Breather for aircraft lessors: Centre exempts aircraft, engines from moratorium under IBC
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.
- Oct 5, 2023,
- Updated Oct 5, 2023 11:21 AM IST
Insolvency and Bankruptcy Code: The Ministry of Civil Aviation (MCA) has said that certain protection offered to a corporate debtor from the recovery of dues under the Insolvency and Bankruptcy Code (IBC) 2016 will not cover aircraft, helicopters and engines. This has come as a major relief for the aircraft 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,” the notification issued by the Ministry of Corporate Affairs on October 3 said.
The move is significant in view of Go First’s insolvency resolution proceedings. The National Company Law Tribunal (NCLT) had granted the cash-strapped airline a blanket moratorium in May to shield it from lessors and creditors. It also restrained the DGCA from accepting any applications for de-registration of aircraft from any lessors.
It is to be noted that Section 14 (1) of the IBC 2016 deals with a 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.
Earlier owned by the Wadia Group, Go First, which filed for voluntary insolvency proceedings in May this year, had 54 aircraft in its fleet. The NCLT admitted the case on May 10, also suspended the board, and imposed a moratorium on the airline’s financial obligations.
The moratorium prompted several aircraft lessors, including SMBC Aviation Capital, SFV Aircraft Holdings, and GY Aviation Lease, to move to the NCLAT. However, the NCLAT rejected their plea to stay the NCLT proceedings.
Eventually, lessors like Pembroke Aircraft Leasing 11 Ltd, SMBC Aviation Capital Ltd, Accipiter Investments Aircraft 2 Ltd, EOS Aviation 12 (Ireland) Ltd, SFV Aircraft Holdings IRE 9 DAC Ltd, ACG Aircraft Leasing Ireland Ltd, and DAE SY 22 13 Ireland Designated Activity Company approached the Delhi High Court. They sought the deregistration of the aircraft leased to Go First over pending dues. Following the NCLT’s order of blanket moratorium, lessors approached the Delhi High Court to seek access to their aircraft.
The lessors said 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.
In August, the National Company Law Appellate Tribunal (NCLAT) allowed Go First airline’s engine lessor, Engine Lease Finance BV, to inspect the four engines used by the grounded airline.
The decision modified the NCLT’s 26 July order, which permitted Go First to use the leased aircraft to restart its operations on the grounds that the Directorate General of Civil Aviation (DGCA) hadn’t deregistered the aircraft, implying their availability for operations.
The deregistration case filed by the aircraft lessors has been having hearings at the Delhi High Court. On September 22, the Delhi HC reserved orders in three applications filed by aircraft lessors of the grounded airline Go First seeking permission to maintain their aircraft.
The lessors have alleged that the Resolution Professional (RP) of the airline is not maintaining the aircraft as per the law and directions of the court. One of the lessors, DAE (SY 22) 13 Ireland alleges that as one of the lessors of the grounded airline Go First, the condition of the leased aircraft is deteriorating every time it is inspected.
Other lessors, such as BOC Aviation Ireland and ACG Aircraft Leasing, have also filed similar applications. ACG Aircraft Leasing has alleged that fan blades, escape slides and many critical parts are missing from at least two planes.
On the other hand, the RP's lawyer questioned the conduct of these lessors in moving both the Delhi HC and NCLT. The RP has said the lessors should approach the division bench of the HC for any sort of order on inspection and maintenance. The main writ petition in the case is now likely to be heard on October 5 at 3.30 PM.
Also read: Go First flight operations: Go First RP says revival could be derailed by lessors' demands
Also read: Low-cost carrier Akasa Air moves court against 43 pilots who quit without any notice
Insolvency and Bankruptcy Code: The Ministry of Civil Aviation (MCA) has said that certain protection offered to a corporate debtor from the recovery of dues under the Insolvency and Bankruptcy Code (IBC) 2016 will not cover aircraft, helicopters and engines. This has come as a major relief for the aircraft 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,” the notification issued by the Ministry of Corporate Affairs on October 3 said.
The move is significant in view of Go First’s insolvency resolution proceedings. The National Company Law Tribunal (NCLT) had granted the cash-strapped airline a blanket moratorium in May to shield it from lessors and creditors. It also restrained the DGCA from accepting any applications for de-registration of aircraft from any lessors.
It is to be noted that Section 14 (1) of the IBC 2016 deals with a 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.
Earlier owned by the Wadia Group, Go First, which filed for voluntary insolvency proceedings in May this year, had 54 aircraft in its fleet. The NCLT admitted the case on May 10, also suspended the board, and imposed a moratorium on the airline’s financial obligations.
The moratorium prompted several aircraft lessors, including SMBC Aviation Capital, SFV Aircraft Holdings, and GY Aviation Lease, to move to the NCLAT. However, the NCLAT rejected their plea to stay the NCLT proceedings.
Eventually, lessors like Pembroke Aircraft Leasing 11 Ltd, SMBC Aviation Capital Ltd, Accipiter Investments Aircraft 2 Ltd, EOS Aviation 12 (Ireland) Ltd, SFV Aircraft Holdings IRE 9 DAC Ltd, ACG Aircraft Leasing Ireland Ltd, and DAE SY 22 13 Ireland Designated Activity Company approached the Delhi High Court. They sought the deregistration of the aircraft leased to Go First over pending dues. Following the NCLT’s order of blanket moratorium, lessors approached the Delhi High Court to seek access to their aircraft.
The lessors said 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.
In August, the National Company Law Appellate Tribunal (NCLAT) allowed Go First airline’s engine lessor, Engine Lease Finance BV, to inspect the four engines used by the grounded airline.
The decision modified the NCLT’s 26 July order, which permitted Go First to use the leased aircraft to restart its operations on the grounds that the Directorate General of Civil Aviation (DGCA) hadn’t deregistered the aircraft, implying their availability for operations.
The deregistration case filed by the aircraft lessors has been having hearings at the Delhi High Court. On September 22, the Delhi HC reserved orders in three applications filed by aircraft lessors of the grounded airline Go First seeking permission to maintain their aircraft.
The lessors have alleged that the Resolution Professional (RP) of the airline is not maintaining the aircraft as per the law and directions of the court. One of the lessors, DAE (SY 22) 13 Ireland alleges that as one of the lessors of the grounded airline Go First, the condition of the leased aircraft is deteriorating every time it is inspected.
Other lessors, such as BOC Aviation Ireland and ACG Aircraft Leasing, have also filed similar applications. ACG Aircraft Leasing has alleged that fan blades, escape slides and many critical parts are missing from at least two planes.
On the other hand, the RP's lawyer questioned the conduct of these lessors in moving both the Delhi HC and NCLT. The RP has said the lessors should approach the division bench of the HC for any sort of order on inspection and maintenance. The main writ petition in the case is now likely to be heard on October 5 at 3.30 PM.
Also read: Go First flight operations: Go First RP says revival could be derailed by lessors' demands
Also read: Low-cost carrier Akasa Air moves court against 43 pilots who quit without any notice