Shearman And Sterling

featured image

February 25, 2021

Schemes, Plans and Cape Town Convention


Jump to...


Schemes, Plans and Cape Town Convention

Another interesting case on schemes around the issue of insolvency. A judgment handed down yesterday by Snowden J in MAB Leasing Limited (a Malaysia Airlines leasing company) "parked" the issue of whether a Part 26 scheme (note, not a Part 26A plan) was an insolvency related event under the Cape Town Convention and Aircraft Protocol, as there was unanimous creditor consent. At the earlier convening hearing, Zacaroli J, without needing to decide the issue, stated that the company counsel's skeleton provided a "powerful case for concluding that the [Cape Town Convention] did not apply". The issue therefore remains open. It is an important point as if the company has creditor agreements that fall under the Cape Town Convention (eg aircraft operating leases), then on an insolvency related event, a compromise of those agreements is only possible with individual creditor consent. The Cape Town Convention is incorporated into English law, so this protection is not itself a "contractual right" that can be varied by the scheme or plan. 

While not entirely on the same point, in gategroup Guarantee Ltd, the court held that a Part 26A plan was an insolvency proceeding for the purposes of the Lugano Convention. This may therefore suggest that Part 26A plans could fall within the Cape Town Convention.

Additionally, in a recent Malaysian scheme case predating all of the above, Air Asia X, the Malaysian court held that a Malaysian scheme was an insolvency related event under the Cape Town Convention. Malaysian schemes are similar to Part 26 schemes and the Malaysian court in that case relied extensively on English precedent.

This leaves us with a few more questions around scheme and plan law which will need to be clarified in the near future...

Authors and Contributors

Alexander Wood

Of Counsel

Financial Restructuring & Insolvency

+44 20 7655 5935

+44 20 7655 5935