9.1.1 Would the airline be required to file for insolvency protection?
No, the airline is not obliged to file for insolvency protection. However, if the Airline decides to terminate in a voluntary solvent winding-up procedure (in Hungarian: végelszámolás) and the administrator appointed by the Airline becomes aware of the airline being unable to pay its debts, the administrator will be obliged to file for insolvency protection.
9.1.2 Do the available forms of insolvency protection in the Relevant Jurisdiction involve the appointment of either an officer of the court or a specifically court appointed official to take control of the Airline (an Insolvency Official) while in insolvency protection?
Yes.
9.1.3 Does the Insolvency Official have authority to negotiate and reach agreement with the Owner in relation to matters such as the payment of unpaid rent, continuation or termination of the Lease and repossession of the Aircraft without the need for court approval?
The Insolvency Official has no authority to negotiate and reach agreement with the Owner about the payment of unpaid rent irrespective of whether the Owner is a creditor in the Insolvency Proceedings. Creditors’ claims must be satisfied in accordance with the relevant law which regulates the ranking of recovery of such claims.
As regards the continuation or termination of the Lease, the Insolvency Official can negotiate and reach agreement with the Owner unless such negotiation would cover any payment obligation of the Airline (which is subject to the mandatory insolvency regime).
Since the Aircraft does not form part of the liquidation assets, the Insolvency Official would be obliged to allow repossession of the Aircraft.
Re-negotiation of the Lease is possible only if the management of the Airline (i.e. not the Insolvency Official) initiates to reach a settlement with each creditor in order for the Airline to be able to survive this liquidation.
9.1.4 Does the commencement of insolvency protection involving the appointment of an Insolvency Official in the Relevant Jurisdiction have the effect of prohibiting the Owner from taking the following actions to enforce the lease after commencement of such protection:
- applying any security deposit held by the Owner against any unpaid amounts due under the Lease? Yes. However, (1) in bankruptcy proceedings, enforcement of security deposit would be prohibited by the Owner unless the Owner is a specified financial institution, and (2) in liquidation proceedings, enforcement of security deposit must occur within three months from the commencement of the liquidation proceedings (two months in case of those debtors which are designated by the Hungarian Government as a company with increased strategic importance).
- accepting payment of rent or other lease payments from:
- (i.) the Airline? After commencement of liquidation proceedings rent can only be accepted from or with consent of the Liquidator since any rent paid by the insolvent company is part of the pool of funds available to all creditors from which such rental would be paid by the Liquidator as an expense of the Liquidation.
- (ii.) a guarantor? Assuming the Guarantor is not itself in liquidation proceedings then there is no limitation on accepting payments under the guarantee from the Guarantor.
- (iii.) a shareholder? Assuming the shareholder is not itself in liquidation proceedings then there is no limitation on accepting payments from the shareholder. Such payments may be vulnerable to being set aside if the shareholder is threatened with insolvency at the time of payment and within a defined period is subject to formal liquidation proceedings.
- giving notice of default under the lease? No. However, please note that any payment obligation of the Airline which are not yet due and payable until the commencement date of the liquidation proceedings, will become due simultaneously with the commencement of the liquidation.
- obtaining a judgment or arbitral award for unpaid lease payments? Yes.
- giving notice to terminate the leasing of the Aircraft? No. Also, please note in point (c) above.
- exercising rights to repossess the Aircraft? No.
9.1.5 Can the commencement of Insolvency Proceedings have retrospective effect in relation to any such actions taken before commencement? If so, for what period can there be a look back?
Yes, the liquidator is entitled to terminate any agreement or declaration made by the debtor company prior to the commencement of the liquidation proceedings. Additionally, the liquidator is entitled to challenge certain pre-insolvency transactions. The legal consequence of a successful challenge can be the restoration of the original status. The above are N/A to the bankruptcy proceedings (which are the other Insolvency Proceedings).
9.1.6 Is there, either under law or as a matter of practice in the Relevant Jurisdiction, a period of time within which the Insolvency Official will either “adopt” the lease and pay rent and other lease payments as an expense of the insolvency or “reject” the lease and permit the Owner to enforce such rights as it may have under the lease?
It is subject to the discretion of the Insolvency Official to decide for or against the continuation of the Lease during the liquidation proceedings. Decision is to be made in the interest of the creditors of the Airline. In case of the other Insolvency Proceedings (bankruptcy), the operation of the Airline should neither be terminated nor suspended (the management will not change).
If continuation of operation is decided for, lease payment during the liquidation will be deemed to be a liquidation cost to be paid when they will become due.
9.1.7 If the lease is “adopted” will the Insolvency Official also pay any unpaid lease payments due as at commencement of the insolvency protection?
No. The Insolvency Official is required to register the unpaid (pre-insolvency) lease payments as a creditor’s claim.
9.1.8 If not or if the lease is “rejected”, would the Owner’s claim for any outstanding sums rank equally with other ordinary unsecured creditors of the Airline?
Yes.
9.1.9 Are there certain types of preferred creditors whose claims will rank above claims of the Owner?
Yes. Those creditors who have claims secured with pledge are entitled to seek recovery first from the purchase price which is to be collected by the liquidator from the sale of the pledged assets. Such secured claims are followed in the order of priority of creditors’ claims by liquidation costs which include both pre- and post-commencement employee salary payments and other employee arrears, those pre-commencement social security payments (including pension claims) and related taxes, annuity and similar costs, claims of private individuals (e.g. damages), excluding those in respect of unsecured bonds and other social security payments (including pre-commencement pension claims and other social security payments).
9.1.10 If the Aircraft is in the possession of a person other than the Airline at the commencement of Insolvency Protection of the Airline, for example an independent maintenance facility, will such person be entitled, under the laws of the Relevant Jurisdiction, to assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline?
Yes. This person would have the right to keep the Aircraft in its possession until the Airline pays its due and payable debts to such a person.
9.1.11 Is a person other than the Airline, for example an airport authority, entitled under the laws of the Relevant Jurisdiction to seize possession of the Aircraft after commencement of Insolvency Protection and assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline.
No.
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