UK Corporate Insolvency and Governance Act 2020: Impact on the Aviation Sector

6/12/2020 (Updated 6/26/2020)

The UK Corporate Insolvency and Governance Act 2020 has an impact on various stakeholders in the aviation industry due to its moratorium, supply contract, and restructuring plan provisions.

This LawFlash was updated on 26 June 2020 following the enactment of the UK Corporate Insolvency and Governance Act 2020 on 25 June 2020.

Key Features

The UK Corporate Insolvency and Governance Act has three key features:

  • Moratorium: A new moratorium for companies in financial distress with breathing space which prevents creditors (with some exceptions) from pursuing payment, commencing or continuing legal proceedings, or taking enforcement action whilst the company explores its rescue and restructuring options.
  • Supply Contracts: A prohibition on suppliers under certain supply contracts invoking supplier termination clauses upon a company entering into a relevant insolvency or restructuring procedure.
  • Restructuring Plan: A new restructuring procedure for companies which have encountered, or are likely to encounter, financial difficulties that are affecting, or will or may affect, their ability to carry on business as a going concern.

We summarised these features and the other key provisions of the Act in our previous LawFlash.


All companies incorporated in England and Wales (other than certain excluded entities) are eligible for the new moratorium. The excluded entities are primarily financial services entities, and there is no special exception for airlines or aviation companies.

For the moratorium to apply, a company (including airlines and aviation companies) (1) must not be subject to formal insolvency proceedings or a moratorium or (2) must not have been subject to a moratorium, company voluntary arrangement (CVA), or administration during the 12 months prior to the date of filing of the moratorium.

Any company which has the benefit of the moratorium has a payment holiday for all debts which fell due prior to, or during, the moratorium, subject to certain exceptions. Debts owed to secured aircraft funders and lessors under finance leases are not subject to the payment holiday. These debts must continue to be paid when due. The moratorium comes to an end if the company cannot discharge its debts to its pre-moratorium creditors who are not subject to a payment holiday.

Two sections of the new moratorium impact secured creditors directly:

  • The new Act prevents a creditor from enforcing its security over the company’s property and taking steps to repossess goods in the company’s possession under hire purchase agreements, conditional sale agreements, chattel leasing agreements, and retention of title agreements.
  • The Act also allows a company in a moratorium to dispose of assets which are subject to fixed security and hire purchase, conditional sale, chattel leasing, and retention of title arrangements if the court thinks that the disposal “will support the rescue of the company.”

However, these provisions do not apply to aircraft objects (which include airframes and aircraft engines) where the creditor has registered its interest under the International Interests in the Aircraft Equipment (Cape Town Convention) Regulations 2015. All “international interests” are registrable at the International Registry under the Cape Town Convention. These include rights over airframes and aircraft engines granted to lessors under leases, chargees under security documents, and lessors under conditional sale, hire purchase, and retention of title agreements.

Secured aircraft funders and aircraft lessors who have registered their interests in airframes and aircraft engines under the Cape Town Convention are therefore not subject to (1) the restriction on enforcing security over these assets or (2) the risk that the court will dispose of the assets over which they have security under the new Act.

Any interests which have not been registered under the Cape Town Convention will be subject to these provisions in the new Act. If the court permits the company to dispose of assets which have not been registered under the Cape Town Convention, the net proceeds of the disposal would be applied towards discharging the sums payable under the hire purchase, conditional sale, or retention of title arrangements, plus any additional amount which would realised by a sale of the asset “in the open market by a willing vendor.” Such additional amount will be determined by the court.

Supply Contracts

The Act introduces new provisions which will prohibit suppliers from invoking termination clauses and amending certain terms (including on pricing, for example) in supply contracts. These restrictions apply when a company enters into a relevant insolvency procedure (including the new moratorium and administration) and restructuring procedure (which includes the new restructuring plan).

Again, these new provisions will not apply to various financial institutions and financial contracts—this will include aircraft funders or lessors under funding agreements or finance leases. However, these restrictions will apply to all other suppliers to a company which is subject to a relevant insolvency or restructuring procedure. This would include all suppliers (including manufacturers of aircraft-related parts) to an airline which is subject to the relevant insolvency or restructuring procedure, for example.

Affected suppliers will have a right to terminate their supply contracts with leave of the court “if the court is satisfied that the continuation of the contract would cause the supplier hardship.” The Act does not set out a definition of hardship.

Note that any amounts which were payable by the company to suppliers in respect of goods and services which are required to be supplied during the moratorium but for these new provisions are afforded super-priority status if the company is wound up or enters administration within 12 weeks of the end of the moratorium. These amounts are paid out ahead of all of the company’s other creditors other than fixed charge creditors and fees (and if the company is wound up, expenses of the official receiver).

Restructuring Plan

The initial draft of the bill presented to the UK Parliament included creditors with “aircraft-related interests” as a special case. The definition of an aircraft-related interest is set out in the Cape Town Convention and includes interests in airframes and aircraft engines which are granted under security agreements or vested in persons who are lessors under leasing agreements.

This meant that the new restructuring plan and the existing scheme of arrangement would not have been available to compromise creditors with “aircraft-related interests” in the aircraft assets of aviation companies in financial distress (such as aircraft funders and aircraft lessors).

The special case exclusion in respect of creditors with “aircraft-related interests” was removed from the bill during its second and third readings in UK Parliament on 3 June 2020. Creditors with “aircraft-related interests” will therefore be included in, and affected by, schemes of arrangement (as is the current position under the Companies Act 2006) and the new restructuring plan.

Note, however, that the other special case exclusion was not amended during the second and third readings of the bill. This means that creditors in respect of moratorium debts (i.e., debts or liabilities to which the company becomes subject during the new moratorium) and priority pre-moratorium debts (i.e., debts which fell due prior to, or during, the new moratorium and for which the company has no payment holiday) cannot be included in any scheme of arrangement or crammed down in the new restructuring plan. Such creditors would include the priority pre-moratorium debts of aircraft funders and lessors under finance leases but not lessors under operating leases.

Further LawFlashes

This is the first in a series of LawFlashes which consider aspects of the Act which will have specific ramifications for the aviation sector, including the impact of the Act on lessors under finance leases as compared with lessors under operating leases, and the interrelationship between the Act and the Cape Town Convention. Please look out for our further LawFlashes in the series in the next few weeks.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Peter Sharp
James Mead
Dannielle Hamer