Aviation Finance & Leasing 2021 - China Yi Liu, Xiao Wang and Shanshan Wang Rui Bai Law Firm
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Definitive global law guides offering comparative analysis from top-ranked lawyers Aviation Finance & Leasing 2021 China Yi Liu, Xiao Wang and Shanshan Wang Rui Bai Law Firm practiceguides.chambers.com
CHINA
Law and Practice
Contributed by:
Yi Liu, Xiao Wang and Shanshan Wang
Rui Bai Law Firm see p.21
CONTENTS
1. Aircraft and Engine Purchase and Sale p.3
1.1 Sales Agreements p.3
1.2 Transfer of Ownership p.3
2. Aircraft and Engine Leasing p.4
2.1 Overview p.4
2.2 Lease Terms p.4
2.3 Lease Registration p.5
2.4 Lessor’s Liabilities p.6
2.5 Insurance and Reinsurance p.6
2.6 Lease Enforcement p.7
2.7 Lease Assignment/Novation p.8
2.8 Aircraft Deregistration and Export p.9
2.9 Insolvency Proceedings p.11
2.10 Cape Town Convention and Others p.13
3. Aircraft Debt Finance p.15
3.1 Structuring p.15
3.2 Security p.16
3.3 Liens p.18
3.4 Enforcement p.18
4. Other Issues of Note p.20
4.1 Issues Relevant to Domestic Purchase, Sale,
Lease or Debt Finance of Aircraft p.20
4.2 Current Legislative Proposals p.20
2CHINA Law and Practice
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
1. AIRCRAFT AND ENGINE relevant bilateral or multilateral treaty to which
PURCHASE AND SALE both the PRC and such country are parties)
for the Proposed Evidence’s admissibility as
1.1 Sales Agreements evidence in such legal proceeding with such
court of the PRC, provided that such certi-
1.1.1 Taxes/Duties Payable upon Execution fication and authentication may be made at
of the Sales Agreement any time after the execution of the sale agree-
Under the general tax regime of the People’s ment but prior to such Proposed Evidence
Republic of China (PRC), value-added tax (VAT) being presented to such court of the PRC.
will be levied on the seller incorporated in the
PRC as a consequence of the execution of an 1.2 Transfer of Ownership
aircraft or engine sale agreement to which it is a
party if the asset is located or physically in the 1.2.1 Transferring Title
PRC when the transfer of title occurs. Under PRC law, the delivery of the aircraft or
engine constitutes “transferring title” of the
For sale of PRC bonded aircraft or engine, same. The delivery can either be physical deliv-
VAT and Customs Duty may or may not apply ery or by way of a bill of sale. Unless otherwise
depending on the location of the buyer, ie, within agreed between seller and purchaser, “transfer-
the PRC, outside of the PRC or within the PRC ring title” usually extends to include all installed
bonded areas. parts.
1.1.2 Enforceability against Domestic Parties 1.2.2 Sales Governed by English or New York
It is not necessary or desirable for a sale agree- Law
ment to be translated, certified, notarised or If the transfer of title occurs between a domestic
legalised to be enforceable against a domestic party and a foreign party or between two foreign
party except that: parties, an English or New York law governed bill
of sale is normally used to effect the title transfer.
• when a lawsuit is filed against such domes- If the transfer of title is between two domestic
tic party with a court of the PRC and there parties, the bill of sale must be governed by PRC
is a need to present the sale agreement as law pursuant to PRC law and regulations.
evidence (the “Proposed Evidence”), if such
Proposed Evidence has no Chinese version, it 1.2.3 Enforceability against Domestic Parties
shall be translated into Chinese by a transla- See 1.1.2 Enforceability against Domestic
tor recognised by such court of the PRC for Parties.
its admissibility as evidence in such legal
proceeding; and 1.2.4 Registration, Filing and/or Consent from
• if such Proposed Evidence is formed (or cre- Government Entities
ated) outside the PRC, it shall be certified A bill of sale cannot be registered separately in
as to its authenticity and legality by a notary the PRC. However, the purchaser may voluntar-
public in the country where it is formed (or ily register its ownership in the aircraft with the
created) and such certificate relating to the Civil Aircraft Administration of China (CAAC). For
Proposed Evidence shall be further authenti- this purpose, copy of the bill of sale will need to
cated by an embassy or consulate of the PRC be submitted to the CAAC as one of supporting
in such country (or otherwise pursuant to the documents.
3Law and Practice CHINA
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
1.2.5 Taxes/Duties Payable upon Execution in respect of rental payments for repatriation of
of a Bill of Sale realisation proceeds.
No tax or duties are payable for executing and/
or delivering a bill of sale or consummating the 2.1.5 Taxes/Duties Payable for the Physical
sale of the ownership interest in an entity that Execution of a Lease
owns an aircraft or engine while the aircraft or Stamp duty at a rate of 0.1% (for operating leas-
engine is over international waters or in transit es) or 0.005% (for finance leases) of the total
to or from China. amount of the rent under the lease agreement
is payable in connection with the lease agree-
ment by each party thereto upon its execution
2. AIRCRAFT AND ENGINE or, if executed outside the PRC, upon its use in
LEASING the PRC.
2.1 Overview The withholding tax, VAT and applicable sur-
charges should be payable with respect to the
2.1.1 Non-permissible Leases rent payment, whether such payments are rent
Operating, wet or finance leases or leases con- payment, interest, fee, penalties or otherwise,
cerning only engines or parts are all permissible to be made by the domestic lessee pursuant to
and recognised in the PRC. a lease.
2.1.2 Application of Foreign Laws 2.1.6 Licensing/Qualification of Lessors
Pursuant to a PRC law, if there is a foreign ele- A lessor does not to be licensed or qualified in
ment involved (ie, a foreign party involved or an the PRC to do business with a domestic lessee.
asset situated outside the PRC), a lease could
be governed by a foreign law. 2.2 Lease Terms
2.1.3 Restrictions Concerning Payments in 2.2.1 Mandatory Terms for Leases Governed
US Dollars by English or New York Law
Under PRC law, a Chinese lessee is required to There are no mandatory terms required to be
hold the qualification for engaging import and contained in the lease (or ancillary documents
export trading in order to make US dollar rental thereto) governed by either English or New York
payments to a foreign lessor. Otherwise, such law that would not typically already be included
lessee will need to engage a qualified import and under PRC law.
export agent to make the US dollar rental pay-
ments on its behalf. 2.2.2 Tax and Withholding Gross-Up
Provisions
2.1.4 Exchange Controls Tax and other withholding gross-up provisions
If the underlying transaction is a cross-border are permissible and enforceable.
finance lease, such finance lease is subject to
the registration with the State Administration of 2.2.3 Parts Installed or Replaced After a
Foreign Exchange of the PRC (SAFE) in respect Lease’s Execution
of the foreign debt constituted. For cross-border A lease can cover parts that are installed or
operating leases there are no exchange controls replaced on an aircraft or engine after its exe-
4CHINA Law and Practice
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
cution as long as the parties agreed on such 2.3.4 Registration of Leases with the
arrangement. Domestic Aircraft Registry
There is no specific register for leases concern-
2.2.4 Risk of Title Annexation ing aircraft or engines.
There is no risk of title annexation in respect of
aircraft engines installed on an airframe. 2.3.5 Requirements for a Lease to Be Valid
and Registrable
2.2.5 Recognition of the Concepts of Trust/ For CAAC registration, only a certified true copy
Trustee of a lease agreement should be provided. For
The concept of a trust is recognised by PRC payment of the lease rentals, the translated
trust law. However, there is no such concept as lease agreement should also be provided for the
owner trust under PRC law. Nevertheless, the account bank’s review. Apart from the aforemen-
view is held that the concept of a trust and the tioned, a lease agreement does not need to be in
role of an owner trustee under a lease governed a specific form or translated, served, notarised
by English or New York law will be recognised or legalised to be valid and registrable in the air-
in China. craft registry.
2.3 Lease Registration 2.3.6 Taxes/Duties Payable for Registering a
Lease
2.3.1 Notation of Owner’s/Lessor’s Interests There are no taxes or duties payable for register-
on Aircraft Register ing a lease.
The owner of the aircraft can register its owner-
ship right in respect of the aircraft in the aircraft 2.3.7 Registration of Aircraft in Alternative
rights register of the CAAC. The aircraft owner- Countries
ship registration in favour of the owner (if differ- It is not permissible under the PRC Civil Avia-
ent from the lessor) or the lessor (if it is the owner tion Law for a foreign registered aircraft to be
of the aircraft) can be effected in the PRC. If the habitually based and operated in the PRC. Such
lessor as owner does not register its ownership aircraft will need to be registered with the CAAC
right in the aircraft, it cannot claim its ownership and obtain a Chinese nationality.
right against a bona fide third party.
2.3.8 Requirements for Documents
2.3.2 Registration if the Owner Is Different Concerning Registration
from the Operator In respect of the ownership and mortgage right
As the aircraft register of the CAAC is an operator registration, the application form, power of
based registry, the lessee as the actual operator attorney and the incumbency certificate for the
can apply for the possession right registration in signatory of the power of attorney should be
the name of the aircraft operator and the owner provided in original form while other support-
can apply for the ownership right registration in ing documents can be provided as certified true
its own name at the CAAC. copies (eg, the incorporation certificate, bill of
sale, certificate of acceptance, invoices, relevant
2.3.3 Aircraft/Engine-Specific Registers transaction documents, etc).
There is no specific register for leases concern-
ing aircraft or engines.
5Law and Practice CHINA
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
2.4 Lessor’s Liabilities that the damage was caused by the claimant’s
intentional act (a concept similar to that of wilful
2.4.1 Tax Requirements for a Foreign Lessor misconduct under English law). However, under
Withholding taxes (subject to any double taxa- the Civil Aviation Law, it is the aircraft opera-
tion treaty between the PRC and the relevant tor who will assume a strict liability. In cases of
country), VAT and surcharges apply to lease pay- liability to a third party, the registered owner can
ments and the interest payments in relation to be deemed to be the operator and shall accord-
loans from the PRC. In practice, a PRC airline ingly assume such liability unless the owner can
will invariably pay such taxes on behalf of the prove otherwise. Such liability can be regarded
lessor (by way of a tax gross-up or tax indem- as strict liability. Accordingly, there is no strict
nity in the lease). Should the PRC airline fail to liability on an aircraft owner if it is not the opera-
withhold the taxes, the lessor is obligated to pay tor at the same time.
such taxes itself or through a tax agent.
2.4.5 Attachment by Creditors
2.4.2 Effects of Leasing on the Residence of The creditors of a domestic lessee cannot
a Foreign Lessor enforce against an aircraft leased from the own-
A foreign lessor will not be deemed to be resi- er.
dent, domiciled or carrying on business in the
PRC by reason only of being a party to, or its 2.4.6 Priority of Third Parties’ Rights
enforcement of, the lease. Except for the security interest created in favour
of the lessor’s financier in respect of the aircraft
2.4.3 Engine Maintenance and Operations and statutory or contractual liens over the air-
No liabilities in respect of aircraft or engine main- craft as the subject of the lease, no other third
tenance and operations are imposed on a for- parties’ rights can take priority over a lessor’s
eign lessor under a lease as a result of its being rights under an aircraft or engine lease, whether
a party to such lease. or not such lease or lessor is registered in the
national aircraft register.
2.4.4 Damage or Loss Caused by an Asset
In the case of tort liabilities toward third parties 2.5 Insurance and Reinsurance
resulting from the operation of the aircraft, the
operator who was using the aircraft when the 2.5.1 Requirement to Engage Domestic
damage occurred shall be held liable. The reg- Insurance Companies
istered owner of such aircraft will be regarded as It is mandatory under the PRC Insurance Law
the operator and be held liable as such unless that domestic entities shall procure insurance
the registered owner can prove, in the relevant from Chinese insurers. In practice, operators in
legal proceedings, that it was not the operator, the PRC (other than Hainan Airlines and its affili-
nor the person in control, of the aircraft when the ates) participate in CAAC-endorsed fleet policy
damage occurred. It can, in such legal proceed- with the Chinese insurers, through Air Union
ings, seek an order from the PRC court to add Insurance Brokers Ltd (the “Air Union”).
the lessee (in its capacity as the actual operator
of the aircraft) as a defendant. 2.5.2 Mandatory Insurance Coverage
Requirements
Under PRC tort law, the aircraft operator shall The Civil Aviation Law requires operators to
assume tortuous liability unless it can be proven insure against third-person liability insurance on
6CHINA Law and Practice
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
the ground but is silent on the insurance cover- Arbitration Commission (the “Shanghai Interna-
age requirements. tional Arbitration Center” or SHIAC) established
Shanghai International Aviation Court of Arbitra-
2.5.3 Placement of Insurances outside of tion (SIACA, in Chinese: 上海国际航空仲裁院), which
Jurisdiction is a working platform under SHIAC offering inter-
Reinsurances of up to 100% coverage can be national aviation arbitration services. There are
placed outside the PRC. In practice, at least no examples of historic cases where the SIACA
66% of the insurances are reinsured by Chinese have adjudicated on such matters.
insurance brokers through Marsh, Willis and JLT,
etc, in the London and New York reinsurance 2.6.4 Summary Judgment or Other Relief
market. A lessor cannot obtain a summary judgement
pending final resolution of judicial proceedings
2.5.4 Enforceability of “Cut-Through” Clauses to enforce an aircraft lease in the PRC. The
Cut-through clauses in the insurance/reinsur- lessor can, however, apply to a PRC court for
ance documents are not permissible under PRC injunctive relief known as “Property Preservation
law and therefore not enforceable in the PRC. Measure” (which is similar to a mareva injunction
or freezing order under English law) to attach the
2.5.5 Assignment of Insurance/Reinsurance aircraft before filing a case against the lessee or
Assignments of insurances/reinsurance are per- pending final resolution of judicial proceedings.
mitted, although the assignment of reinsurance
may not always be available. 2.6.5 Domestic Courts’ Approach to Foreign
Laws and Judgments
2.6 Lease Enforcement For an aircraft lease agreement between a for-
eign lessor and a Chinese lessee:
2.6.1 Restrictions on Lessors’ Abilities
There is no restriction on a lessor’s ability to: • the choice of foreign law to govern an aircraft
lease will be upheld as a valid choice of law
• terminate an aircraft lease; in, and will be binding in any action in the
• re-export the aircraft; and/or courts of the PRC, subject to public policy
• sell the aircraft following such termination. considerations;
• the submission to a foreign jurisdiction will be
The aircraft does not need to be physically locat- upheld as a valid choice by the PRC courts;
ed in the PRC at the time of any such actions and
mentioned above. • the waiver of immunity by the parties of the
lease will be upheld as a valid choice by the
2.6.2 Lessor Taking Possession of the Aircraft PRC courts.
Without the consent and co-operation of the les-
see, a PRC court order or judgment is required to 2.6.6 Domestic Courts’ Recognition of
enforce such lease for the aircraft repossession. Foreign Judgments/Awards
Any judgment rendered by a foreign court will be
2.6.3 Specific Courts for Aviation Disputes enforceable in the courts of the PRC without re-
There are no special courts focused on aviation trial or re-examination of the merits of the case
disputes in the PRC. However, in June 2014, if the following conditions are fulfilled:
Shanghai International Economic and Trade
7Law and Practice CHINA
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
• the judgment to be enforced is final and con- 2.6.10 Mandatory Notice Periods
clusive; There are no mandatory requirements on notice
• the jurisdiction of the foreign court has not periods under PRC law.
been precluded by any law, order or treaty;
• service of process for any proceeding against 2.6.11 Lessees’ Entitlement to Claim
the lessee in the foreign jurisdiction has been Immunity
lawfully effected on the lessee other than by A lessee is not entitled to claim sovereign or
public notice, or the lessee has appeared in other immunity from suit in civil and commercial
the relevant proceedings without receiving matters. If the lessee is entitled to claim sov-
service of process in respect thereof; ereign or other immunity from suit, this can be
• the judgment is not contrary to public policy waived.
in the PRC or in violation of the basic consti-
tutional principles of the laws of the PRC; and 2.6.12 Enforcement of Foreign Arbitral
• judgments of the PRC courts receive recipro- Decisions
cal treatment in the foreign courts. The PRC has acceded to the New York Con-
vention. As such, an arbitration award granted
A foreign arbitral award given by the arbitration in a foreign jurisdiction can be recognised and
tribunal would be enforced in a court in the PRC enforced in a PRC court pursuant to the New
subject to the Convention on Recognition and York Convention and the PRC Civil Procedure
Enforcement of Foreign Arbitral Awards of New Law.
York, 10 June 1958 and in accordance with the
PRC Civil Procedure Law. 2.6.13 Other Relevant Issues
There are no other relevant issues that a lessor
2.6.7 Judgments in Foreign Currencies should be aware of in relation to the enforcement
The judgment could be given in the foreign cur- of its rights.
rency if the lease so provides.
2.7 Lease Assignment/Novation
2.6.8 Limitations on Lessors’ Actions
Following Termination 2.7.1 Recognition of the Concepts of
There is no limitation law in PRC, which may Contractual Assignment and Novation
restrict a lessor’s ability to recover default inter- The concepts of contractual assignment and
est or other payments following termination of novation are recognised by PRC law. Neverthe-
the lease for default, including where the lessee less, the effect of such assignment and novation
fails to return the aircraft. will be recognised if:
2.6.9 Lessor’s Requirement to Pay Taxes/ • the assignment and novation agreement is
Fees made in writing;
A lessor under an aircraft lease does not need to • is legal, valid and binding in accordance with
pay taxes or fees in a significant amount in con- the law by which it is expressed to be gov-
nection with the enforcement of the lease other erned; and
than the withholding tax, VAT and applicable • such assignment and novation does not
surcharges with respect to the rental payments conflict with the laws and public policy of the
under the lease. PRC.
8CHINA Law and Practice
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
2.7.2 Assignment/Novation of Leases under rectly completed under the laws by which it is
Foreign Laws expressed to be governed.
Such agreement or deed will be recognised by
the courts of the PRC as legally valid if it has 2.8 Aircraft Deregistration and Export
been validly created under the laws by which it
is expressed to be governed. 2.8.1 Deregistering Aircraft in this Jurisdiction
As an aircraft is registered in the name of the
Under PRC law, a notice of assignment of the operator, the consent of the lessee is required in
aircraft lease in favour of a new lessor or assign- order to deregister the aircraft. Accordingly, in an
ee shall be served on the lessee otherwise the ordinary case, the assistance and co-operation
assignment will not be effective on such lessee. of the lessee is essential for deregistration and
export of an aircraft. If there is no co-operation
2.7.3 Enforceability of Lease Assignments/ of lessee, then deregistration will have to be
Novations effected by judicial procedure, and it may take
None of the lease assignment, assignment a long time to obtain a deregistration order or
or novation needs to be translated, certified, judgment.
notarised, legalised, apostilled or consularised
as a condition to the legality, validity, filing, When effecting the deregistration procedure, the
enforceability or admissibility in evidence thereof applicant (ie, the lessee) is required to fill out
in the PRC, except that when there is a need to a de-registration application in the form pre-
present any of such documents as evidence to scribed by the CAAC, submit relevant support-
a court of the PRC. ing documents and surrender the original Cer-
tificate of Nationality Registration. Within seven
2.7.4 Filing/Registration of Lease days after receipt of the application letter, the
Assignments/Novations CAAC will examine the application letter and
Lease assignments and assumptions/novations the documents submitted. After examination, if
are not required to be registered with any gov- the deregistration complies with relevant regu-
ernment authority in the PRC. lations, the CAAC will deregister the nationality
registration of the aircraft. For the purpose of
2.7.5 Taxes/Duties Payable on Assignment/ exporting the aircraft, the applicant may apply
Novation to CAAC for an evidence document indicating
No duties, taxes or fees are levied in order for deregistration of its nationality. The process is
such assignment and assumption/novation a straightforward one if the lessee co-operates.
agreement to be enforced or relied on in the
PRC. If a novation is to be stamped, each party If there is no co-operation of the lessee, then
is liable to pay a stamp duty of 0.1% of the total deregistration will have to be effected by judicial
lease rental in the case of an operating lease, or procedure.
0.005% of the total lease rental in the case of a
finance lease. 2.8.2 Lessee’s/Operator’s Consent
See 2.8.1 Deregistering Aircraft in this Juris-
2.7.6 Recognition of Transfer of Ownership diction.
Interests
Such transfer will be recognised by the courts
of the PRC as legally valid if it has been cor-
9Law and Practice CHINA
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
2.8.3 Required Documentation 2.8.10 Revocation of a Deregistration Power
See 2.8.1 Deregistering Aircraft in this Juris- of Attorney
diction. If a deregistration power of attorney is expressed
to be irrevocable, this would be enforceable
2.8.4 Duration of Deregistration Process against the grantor (ie, the lessee) and the gran-
With the co-operation of the lessee in applying tor cannot revoke such deregistration power of
for aircraft deregistration, it will normally take at attorney.
least seven days for the CAAC to process after
receipt of the application documents. If there is 2.8.11 Owner’s/Lessor’s Consent
no co-operation from the lessee, deregistration See 2.8.1 Deregistering Aircraft in this Juris-
will have to be sought through judicial proce- diction.
dure, and it may take a long time to obtain a
deregistration order or judgment. The asset does not need to be located in the
PRC at the time of deregistration and/or export.
2.8.5 Aviation Authority’s Assurances
The CAAC does not provide advance assur- 2.8.12 Aircraft Export Permits/Licences
ances to an aircraft owner, mortgagee or lessor Except for a deregistration confirmation letter
as to the prompt deregistration of the aircraft. in respect of the aircraft and an export certifi-
cate of airworthiness to be issued by the CAAC,
2.8.6 Costs, Fees and Taxes Relating to no other governmental consents, approvals or
Deregistration licence are required for exporting the aircraft
No fees are payable in relation to deregistration from the PRC.
of an aircraft.
For applying the export certificate of airworthi-
2.8.7 Deregistration Power of Attorney ness, the following documents should be pro-
Currently, the CAAC does not recognise nor vided to the CAAC:
accept a deregistration power of attorney for
deregistering an aircraft. The consent and assis- • an export certificate of airworthiness applica-
tance of the lessee is required to deregister an tion in the form prescribed by CAAC; and
aircraft. • a letter issued by the aviation authority of the
importing country stating that it would accept
2.8.8 Documents Required to Enforce the export certificate of airworthiness issued
Deregistration Power of Attorney by the PRC and no further requirements.
Currently, the CAAC does not recognise a dereg-
istration power of attorney for deregistering an It cannot be issued in advance by the CAAC.
aircraft.
2.8.13 Costs, Fees and Taxes Concerning
2.8.9 Choice of Laws Governing Export of Aircraft
Deregistration Power of Attorney No taxes will be charged in respect of the export
A deregistration power of attorney does not have of an aircraft. The inspection fees will be charged
to be governed by PRC law. by the CAAC in respect of conducting the
inspection on the airworthiness of the aircraft.
10CHINA Law and Practice
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
2.8.14 Practical Issues Related to • the debtor is unable to clear off its debts as
Deregistration of Aircraft they have become due and there are no suf-
If there are ownership, mortgage or posses- ficient assets to repay all of the debts; and
sion rights registered at the CAAC, they shall • the debtor is unable to clear off its debts as
be discharged before deregistration of aircraft they become due and obviously lacks the
is granted. ability to settle.
2.9 Insolvency Proceedings A creditor may file a bankruptcy application
against a debtor that is unable to repay its debts
2.9.1 Overview of Relevant Laws and as they become due.
Statutory Regimes Governing Restructurings,
Reorganisations, Insolvencies and A creditor may file an application for the debtor’s
Liquidations reorganisation if the debtor cannot clear off its
The PRC Enterprise Bankruptcy Law and relat- debts as they become due.
ed judicial interpretations by the Supreme Peo-
ple’s Court (SPC) make up the bankruptcy legal A debtor may file an application for its reorgani-
regime in China. Similar to many jurisdictions, sation in the following circumstances:
the PRC bankruptcy regime uses key concepts
such as: • the debtor cannot pay off the debts as they
become due and the debtor’s assets are
• voluntary and involuntary bankruptcy; insufficient to clear all of debts; or
• an independent administrator; • the debtor cannot pay off the debts as they
• approval of reorganisation plans by creditors become due and it clearly lacks the ability for
meeting; settlement; or there is a possibility that the
• restructuring and settlement; debtor is obviously insolvent.
• extraterritoriality, allowing property outside
China and certain foreign proceedings to fall 2.9.3 Co-ordination, Recognition or Relief in
within the regime; Connection with Overseas Proceedings
• voidable transactions; and The PRC has not acceded to the UNCITRAL
• rateable distribution. Model Law on Cross-Border Insolvency which
provides for broad recognition of insolvency pro-
A significant feature of the legislation relates to ceedings. The PRC law on recognition of cross-
the protection of workers’ rights. The regime border insolvency proceedings is set out in the
ranks employees ahead of other unsecured PRC Enterprise Bankruptcy Law, which states
creditors but behind secured creditors, who that where an application or petition is submit-
retain their priority over secured assets. ted to the People’s Court for recognition and
enforcement of a legally effective judgment or
2.9.2 Overview of Relevant Types of ruling of an overseas court relating to insolvency
Voluntary and Involuntary Restructurings, cases which involve debtors’ assets within the
Reorganisations, Insolvencies and territory of the PRC, the People’s Court shall, in
Receivership accordance with international treaties to which
A debtor may commence bankruptcy proceed- the PRC has acceded or which are concluded
ings under PRC laws and regulations in the fol- by the PRC, or on the basis of mutuality, issue a
lowing circumstances: ruling to recognise and enforce such judgment
11Law and Practice CHINA
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
or ruling, subject to the People’s Court findings, First, under PRC law, certain claims are man-
after investigation, that such judgment or ruling datorily preferred over the secured creditors.
does not breach the fundamental legal princi- Second, secured creditors of the insolvent or
ples of the laws of the PRC, does not damage bankrupt lessee will have priority over the lessor.
China’s sovereignty, security or social public Apart from these preferences, the administrator
interest, and does not damage the lawful rights cannot impose the rights of any other creditors
and interests of creditors in China. in priority to the lessor.
2.9.4 Effect of Lessee’s Insolvency on a 2.9.6 Risks for a Lender if a Borrower,
Deregistration Power of Attorney Guarantor or Security Provider Becomes
The deregistration power of attorney or IDERA Insolvent
would survive the liquidation of the lessee. Under such circumstance, assuming the aircraft
has been mortgaged in favour of the lender, then
2.9.5 Other Effects of a Lessee’s Insolvency any shortfall between the secured obligations
As long as the lease agreement stipulates that and the enforcement proceeds from the sale of
the Lessor is entitled to terminate the lease the aircraft will rank pari passu, among all unse-
immediately in the case of insolvency of the cured creditors of the borrower, the guarantor or
Lessee, the lessor may do so without any delay. other security provider.
Experience shows it is quite common that the
insolvency or bankruptcy of the lessee consti- 2.9.7 Imposition of Moratoria in Connection
tutes an event of default. If the lessor decides with Insolvency Proceedings
to terminate the lease, it shall serve a notice to There is no “moratorium period” under PRC
the lessee. The lease is terminated upon receipt insolvency proceedings, if the relevant lease pro-
of such notice by the lessee, unless the lessee vides the termination rights if the Lessor has the
raises any objection. contractual rights to terminate the lease immedi-
ately. Once the bankruptcy petition is accepted
In the event that the lease is not terminated by by the PRC courts, any payment by the lessee to
lessor in case of insolvency (by enforcing its right the lessor is null and void; any pending proceed-
following an event of default), the administra- ings against the lessee shall be suspended until
tor is entitled to decide whether to terminate or the receiver or administrator takes over all the
continue the lease. If the administrator decides assets of the lessee; and any proceedings to be
to continue, the lessor should also perform the initiated against the lessee must be filed to the
lease. However, the lessor may request addi- PRC court which accepted the bankruptcy peti-
tional security from the administrator under such tion. The receiver or administrator (after it has
circumstance. If the administrator fails to provide taken over all the assets of the lessee) shall deal
such additional security, the lease is deemed ter- with all the claims against the lessee under the
minated. The lease itself is not by any means supervision of the PRC court. Such protection
changed or modified as a result of the insolvency period is similar to a moratorium period. During
of the lessee. The administrator is obliged to pay the protection period, only the claims for due
rent as provided in the lease. payments are protected from, and the lessor still
has the right to terminate the lease.
The aircraft will not be deemed as part of the
lessee’s property, therefore, it will not be subject
to the insolvency proceedings.
12CHINA Law and Practice
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
2.9.8 Liquidation of Domestic Lessees administrator or liquidator fails to provide such
There are two kind of liquidation in the PRC: additional security, the lease is deemed ter-
voluntary liquidation and compulsory liquida- minated. The lease itself is not by any means
tion. When a company goes into liquidation, the changed or modified as a result of the insolvency
liquidator or administrator will either be chosen of the lessee. The administrator or liquidator is
by the company or designated by the court to obliged to pay rent as provided in the lease. If
handle all the company assets and relevant security deposit and maintenance reserves have
interests. been contemplated in the lease, the lessor shall
be entitled to apply them.
2.9.9 Ipso Facto Defaults
Ipso facto defaults or performance defaults are 2.10 Cape Town Convention and Others
not required to repossess an aircraft during a
lessee insolvency proceeding as long as the 2.10.1 Conventions in Force
lease stipulated that the lessor is entitled to take The PRC has ratified the Convention on Interna-
back the aircraft if the lessee is wound-up. tional Interest in Mobile Equipment (the “Cape
Town Convention”) and the Protocol to the
2.9.10 Impact of Domestic Lessees’ Winding- Convention on International Interests in Mobile
Up Equipment on Matters Specific to Aircraft Equip-
The aircraft is not the asset of the insolvent les- ment (the “Protocol”).
see, therefore, it will not be subject to the insol-
vency proceedings. Following the commence- It is necessary to obtain AEP codes for register-
ment of insolvency proceedings, the secured ing international interests and usually five busi-
party or lessor may repossess the aircraft by ness days may be needed for obtaining the AEP
notice to the receiver or liquidator. If the admin- codes after successfully submitting the docu-
istrator or liquidator refuses to return the aircraft, ments mentioned to the CAAC.
the secured party or lessor may file a lawsuit
against the administrator or liquidator. No mandatory requirements on the applicant
entities for AEP code application and making
In the event that the lease is not terminated by the Cape Town filings.
lessor in case of insolvency (by enforcing its right
following an event of default), the administra- 2.10.2 Declarations Made Concerning
tor or liquidator is entitled to decide whether Conventions
the lease shall be terminated or continue to be The PRC has ratified the Cape Town Convention
performed. If the lease shall be terminated, the and the Protocol, and certain declarations have
lessors shall be entitled to demand the return been made in respect of thereof.
of the aircraft or engine if it is so provided in
the lease. The recovery of the assets will not According to Decision of the Standing Commit-
prejudice the lessor’s right to collect the unpaid tee of the National People’s Congress on Rati-
amounts owed by it. fying the Convention on International Interests
in Mobile Equipment and the Protocol to the
If the administrator or liquidator decides to Convention on International Interests in Mobile
continue to perform the lease, the lessor may Equipment on Matters Specific to Aircraft Equip-
request additional security from the administra- ment (Adopted at the fifth Session of the Stand-
tor or liquidator under such circumstance. If the ing Committee of the Eleventh National Peo-
13Law and Practice CHINA
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
ple’s Congress on 28 October 2008), the PRC relating to those services in respect of that
has announced the following declarations with object or another object.
respect to the future application of the Cape • Declaration to Article 39(4) of the Cape Town
Town Convention and the Protocol. Convention: a right or interest of a category
covered by a declaration made under sub-
• Declaration to Article 39(1)(a) of the Cape paragraph (a) of paragraph 1 of Article 39
Town Convention: all the non-consensual shall have priority over an international inter-
rights or interests which under the laws of est registered prior to the date of ratification
the PRC have priority over an interest of a of the Protocol.
secured creditor shall have priority over a • Declaration to Article 40 of the Cape Town
registered international interest, including but Convention: the interest subordinated to
without limitation, the right of demanding for debtor’s equipment acquired for purpose of
insolvency expenses and community liabili- enforcing judgment debt shall be registrable
ties, wages of staff, taxes imposed before the non-consensual right or interest.
creation of mortgage, pledge or lien over the • Declaration to Article 43 of the Cape Town
civil aircraft, the right of demanding reward for Convention: the PRC will apply Article 43 of
rescuing the civil aircraft, the right of demand- the Cape Town Convention. The pre-con-
ing necessary expenses for maintaining the dition for applying the paragraph 1 and the
civil aircraft and so forth. (The non-consensu- sub-paragraph 2(a) thereof is that the court
al rights here referred normally cover the tax of a Contracting State chosen by the parties
authorities rights, ie, the outstanding taxes shall be the one locating in the place that has
of a mortgagor shall be paid in priority over genuine connections with disputes relating to
the liabilities secured by the aircraft mortgage the agreement.
that is created after the occurrence of the • Declaration to Article 50(1) of the Cape Town
outstanding taxes. Under such circumstance, Convention: the Cape Town Convention will
the Aircraft can be transferred to a third not apply to internal transactions in relation to
party through auction or private sale, but the the PRC.
proceeds shall be applied to the unpaid taxes • Declaration to Article 53 of the Cape Town
of the mortgagor first. Notwithstanding the Convention: the intermediate people’s court
foregoing, if the lessee does not pay the with- where the headquarter of each PRC airline is
holding income tax, VAT, or stamp duty as situated shall have jurisdiction to disputes on
it is supposed to do in accordance with the lease of aircraft equipment in relation to the
transaction documents, the PRC tax authori- Protocol.
ties shall have no lien or other rights or power • Declaration to Article 54(1) of the Cape Town
in respect of the aircraft.) Convention: while the charged object is
• Declaration to Article 39(1)(b) of the Cape situated within the territory of the PRC, the
Town Convention: nothing in the Cape Town chargee shall not grant a lease of the object
Convention shall affect the right of a State or in the territory of the PRC.
State entity, intergovernmental organisation • Declaration to Article 54(2) of the Cape Town
or other private provider of public services Convention: any remedy available to the cred-
to arrest or detain an object under the laws itor under any provision of the Cape Town
of the PRC for payment of amounts owed to Convention which is not there expressed to
such entity, organisation or provider directly require application to the court may be exer-
cised only with leave of the court of the PRC.
14CHINA Law and Practice
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
• The PRC will apply Article 8, Article 12 and Aircraft, but has not ratified the 1933 Convention
Article 13 of the Protocol. for the Unification of Certain Rules Relating to
• The PRC will apply Article 10(1), (2), (3), (4), (6) the Precautionary Arrest of Aircraft.
and (7) of the Protocol. The court of the PRC
shall, upon receipt of an application, make
its decision and thus immediately execute it 3. AIRCRAFT DEBT
within ten days in relation to remedies pro- FINANCE
vided in Article 13(1)(a), (b) and (c); and make
its decision and thus immediately execute it 3.1 Structuring
within 30 days in relation to remedies pro-
vided in Article 13(1)(d) and (e). 3.1.1 Restrictions on Lending and Borrowing
• The PRC will apply Alternative A under Article There are no special restrictions on foreign lend-
11 of the Protocol to all the insolvency pro- ers financing an aircraft locally or on borrowers
cedures defined by the Protocol. The waiting as long as the borrower completed the relevant
period shall be 60 days. SAFE registration, filing and recording formali-
• According to Article 19 of the Protocol, the ties.
PRC designates the entity in charge of right
registration of Civil Aviation Administration of 3.1.2 Effect of Exchange Controls or
China as the entry point. Government Consents
• Until further notice by the PRC, the Hong Foreign exchange is highly regulated in PRC. As
Kong Special Administrative Region (Hong part of the foreign exchange control policy, the
Kong SAR) and the Macau Special Adminis- financing or repatriation of realisation proceeds
tration Region (Macau SAR) of the PRC will under a loan, guarantee or security document
not apply the Cape Town Convention and the shall be filed with SAFE.
Protocol.
3.1.3 Granting of Security to Foreign Lenders
2.10.3 Application of Article XIII of the The borrowers are permitted to grant security to
Protocol on Matters Specific to Aircraft foreign lenders.
Equipment
The PRC has made a declaration pursuant to 3.1.4 Downstream, Upstream and Cross-
Article XIII of the Protocol and the IDERA can Stream Guarantees
be recorded with the CAAC under the IDERA Downstream, upstream and/or cross-stream
Filing Procedures. An IDERA should be submit- guarantees in favour of lenders are permitted
ted in the name of the lessee in an original form under PRC law. Such guarantees may need to
together with other supporting documents with be registered with SAFE in accordance with PRC
the CAAC for recordation. foreign exchange regulations.
2.10.4 Enforcement of Conventions 3.1.5 Lenders’ Share in Security over
There is no awareness of the Convention or Pro- Domestic SPVs
tocol being enforced in the PRC. It is common for a lender to take share security
over a domestic special-purpose vehicle which
2.10.5 Other Conventions owns the financed aircraft. The pledge of shares
The PRC has ratified the 1948 Geneva Conven- is recognised by the PRC law.
tion on the International Recognition of Rights in
15Law and Practice CHINA
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
3.1.6 Negative Pledges • a PRC law-governed aircraft mortgage;
There is no similar concept for negative pledge in • a pledge of equity in favour of the lender (if
PRC law, but such arrangement in the contract is a Chinese intermediary lessor is involved in
recognised by the PRC law assuming it is legally certain lease in lease out structures);
valid and binding under English or New York law • a pledge of receivables in favour of the
by which it is stated to be governed. lender;
• a guarantee in favour of the lender; and
3.1.7 Intercreditor Arrangements • an account control agreement among, inter
There is no material restriction or requirement alia, the lender, the onshore account bank
imposed on intercreditor arrangements. (which holds lease rentals paid by the lessee)
and the lessor.
3.1.8 Syndicated Loans
The concept of agency and the role of an agent 3.2.2 Types of Security Not Available
(such as the facility agent) under a syndicated There are no types of security which cannot be
loan are recognised by PRC law. taken over an aircraft or related collateral such
as engines, warranties or insurances.
3.1.9 Debt Subordination
There are no express provisions under PRC law 3.2.3 Trust/Trustee Concepts
in respect of debt subordination. However, PRC The concept of a trust is recognised by PRC
law permits and recognises contractual arrange- trust law. However, there is no such concept as
ments amongst lenders of a debtor as to the security trustee under PRC law. Nevertheless,
order of priority of the debt. the view is held that the concept of a trust and
the role of a security trustee under a security
3.1.10 Transfer/Assignment of Debts under agreement governed by English or New York law
Foreign Laws will be recognised in China.
The transfer or assignment of all or part of an
outstanding debt with lenders’ consent under 3.2.4 Assignment of Rights to an Aircraft by a
an English or New York law governed loan is Borrower to a Security Trustee
permissible and recognised. A borrower can assign its rights to the aircraft to
a security trustee, pursuant to a security assign-
3.1.11 Usury/Interest Limitation Laws ment or a mortgage under an aircraft lease
Usury is illegal in the PRC and pursuant to the (including in relation to insurances).
relevant PRC laws, if the interest agreed by both
the lender and the borrower exceed the annual 3.2.5 Assignment of Rights and Benefits
interest rate of 36%, the part of the interest that without Attendant Obligations
exceeds 36% is void. PRC law permits the assignment of the rights
and benefits, only without also assigning the
3.2 Security attendant obligations of the lessor under an air-
craft lease, unless such assignment is prohibited
3.2.1 Typical Forms of Security and Recourse by the provisions of the underlying lease, unable
The typical forms of security and recourse grant- to be effected due to the nature of rights and
ed in an aviation finance transaction in the PRC benefits to be assigned and prohibited by rel-
normally include: evant PRC law. There is no awareness of such
16CHINA Law and Practice
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
a prohibition under PRC law in relation to an air- or New York law governed security assignment.
craft lease. For the purpose of making Cape Town filings
with the international registry, the Administrative
3.2.6 Choice of Foreign Law Measures regarding the Application for Authori-
A security assignment or a guarantee can be zation Entry Codes for the Registration of Inter-
governed by English or New York law. They do national Interests in Civil Aircraft issued by the
not have to be governed by domestic law to be CAAC shall be complied with. No administrative
fully enforceable. fee or charge is required for executing a domes-
tic law security instrument and completing the
3.2.7 Formalities/Mandatory Terms to Create local law filings.
and Perfect Security Assignments
Under PRC law, a notice of assignment shall be 3.2.9 Domestic Registration of Security
served on the PRC lessee, otherwise the assign- Assignments Governed by Foreign Laws
ment will not be effective on that lessee. An English or New York law-governed security
assignment cannot be registered in the PRC.
The security assignment shall be made in writing.
PRC law does not provide for specific require- 3.2.10 Transfer of Security Interests over
ments on the documentary formalities (such as Aircraft/Engines
notarisation, legalisation, stamping, or transla- The transfer of security interests over an aircraft
tion) for creation of a valid security assignment and/or engines is recognised.
over an aircraft.
3.2.11 Effect of Changes in the Identity of
However, in the event that the security is enforced Secured Parties
through judicial proceedings in the PRC and it The security interests are not jeopardised if the
is signed in a foreign language, then the PRC identity of the secured parties under a security
court will require for a certified Chinese trans- assignment changes after execution.
lation of the security document provided by a
qualified translator in the PRC to be presented to 3.2.12 “Parallel Debt” Structures
the court. In addition, if the security document is “Parallel debt” structures are not recognised
formed (or created) outside the PRC, Hong Kong under PRC law.
SAR, Macau SAR and Taiwan region, in order for
such document to be admitted as evidence in 3.2.13 Effect of Security Assignments on
the legal proceeding with the PRC court, it shall Residence of Secured Parties
be certified as to its authenticity and legality by A secured party under a security assignment
a notary public in the country where it is formed would not be deemed to be resident, domiciled,
(or created) and such certification shall be further carrying on business or subject to any taxes in
authenticated by an embassy or consulate of the PRC as a result of its being a party to, or its
the PRC in such country (or otherwise pursuant enforcement of, such security assignment.
to the relevant bilateral or multilateral treaty to
which both the PRC and such country are party). 3.2.14 Perfection of Domestic Law Mortgages
A PRC law-governed mortgage over an aircraft
3.2.8 Domestic Law Security Instruments can be perfected by registering the mortgage
There is no domestic law security instrument that with the CAAC. In addition, a PRC law-governed
a financier should take in addition to an English mortgage over an aircraft engine can be regis-
17Law and Practice CHINA
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
tered at a centralised online registration system The Civil Aviation Law permits liens to be cre-
maintained by the People’s Bank of China (the ated over the aircraft to remunerate a person
Chinese central bank). for rescuing and salvaging the aircraft and for
necessary expenses for the custody and main-
3.2.15 Differences between Security over tenance of the aircraft. Under PRC law, it would
Aircraft and Spare Engines entitle the creditor to convert the aircraft into
There is no substantial difference between the value or have priority in getting paid from the
form of security taken over an aircraft and that proceeds of the sale or auction of the aircraft.
taken over spare engines.
3.3.2 Timeframe to Discharge a Lien or
3.2.16 Form and Perfection of Security over Mortgage
Bank Accounts PRC law requires that the CAAC shall review
As there is no such concept of account charge and complete the discharge registration within
under PRC law, an account control agreement seven working days. In practice, however, it nor-
among, inter alia, the lenders, the onshore mally takes the CAAC at least 15 working days
account bank (which holds lease rentals paid to complete the discharge procedure.
by the lessee), and the lessor is normally used
as the typical security form to take security over 3.3.3 Register of Mortgages and Charges
a bank account. The CAAC maintains a registry for aircraft mort-
gages. The interests of an aircraft mortgagee
3.3 Liens can be noted on the aircraft register to its per-
fection against bona fide third parties.
3.3.1 Third-Party Liens
The Civil Aviation Law specifically provides two 3.3.4 Statutory Rights of Detention or Non-
types of claims that would give rise to a lien over consensual Preferential Liens
a civil aircraft: Statutory rights of detention or non-consensual
preferential liens can arise over an aircraft but
• remuneration for the rescue or salvage of a not on a “fleet-wide” basis.
civil aircraft; and
• necessary expenses incurred for the custody 3.3.5 Verification of an Aircraft’s Freedom
and maintenance of a civil aircraft (posses- from Encumbrances
sory lien). A potential purchaser can make the verifications
on an aircraft’s encumbrances by performing an
In addition, the PRC Civil Code recognises the online search of the CAAC’s aircraft registry.
concept of a possessory lien entitling a third
party which has bestowed labour on an aircraft 3.4 Enforcement
to detain it, such as a maintenance shop. How-
ever, the application of such possessory lien 3.4.1 Differences between Enforcing Security
may be precluded in the relevant maintenance Assignments, Loans and Guarantees
agreement. There are no relevant differences in enforcing a
security assignment as opposed to a loan or a
A fleet lien is not recognised if any third parties guarantee.
may detain the aircraft.
18CHINA Law and Practice
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
3.4.2 Security Trustees’ Enforcement of their enforced pursuant to the terms of a treaty
Rights between China and the country whose courts
Under a security assignment where security have issued the judgment.
is granted to a security trustee by a lessor in
respect of its rights under an aircraft lease, that An award given by a foreign arbitration tribu-
security trustee can enforce its rights under the nal against PRC entities may be enforced in a
security assignment pursuant to a notice and court in the PRC subject to the Convention on
acknowledgement executed by that lessor and Recognition and Enforcement of Foreign Arbi-
the relevant lessee respectively in connection tral Awards of New York, 10 June 1958 and in
with such security assignment. The security accordance with the PRC Civil Procedure Law.
trustee may enforce the rights and obligations
of the lessor as against the lessee acting as the 3.4.5 Secured Parties’ Right to Take
named lessor both as a matter of law and in Possession of Aircraft
practice. A secured party cannot take physical posses-
sion of the aircraft to enforce a security agree-
3.4.3 Application of Foreign Laws ment/aircraft mortgage without the lessee’s
Under PRC law, the choice of a foreign law as or operator’s consent. Under PRC law, in the
the governing law of a finance or security docu- event of enforcement of a security agreement
ment in which a foreign element is involved will or aircraft mortgage, self-help remedies are not
be upheld as a valid choice by domestic courts, available, and a court order must be obtained
subject to the considerations of public policy. for enforcement.
The PRC courts will uphold the submission to a 3.4.6 Domestic Courts Competent to Decide
foreign jurisdiction as a valid choice. on Enforcement Actions
A court in the location of the domicile of the les-
3.4.4 Recognition and Enforcement of see or the location where the lease is performed
Foreign Judgments and Arbitral Awards (where such location is not clear, the SPC has
Foreign judgments are not automatically rec- construed it as where the leased property (such
ognised and enforced in the PRC. However, a as an aircraft) is used under a lease agree-
judgment of a foreign court against PRC airlines ment) would have jurisdiction to hear the case.
may be enforced in a PRC court without further According to an interpretation of the SPC, only
consideration of the merits of the case if the fol- the following courts have jurisdiction over cases
lowing conditions are fulfilled: involving foreign elements (ie, a party to the legal
proceeding is a foreign person, or the subject
• the foreign judgment to be enforced is final matter under dispute relates to a foreign person
and conclusive; or the property owned by a foreign person, etc):
• the jurisdiction of the foreign court has not
been precluded by any law, order or treaty; • the lowest level court located in an economic
• the foreign judgment is not contrary to public and technology development zone estab-
policy in the PRC or in violation of the basic lished by the order of the State Council;
principles of the law of the PRC; and • the intermediate level court located in the
• judgments of PRC courts would receive capital of each provincial level city or a spe-
reciprocal treatment in the jurisdiction of the cial economic zone or a city with separate
foreign court or the judgment is sought to be budget or appointed by the SPC, each having
19Law and Practice CHINA
Contributed by: Yi Liu, Xiao Wang and Shanshan Wang, Rui Bai Law Firm
its geographic jurisdiction as set out by rel- between RMB5 million and RMB10 million, the
evant Superior People’s Court; and application fee shall be paid at the rate of 0.5%.
• the Superior People’s Court in each province. Finally, for the part above RMB10 million, the
application fee shall be payable at the rate of
3.4.7 Summary Judgments or Other Relief 0.1%.
A secured party to the dispute is entitled to apply
to the competent court for injunctive measures After the enforcement of the judgment, such
like property preservation and specific perfor- application fee shall be borne by the guaran-
mance before commencing litigation or during tor or mortgagor against whom the enforcement
the process of litigation. A bond or guarantee will measure is taken; if a settlement agreement can
be required in connection with the application of be reached during the process of the enforce-
such injunctive measures. ment between the secured party and the guaran-
tor or mortgagor, payment of the application fee
3.4.8 Judgments in Foreign Currencies may be settled through negotiation of the two
A secured party under a security agreement or parties; if no agreement can be reached accord-
aircraft mortgage can obtain a judgment in a for- ingly, the court will decide who should pay the
eign currency. application fee.
3.4.9 Taxes/Fees Payable 3.4.10 Other Relevant Issues
To the extent the enforcement of a security Apart from the unavailability of self-help rem-
agreement or aircraft mortgage does not involve edies under PRC law, there are no other issues
disposal of the aircraft, there are no taxes or fees that a lender should be aware of in relation to the
in a non-nominal amount to be paid. Where the enforcement of its rights.
enforcement of a security agreement or aircraft
mortgage involves sale of the aircraft within the
PRC, see 1.1.1 Taxes/Duties Payable upon 4. OTHER ISSUES OF NOTE
Execution of the Sales Agreement for tax
implication. As to court charges for enforcement 4.1 Issues Relevant to Domestic
of a judgment in favour of the secured party from Purchase, Sale, Lease or Debt Finance
a PRC court, according to the Measures on the of Aircraft
Payment of Litigation Fees, the secured party, There are no other material issues or any mate-
as applicant, shall pay the application fee for rial court judgments that are relevant to the
enforcement of such judgment. purchase, sale, lease or debt finance of an air-
craft registered domestically and/or involving a
If the amount or value to be enforced is less than domestic party.
RMB10,000, RMB50 shall be paid as an appli-
cation fee. For the part between RMB10,000 4.2 Current Legislative Proposals
and RMB500,000, the application fee shall be There are no current legislative proposals relat-
paid at the rate of 1.5%. For the part between ing to the foregoing items which may alter the
RMB500,000 and RMB5 million, the application same or be worth noting.
fee shall be paid at the rate of 1%. For the part
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