Through the Act and the implementation of the Cape Town Convention and the Aircraft Protocol, innovative concepts were introduced into Maltese law including the registration of “international interests” in the International Registry.  The International Registry is physically located in Ireland and is essentially an electronic registry fully accessible online and operates under the legal framework of the Cape Town Convention and the Aircraft Protocol. It provides for the registration and protection of the rights that owners, lessors or financiers have in relation to aircraft and which are given recognition in the various contracting states (hence the term “international interest”), with priority being determined on a “first-to-file” basis.

In this article we shall be examining (i) the registration and enforcement of aircraft mortgages and other interests in aircraft (ii) the special privileges on aircraft and the ranking of secured creditors (iii) the possessory lien and (iv) the implementation of the Cape Town Convention and the aircraft protocol and its interface with Maltese law.

Registration and enforcement of aircraft mortgages

Under Maltese law, an aircraft may constitute a security for a debt or other obligation either by agreement or by operation of the law, such as special privileges. Aircraft[1] constitute a particular class of movables whereby they form separate and distinct assets within the estate of their owners for the security of actions and claims to which the aircraft is subject.  All registered mortgages, any special privileges and all actions and claims to which an aircraft may be subject will not be affected by the bankruptcy and/or insolvency of the mortgagor and such mortgage, privilege or claim will have preference on the said aircraft, over all other debts, claims or interests of any other creditor of the owner’s estate.

Pursuant to the recognition by Maltese law of fractional ownership of aircraft, title to such an aircraft may be divided between co-owners in specified fractions or percentages.  Each fractional interest may be financed by a different creditor which takes security over the particular fractional interest it has financed.  Moreover engines and separate items on or in an aircraft may themselves be secured for the payment of a debt and any security over the aircraft does not extend to any engine attached to the airframe which is not also owned by the airframe owner.

A registered aircraft may be made a security for any debt or other obligation by means of a mortgage deed executed by the mortgagor in favour of the mortgagee and registered in the National Aircraft Register by the Director General of Civil Aviation and is recorded in the order of time in which they are produced to him for the purposes of registration and the day and hour of registration will be indicated on each mortgage deed. If the mortgage deed states that it is prohibited to create further mortgages on an aircraft without the prior written consent of the mortgagee, the Director General will make a note in the National Aircraft Register to this effect and no further mortgage will be recorded unless the consent in writing of the holder of a prior mortgage is furnished to him and any mortgage registered in violation of such a provision is considered as null and void.  Where however such further mortgage is executed in favour of an existing creditor, no such consent is required.

The same principle applies in the case that a mortgage deed states that a transfer of the aircraft which is being mortgaged is prohibited without the prior written consent of the mortgagee. The Director General will make a note in the National Aircraft Register to this effect and (saving where the transfer is made pursuant to any other court order in a sale by auction of such an aircraft or pursuant to any other court order) no such transfers will be recorded unless the consent in writing of such mortgagee is obtained, and any transfer registered in violation of this provision will be considered null and void.

In terms of Maltese law, a mortgage may be executed and registered in favour of a security trustee appointed or acting under a trust for the benefit of persons to whom a debt or other obligation is due and such security trustee will be recognised as the mortgagee of the particular mortgage and will be entitled to exercise all the rights in relation to that mortgage which are usually accorded to mortgagees.  Any such security trust will be governed by the provisions of the Civil Code[2] when the applicable law is the law of Malta. Until the Recognition of Trusts Act 1994, whenever there were multiple financiers or syndicates, practitioners often had to resort to naming each and every one of financiers on the mortgage.  Nowadays, one of the financiers can act as trustee for the others for security purposes, which makes things much simpler in the context of enforcing the rights of any mortgagee.

Of particular interest is the fact that the procedure for the recovery of debts is significantly expedited since (similar to mortgages registered over Maltese ships) validly registered mortgages over aircraft are conferred the status of “executive titles” according to Maltese law, meaning that there is no need for any court judgment in order for the mortgagee to enforce its claim.[3] The mortgagee’s security rights become enforceable against the mortgagor without the prior need for lengthy and potentially costly court procedures.  Consequently upon default of the mortgagor, the mortgagee, upon giving notice in writing, which notice may be given by means of an electronic communication or served at the registered office of the debtor, will be entitled to a number of remedies including:

  1. taking possession of the aircraft or share therein
  2. selling the aircraft or share therein
  3. leasing the aircraft in order to generate income
  4. receiving any payment of the price, lease payments, and any other income which may be generated from the management of the aircraft, and
  5. applying for any extensions, paying fees, receiving certificates and generally doing all things in the name of the owner in order to maintain the status and validity of the registration of the aircraft thereby safeguarding its ability to continue to operate the aircraft commercially pending any sale procedure.

The above-mentioned remedies may be exercised by a mortgagee without the need of the leave of any court.  If, due to the hindrance of any person to the exercise of the mortgagee’s rights, such leave is indeed requested, the Maltese courts will render full support to the mortgagee as expeditiously as possible.  Moreover the debtor and person in possession of the aircraft (except for the possessory lien holder) must cooperate fully with the mortgagee enforcing his rights, including but not limited to surrendering all data, manuals, technical records, parts, accessories and appurtenances belonging to the aircraft.

In the context of the enforcement of any mortgage, including a foreign mortgage described below, the creditor is required to specify the sum due at the time of enforcement by means of a sworn affidavit notified to or served on the debtor, for the purpose of determining (a) the value of the secured claim which must be certain, liquidated and due, or (b) the actual sum due when the mortgage secures a future debt within an expressly stated maximum, in connection with the enforcement of the security involving the sale of an aircraft. This procedure is without prejudice to the right of the debtor to pay such sum in settlement of the amount due to the secured creditor, or the right of any interested party to contest such amount according to law, even after payment of the sum claimed, however no person has the right to hinder the exercise of the rights of the secured creditor in any manner and in the event of such hindrance the secured creditor may resort to the Maltese courts in order that the appropriate penalties or sanctions may be applied.

A registered mortgage remains attached to the aircraft until it is discharged by the mortgagee.  Where an aircraft has been sold pursuant to an order or with the approval of the competent court within whose jurisdiction the aircraft was at the time of the sale, the interest of the mortgagees as well as that of any other creditor in the aircraft is shifted onto the proceeds of the sale of the aircraft.  The creditor selling the aircraft to enforce his mortgage must act in a commercially reasonable manner and is bound by fiduciary duties towards the debtor and other creditors when effecting the sale of the aircraft.

Moreover the creditor is also bound to: (i) pay out of the proceeds any creditor who ranks prior to his rights as he may determine. In case of disagreement between the creditors with respect to the order of their ranking, such ranking shall be determined by the court, and (ii) provide information to any creditor whose rights rank after his own rights and to the debtor for the conditions of sale, the expenses incurred, the prior rights settled and any other deductions from the price received.  It is noteworthy that any hypothec or privilege, whether general or special, to which an aircraft may be subject under the provisions of the Civil Code[4] do not continue to attach to it when the aircraft is transferred to third parties.

A mortgage may be registered to secure the payment of a principal sum and interest, an account current[5], as well as the performance of any obligation, including a future obligation due by the debtor to the creditor.  It is not necessary to indicate the monetary value of the indebtedness in the registered mortgage unless it is intended to secure a future obligation in which case a maximum sum by way of principal for which the mortgage is granted must be expressly stated in the mortgage deed.  A mortgage to secure a future obligation may only be granted in favour of a credit institution in an “approved jurisdiction”[6] or such other organisation as may be specified by legal notice.

If there is more than one mortgage registered in respect of the same aircraft or share the mortgagees shall be entitled in priority, one over the other, according to the date and the time at which each mortgage is recorded in the National Aircraft Register.

Recognition of Foreign Mortgages

A foreign mortgage is recognised as a mortgage under Maltese law with the status and all rights and powers specified in the Act notwithstanding the fact that it is not entered over a registered aircraft if:

  • The mortgage has been validly recorded in the foreign registry of the aircraft concerned;
  • Such registry is a public registry;
  • The mortgage appears upon a search of the registry; and
  • Under the foreign laws concerned, the mortgage is granted a preferential and generally equivalent status as a mortgage under the Act.

Pursuant to the above, a foreign mortgage registered over an aircraft may, if the above-mentioned conditions are satisfied, be deemed to be an executive title and consequently a mortgagee may enforce its security rights over the aircraft in the same manner as though the mortgage was registered under Maltese law.  Such security rights would include the arrest of the aircraft if such aircraft is present in the local jurisdiction.

Special Privileges on Aircraft and Ranking of Secured Creditors

In terms of Maltese law, special privileges arise in virtue of law and no debt or other obligation other than those specified at law may be secured by a special privilege.

Thus, the debts set out below enjoy priority and rank in the order they are set out and before any Maltese mortgage or charge in the International Registry:

  • 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;
  • fees and other charges due to the Director General arising under applicable law of Malta in respect of the aircraft;
  • wages due to crew in respect of their employment on the aircraft;
  • any debt due to the holder of a possessory lien for the repair, preservation of the aircraft to the extent of the service performed on and value added to the aircraft;
  • the expenses incurred for the repair, preservation of the aircraft to the extent of the service performed on and value added to the aircraft; and
  • wages and expenses for salvage in respect of the aircraft.

Notwithstanding that the above-mentioned debts rank in preference to all other claims, the person in possession of the aircraft enjoying a possessory lien, which lien shall be considered in further detail below, shall not be constrained to release the aircraft until the sums due to him are unconditionally discharged or otherwise secured to his satisfaction and in any such case shall rank first on such security as may be granted.

Any debt secured by a mortgage registered in the National Aircraft Register or a charge in the International Registry or secured by a foreign mortgage recognised under the Act shall rank after the debts secured by possessory liens and after the above-mentioned debts secured by a special privilege and in preference to other hypothecary and privileged claims.

It is also important to note that certain debts require registration in the International Registry in order to be recognised as secured by a special privilege in terms of Maltese law and these must beregistered by the owner of the aircraft or a person authorised by him.These 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.

Once registered in the International Registry, the above-mentioned debts shall rank after the debts secured by a special privilege arising in virtue of law and after all other debts secured by mortgages and charges in the International Registry registered prior to the date of the registration of the relevant special privilege in the International Registry.

Possessory Lien

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 has a possessory lien over the aircraft to the extent of the work performed on and value added to the aircraft.  The lien entitles the creditor to retain possession of the aircraft until he is paid for his work and such lien is extinguished by the voluntary release of the aircraft from his custody.  The possessory lien is not extinguished if the aircraft is released pursuant to a court order or following a judicial sale of the aircraft.  In the latter case, the creditor continues to enjoy priority over the proceeds of the sale of the aircraft.  The creditor is obliged to release the aircraft if he is paid the sum claimed, or adequate security is deposited under the authority of the First Hall Civil Court in Malta. For such purposes, the creditor shall, upon receiving a judicial demand served upon him by any person interested in the aircraft, be obliged to declare the exact amount of his claim by a separate judicial letter which is to be filed with the Maltese courts within two days from the date of notification to him of the aforesaid demand, failing which he shall be obliged to release the aircraft. As stated above a possessory lien is a special privilege which enjoys priority before any Maltese mortgage or charge in the International Registry.

International Interests registered in the International Registry in accordance with the Cape Town Convention (the “Convention”).

Pursuant to Malta’s accession to the Convention, security interests in airframes, aircraft engines or helicopters which are granted by a chargor under a security agreement, or vested in a person who is the conditional seller or in the lessor of an aircraft, may be registered in the International Registry and are regulated by the National Implementing Law contained in the First Schedule of the Act. Following the implementation of the Act, Maltese law has been amended to accommodate such security interests. Our Code of Organisation and Civil Procedure[7] in fact now provides that the civil courts of Malta shall have jurisdiction in rem against aircraft in “any claim in respect of a mortgage or equivalent international interest.”[8]

If such international registration is opted for, the relevant international interest will be fully enforceable in Malta.  Moreover all mortgages registered in the National Aircraft Register, rank after any international interest, prospective international interest and other right or interest which is registered in the International Registry on such aircraft or share therein, irrespective of the date and time of registration in the international registry.

A mortgage registered before the 1st October 2010 (date of entry into force of the Act) will however retain its priority over any international interest which may be registered in the International Registry.

As previously set out, an international interest registered in the International Registry recognised and enforceable under the laws of Malta and it shall therefore not be mandatory to register such security also in the National Aircraft Register.  A creditor may however request that the security interest be also registered in the National Aircraft Register and it is in fact recommended that any such interest be registered both locally and in the International Registry.  In this case the international interest will be operative in its own merits and, in the case of any conflict or discrepancy, it is the international interest which will prevail over the registration in the National Aircraft Register.  Moreover where a creditor has registered an international interest in the International Registry it is lawful for the debtor (being the registrant and/or the owner of the aircraft) to execute and file a prohibitory notice in favour of one or more creditors which will be entered in the National Aircraft Register prohibiting the registration of security interests in the said register without the consent of the creditor in favour of which the international interest has been registered.

In the event of default of any term of the security agreement and upon giving notice in writing to the debtor, the holder of a security right which is registered in the International Registry is entitled to terminate the agreement and take possession or control of the aircraft to which the agreement relates without leave of the court or apply to the court to authorise or direct either of these acts.

A security interest which is registered in the International Registry is considered to be an executive title where it secures the rights of a seller under a conditional sale with reservation of ownership rights or it secures the rights of a lessor under a lease agreement.


Malta’s implementation of the Convention and the entry into force of the Aircraft Registration Act represents tangible action towards maximising financiers’ confidence in the enforcement of claims against Malta-registered aircraft, thereby paving the way towards addressing a principal post-crisis concern of adequate financial security for such high-value assets. The increased predictability of rights and remedies in aircraft finance transactions provides added protection to holders of security interests in aircraft in an event of default.  Consequently creditors may reduce interest rates charged on loan amounts to make up for the risk they would otherwise be exposed to.

The Maltese government recognizes that the business aviation sector is a vital component of the local infrastructure and Malta’s economy and is therefore ready to meet the challenges of maintaining a successful aircraft register and promoting the island as the ideal location to operate and own business aircraft with a view towards establishing Malta as a leading jurisdiction in Europe for aircraft registration.

[1] For the purposes of the registration of a mortgage, an aircraft comprises (i) all data, manuals and technical records; and (ii) the airframe, all equipment, machinery and other appurtenances as accessories belonging to the aircraft which are on board or which have been temporarily removed therefrom; and (iii) any engines owned by the owner of the aircraft whether attached to the aircraft or not, as well as any replacement engines which are designated for use on the aircraft and owned by the owner of the aircraft but temporarily not attached to the aircraft.

[2]Article 2095E

[3]In accordance with Article 33(4) of the Act, a registered mortgage is deemed to be an executive title (a) where the obligation it secures is a debt certain, liquidated and due; or (b) where a maximum sum secured thereby is expressly

stated in the instrument creating the security and such figure is recorded in the register for public notice. Registered mortgages which secure debts resulting from any account current or overdraft or other credit facility as well as

mortgages which secure future debts are conferred the status of executive titles.

[4]Chapter 16 of the Laws of Malta

[5] In accordance with Article 29(6) of the Act, the term “account current” means any indebtedness of a mortgagor in favour of a mortgagee arising and determinable in accordance with an underlying obligation and all the provisions of the Commercial Code relative to the contract of account current shall not apply unless expressly agreed to by the parties.

[6] “approved jurisdiction” means any member country of the Organisation for Economic Co-operation and Development (OECD) and any other country approved by the Minister responsible for Transport in Malta by virtue of legal notice. There are currently 34 member countries of the OECD comprising Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States of America.

[7] Chapter 12 of the laws of Malta

[8]Article 742E(1)(c) of the Code of Organisation and Civil Procedure