BRAZIL Law and Practice Contributed by: Renata Iezzi, Nicole René Gomes e Cunha and Marcela Correa, Basch & Rameh
2.9.6 Risks for a Lender if a Borrower, Guarantor or Security Provider Becomes Insolvent Brazilian parties are rarely borrowers in aircraft trans - actions. In the few cases where the borrower is Brazil - ian, insolvency would result in the claims of the lender being grouped with other similar claims, secured or unsecured, depending on the loan terms. If a guaran - tor were to become insolvent, the lender would lose the benefit of the guarantee. 2.9.7 Imposition of Moratoria in Connection With Insolvency Proceedings The Brazilian Bankruptcy Law contains a 180-day moratorium to protect debtors generally. However, as noted in 2.9.1 Overview of Relevant Laws and Statutory Regimes Governing Restructurings, Reor- ganisations, Insolvencies and Liquidations , Brazilian aircraft and engine leases are subject to a special arti - cle thereunder that prohibits any stay or moratorium. 2.9.8 Liquidation of Domestic Lessees See 2.9.2 Overview of Relevant Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership . 2.9.9 Ipso Facto Defaults There are no reported cases of ipso facto defaults forming the basis of a lessor request for reposses - sion. Many practitioners doubt that ipso facto defaults alone are sufficient to obtain lessor relief. Payment performance defaults have been the most common causes of action. 2.9.10 Impact of Domestic Lessees’ Winding-Up To date, no Brazilian airlines under liquidation were still operating when the liquidation orders were issued, so no impact on aircraft, rentals, security deposits and maintenance reserves has arisen. If a court deter - mines that a lessee should be wound-up and liqui - dated, a liquidator is appointed. The liquidator has the discretion to terminate or preserve bilateral contracts (aircraft leases). If the liquidator elects to preserve them, the airline, acting through the liquidator, would be obliged to comply with all the terms thereunder, including payment obligations. In the context of air - lines, the chances that a liquidator would maintain a lease for extended periods are remote, except pos - sibly to continue operations for tickets already sold.
Since leased aircraft do not belong to a lessee, its creditors cannot encumber the aircraft to secure amounts due. The lessor would be entitled to repos - sess the aircraft. Thus, if the lessee does not redeliver the aircraft, the lessor may begin repossession action. The Bankruptcy Law does not expressly deal with cash security deposits or maintenance reserves. In past airline insolvency cases, lessors were able to retain security deposits and maintenance reserves. The Bankruptcy Law includes a claw-back provision that arises in cases of liquidation. Several types of transactions are subject to annulment after a com - pany is placed into liquidation (eg, prepayment of obli - gations not yet due or gratuitous transfer of assets). 2.10 Cape Town Convention and Others 2.10.1 Conventions in Force The Cape Town Convention and accompanying Air - craft Protocol have been in effect since May 2013. The RAB was appointed by Brazil as the State’s Author - ised Entry Point (AEP), and AEP Codes are required to register international interests over airframes (the Convention does not require them to register interna - tional interests over engines). To obtain an AEP Code, the applicant must be previ - ously registered and have a valid power of attorney from at least one party in interest. Brazilian AEP Codes cannot be disclosed by the professional user entity (PUE) or transacting user entity (TUE) that obtains them. Consequently, international interests over air - craft registered with the RAB are almost always made by PUEs based in Brazil. The RAB needs, on average, between one and four business days to issue an AEP Code, depending on the backlog of requests. 2.10.2 Declarations Made Concerning Conventions The following declarations have been made by Brazil under the Cape Town Convention: • Article 39 (1)(a) – priority of non-consensual rights and interests under local laws preserved; • Article 39 (1)(b) – detention rights preserved; • Article 39 (4) – priority of non-consensual rights in Article 39 (1)(a) as of the accession date; • Article 53 – jurisdiction of Brazilian courts; and
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