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American Bar Association Aircraft Financing Subcommittee

American Bar Association Aircraft Financing Subcommittee. Grand Hyatt New York August 8-9, 2008. IRAB Update Cape Town Convention Presented by: James D. Tussing William B. Piels. IRAB UPDATE. Preview of Presentation (1) Security Assignments/Discharge

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American Bar Association Aircraft Financing Subcommittee

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  1. American Bar AssociationAircraft Financing Subcommittee Grand Hyatt New York August 8-9, 2008

  2. IRAB UpdateCape Town ConventionPresented by:James D. TussingWilliam B. Piels

  3. IRAB UPDATE Preview of Presentation (1) Security Assignments/Discharge (2) Special Purpose Entity/Controlled Entity (3) Working in New “Contract States”

  4. Security Assignments/Discharge • Current Rule: • No distinction between Security and Outright Assignment • Assignee may discharge an assignment; but only assignor (original holder of international interest) may discharge the international interest

  5. Security Assignments/Discharge Example A: On termination of a Lease, if assigned as security, Secured Party may discharge the Lease international interest security assignment registration, and then the Lessor may discharge the Lease international interest. Example B: On sale of Aircraft and assignment and assumption of the lessor’s interest by buyer, buyer/new lessor may discharge the Lease international interest assignment registration, and then seller/original lessor may discharge the Lease international interest.

  6. Security Assignments/Discharge (2) New Rule: • Parties to an assignment of an International Interest registration are entitled to allocate the right to discharge the assignment and the underlying International Interest. • The election may be made at time of registration and may be amended. • The failure to make any election results in the right to discharge being held jointly. • Parties may wish to cover the allocation of the discharge right explicitly in transaction documentation.

  7. Special Purpose Entities Existing Rule • Widely used: 10% of all entities on the IR are SPEs • Current definition is narrow: “limited purpose is to enter into a transaction to which such registrations relate” • Concern: entities that have been qualified as SPEs may not fit the definition; query the effect (if any) on validity of registrations

  8. Special Purpose Entities New Rule • “Controlled Entity” definition replaces SPE; “limited purpose” qualification is removed • As in SPE definition, Controlled Entity definition requires a qualified transacting user entity to “electronically assert that it controls, manages or administers” the Controlled Entity • Transition: Provision to convert qualification status from “SPE” to “Controlled Entity” when existing SPE qualification period expires • Additional fees required

  9. New Contract States • 23 Contracting States; Six for which entry into force occurred in 2008 • New country diligence: • Review declarations/implementing legislation • Local counsel assistance on practices (if any) • Example: UAE • Portal issue • Consistency with local laws • Declarations

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