Irrevocable Deregistration and Export Request Authorisation (IDERA)

What’s in today’s article?

• Why in News?
• Insolvency Laws in India
• What is the Purpose of IDERA?
• India and IDERA
• What is the Procedure Followed by the Indian Aviation Regulator (DGCA)?
• Precedents in India regarding IDERAs

 

Why in News?

• With the National Company Law Tribunal (NCLT) reserving its order on low-cost airline Go First’s urgent plea for voluntary insolvency, aircraft lessors sought deregistration and repossession of 20 aircraft leased to the Wadia Group airline.
• The lessors did so by filing applications with the Directorate General of Civil Aviation (DGCA) using their Irrevocable Deregistration and Export Request Authorisation (IDERA).

 

Insolvency Laws in India:

• Insolvency is a term for when an individual or company can no longer meet their financial obligations to lenders as debts become due.
• In India, the Insolvency and Bankruptcy Code, 2016 (IBC) creates a consolidated framework that governs insolvency and bankruptcy proceedings for companies, partnership firms, and individuals.
• In the case of a corporate debtor, an application for insolvency proceedings must be submitted to the Adjudicating Authority (AA), which is the NCLT.
  • The application may be filed by a financial creditor (Section 7), an operational creditor (Section 9), or the corporate debtor (Section 10).
• In this case, admission of Go First’s plea under Section 10 of the IBC would have led to an immediate and complete moratorium on recovery of assets leased to the debtor (Go First), making it extremely difficult for lessors to repossess their aircraft.
• However, since the order was reserved, lessors are well within their rights to seek deregistration and repossession of planes.

 

What is the Purpose of IDERA?

• The Convention on International Interests in Mobile Equipment/ the Cape Town Convention (CTC) of 2001 protects lessors’ interests in case of defaults by the lessee.
• As per the CTC, the lessor can seek deregistration and export of aircraft without consent of the airline using IDERA - a voluntary measure that provides greater security to creditors.
• Thus, IDERA empowers lessors to get their aircraft deregistered from the registry of the country where the lessee is based, repossess and fly them out, in cases like those of lease payment defaults.
• The objective of IDERA is to simplify and improve the efficiency of aircraft leasing operations, minimising the losses they would have to incur if their planes got stuck in litigation.
• The IDERA makes lessors ready and willing to lease out aircraft in countries that follow the CTC protocols in letter and spirit.

 

 

India and IDERA:

• Although India ratified the CTC in 2008, its incorporation in India’s legal framework has been a work in progress.
• The last CTC-related amendments to India’s aviation rules took place in 2018, simplifying deregistration and export of aircraft through IDERAs.
• However, some provisions of the IBC pertaining to moratorium on assets are in conflict with the CTC and IDERA provisions.
• This is the reason why lessors have vehemently opposed Go First’s NCLT plea, as its admission would put their aircraft under moratorium.

 

What is the Procedure Followed by the Indian Aviation Regulator (DGCA)?

• The lessor (IDERA holder) must file an online application with the Director General of Civil Aviation (DGCA) seeking to enforce an IDERA with regard to a specific aircraft.
• The DGCA immediately posts on its website the application filed by the IDERA holder.
• The application includes requisite details including the operator’s (airline’s) name, Indian registration of the aircraft, and details of the lessor.
• The date of the application is considered the date of declared default.
• The DGCA then moves to deregister the aircraft within five working days from the date of declared default, and informs airport operators about the date of deregistration.
• Meanwhile, airport operators are required to compute outstanding dues of the aircraft for three months prior to the date of declared default.
  • Earlier dues, if any, are not included in the calculation.
• The lessor then submits all the payment certificates to the regulator, along with the request to export/fly out the aircraft from India.

 

Precedents in India regarding IDERAs:

• The bankruptcy of Jet Airways was the first big test pertaining to IDERAs for India.
  • Most of the 100-plus planes in Jet’s fleet were on lease, and lessors were able to repossess their planes after deregistration in an efficient, regulated, and structured manner.
• Over the past couple of years, lessors have repossessed through the IDERA route a few aircraft that were being operated by no-frills carrier SpiceJet.

 

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Q1) What is the Cape Town Convention (CTC)?

The Convention on International Interests in Mobile Equipment was signed on 16 November 2001. It is designed to facilitate asset-based financing and leasing of aviation equipment, expand financing opportunities, and reduce costs - thereby providing substantial economic benefits.

 

Q2) What is the National Company Law Tribunal (NCLT)?

NCLT is a quasi-judicial authority incorporated for dealing with corporate disputes that are of civil nature arising under the Companies Act.

 

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Source: How does the IDERA process work?