Airline insolvency and repossession – Qatar

What are the principal types of insolvency proceedings?

In Qatar, the dissolution of corporate entities is dealt with under Law No. 11 of 2015 (the Commercial Companies Law), whereby a company may be dissolved for a variety of reasons, including its inability to pay its debts as they become due.

Insolvency and bankruptcy of corporate entities are dealt with under Law No. 27 of 2006, however such laws and procedures are largely untested (and are therefore uncertain) in Qatar and there is no specific insolvency legislation for airlines in Qatar. There have not been any recent measures to prevent or mitigate airline insolvencies and there have not to our knowledge been any airline insolvencies, restructurings or aircraft repossessions in Qatar.

The decision to dissolve a company may be effected voluntarily (e.g. by agreement of the shareholders) or involuntarily (e.g. by court order). Any creditor that wishes to liquidate a company would need to petition to court for involuntary liquidation and be able to prove that the company is no longer able to fulfil its business obligations due to its financial position. When a company goes into liquidation, a liquidator is selected by the shareholders (voluntary liquidation) or by the court (involuntary liquidation), but the company's legal personality remains.

Alternatively, creditors may also apply to the Qatari courts for (or the court may instigate itself) a court sponsored and supervised plan for the restructuring of the debtor’s liabilities. The court will appoint one or more 'supervisors' to assist in restructuring the debtor’s liabilities. A recovery plan must be lodged with the court and the debtor shall manage the ongoing conduct of its commercial and financial dealings under the supervision of the appointed supervisors.

Upon the commencement of liquidation, the liquidator will bring all assets of the bankrupt company into a bankruptcy estate and distribute the assets or proceeds from asset sales under the supervision of the bankruptcy judge. Leased aircraft are not considered to be assets of the Lessee's company and therefore will not form part of the Lessee's bankruptcy estate in the event of bankruptcy. A liquidator does not have any legal power to prevent repossession of leased aircraft.

Upon a company going into liquidation, all debts of the company shall fall due and the liquidator shall notify the company's creditors and the public. Such notification must be made in two local newspapers, with at least one being in the Arabic language, and published on the company's website (where applicable). Creditors will have a period of no less than seventy-five days from the date of the publication of the notice to submit their claims. A second notice must also be published one month after the first notice. For any creditors that fail to submit claims, the value of such debts shall be deposited at the competent court until the earlier of (i) the relevant creditors claim their rights; and (ii) the statute of limitations of the debt (three years from the date of the company’s announcement of its liquidation) has expired. The liquidator shall pay the creditors with the following priority: (i) liquidator's fees; (ii) employee salaries; (iii) money owed to the Qatari government; (iv) rent owed to a landlord over any real estate (but not, to our knowledge, in respect of rent due under an aircraft lease); and (v) other debts owed by the company in accordance with the ranking of its debt.

Has Qatar adopted the 2001 Cape Town Convention and its Aircraft Equipment Protocol (together, Cape Town)?

Yes. Qatari Decree number 52 of 2020 (published under Official Gazette issue No. 12 dated 16 July 2020) (the Implementing Decree) implemented Cape Town effective as from 16 June 2020 into Qatari national law. There is currently no official English language translation of the Implementing Decree.

Subject to the paragraph below, the Implementing Decree provides that Qatar will fully apply Alternative A to all types of insolvency proceedings, and that the waiting period will be 60 days. Alternative A therefore under Qatari law should override other attachment orders or possessory liens applicable under Qatari law. Unless the insolvent airline has cured all relevant defaults, creditors under registered international interests are entitled to the return of their aircraft no later than 60 days after the airline goes into insolvency in accordance with Cape Town.

However, as the ratification of Cape Town in Qatar is very recent, its application is to our knowledge untested in the Qatari courts and it remains to be seen how the Qatari courts will interpret and apply Alternative A and how Cape Town will be practically administered by the Qatar Civil Aviation Authority (the QCAA). However, progress is being made on certain aspects of the implementation and there are now recent examples in Qatar of IDERAs being successfully lodged with the QCAA.

For more information on the recent implementation of Cape Town in Qatar, please see our stand-alone article here.

Can creditors use "self-help" to repossess leased or mortgaged aircraft?

No.

Typically, how long might it take for an owner-lessor or mortgagee to obtain a court order for repossession given that self-help is not available?

There are no precedents in this regard. However, generally speaking, owner-lessors or mortgagees would need to obtain a court judgment in the relevant jurisdiction (as elected in the overarching contractual documents) and enforce any final and conclusive judgment in the Qatari courts. Any such process could take anything between three months to one year.

How long does the aviation authority typically take to deregister an aircraft when an IDERA is invoked?

To our knowledge, the IDERA deregistration process is to date untested in Qatar and it is therefore unclear how much time the QCAA will require to deregister an aircraft. Additionally, to our knowledge, no aircraft has been deregistered in Qatar pursuant to an Irrevocable Deregistration Power of Attorney.

Are there any non-consensual liens which would take priority to an ownership interest/ mortgagee's rights as a secured creditor?

No. Qatari law only recognizes a possessory lien that confers no priority, creates no security interest and ends as soon as possession ends. However, any third party creditor of the airline that has obtained an attachment order, whether provisional or final, against an aircraft may claim its rights in such aircraft.

Are there any "fleet liens" (i.e. a lien for debts relating to one aircraft that may be asserted against any aircraft in the airline's fleet, regardless of ownership)?

No.

Other notes and key considerations for lessors and financiers:

• Whilst a liquidator does not have the power by Qatari law to prevent a lessor from repossessing an aircraft on the termination of the lease, it might be possible in practice for a liquidator to be able to delay such process (although this is untested). Further, delays during such process may also occur due to the fact that such repossessions are largely untested in Qatar.
• We recommend clients continue to use the traditional method of acknowledging interests over aircraft by way of a Letter of Understanding from the QCAA and Irrevocable Deregistration Powers of Attorney, whilst also attempting to register an IDERA with the QCAA. The specific process for registering IDERAs in Qatar remains unclear and is subject to further guidance from the QCAA, although there are recent examples of IDERAs being successfully lodged with the QCAA.