In a big relief for aircraft lessors, the government has notified that the protection offered to a corporate debtor from recovery of dues under the Insolvency and Bankruptcy Code 2016 will not cover aircraft, helicopters and engines.
If implemented retrospectively, the move may impact Go First’s insolvency resolution proceedings under which the National Company Law Tribunal had granted it a blanket moratorium in May to shield it from lessors and creditors and also restrained the DGCA from accepting any applications for de-registration of aircraft from any lessors.
“The provisions of sub-section (1) of section 14 of the Insolvency and Bankruptcy Code, 2016 shall not apply to transactions, arrangements or agreements, under the [Cape Town] Convention and Protocol, relating to aircraft, aircraft engines, airframes and helicopters,” reads the notification issued by the Ministry of Corporate Affairs on October 3.
Section 14 (1) of the IBC 2016 deals with moratorium that a court can order to protect a corporate debtor undergoing either insolvency or bankruptcy, including recovery of any property by an owner or lessor in the possession of the debtor.
Go First had 54 aircraft in its fleet, and lessors of nearly all aircraft had sought de-registration of their assets over pending dues. A senior DGCA official said that it is legally examining the government notification before taking a decision on de-registration.
Following the NCLT’S May order granting a blanket moratorium, lessors also approached the Delhi High Court to seek access to their aircraft.
They argued that the moratorium was in contravention of the Cape Town Convention and Protocol of 2001, to which India is also a signatory. These deal with rights to high-value aviation assets and provide that in the event of a default, the lessor can terminate the agreement and take possession of the leased assets.
“The latest notification is a welcome move. Lessors will now have to move NCLT or other Courts and seek deregistration and export of their aircraft on the basis of the notification,” explained Nitin Sarin, Managing Partner at Sarin & Co. “The notification also goes beyond India’s commitments under the Cape Town Convention under which there is a time limit of 60 days within which a leased aircraft has to be returned to the lessor in case of an insolvency situation,” he added.
In its second downgrade for India since May due to the ongoing Go First matter, a global aviation leasing watchdog, the Aviation Working Group, reduced India’s score on the compliance index to 2 from 3.5 out of 5 and assigned the country a negative outlook “due to low confidence that Cape Town Convention will be enforced in accordance with its terms”. The downgrade means Indian airlines leasing aircraft may have to pay a premium due to the difficulties encountered by lessors to secure their assets.
