FEDERAL INSIGHT By Andy Fishburn Extending the Cape Town Convention HE CAPE TOWN CONVENTION ON INTERNATIONAL INTERESTS IN MOBILE EQUIPMENT is a treaty designed to provide an international system for the creation, registration and enforcement of security interests in, and leases of, mobile equip-ment. The Convention was negotiated under the auspices of UNIDROIT (the International Institute for the Unification of Private Law), an intergovernmental organization with 63 member states (including the United States). UNIDROIT is now examining the extension of the Convention to agricultural, construction and mining equipment. ELFA has been engaged in this process, and many ELFA member companies have expressed interest in this process moving forward because they believe it holds the potential to expand the market for these types of equipment. T New Protocol Would Include Agricultural, Construction and Mining Equipment It has historically been difficult for a creditor to have confidence that its security interest or lease will be enforceable— promptly and reliably—in whatever jurisdiction the debtor happens to have the asset when the debtor becomes insolvent. Background on the Cape Town Convention Because certain ty pes of equipment cross internation-al borders frequently, it has historically been difficult for a creditor to have confidence that its security interest or lease will be enforceable— promptly and reliably—in whatever jurisdiction the debtor happens to have the asset when the debtor becomes insol-vent. The Cape Town regime was de-signed to address this problem, there-by reducing the costs of financing and increasing the market for these types of equipment. The Convention itself provides gen-eral provisions on asset-based finance (similar to the approach taken in the United States by Uniform Commer-cial Code Article 9). Each category of equipment to be covered then needs a separate protocol to the treaty to re-flect the specific characteristics of that sector. The first three protocols have covered aircraft, railway equipment and space assets. To date, 59 countries have ratified or acceded to the Conven-tion and 53 countries have ratified or acceded to the Aircraft Protocol, which entered into force in 2006. (The rail and space protocols have not been, and may never be, ratified by enough countries to be in force.) The United States is a party to both the Convention and the Aircraft Protocol. Extension of the Convention to Agricultural, Construction and Mining Equipment In 2013, UNIDROIT decided to move forward with prepara-tory work on a fourth protocol that would extend the Conven-tion to agricultural, construc-tion and mining equipment. For such a protocol to be suc-cessful, it needs to address the needs of those in the private sector who manu-facture, sell, finance, purchase and lease the equipment. To reach these goals and ensure that a strong, widely-supported proto-col is developed, private sector input is necessary. ELFA has been engaging in this project through the U.S. Depart-ment of State and the U.S. Department of Commerce. If you are interested in learning more about this project, or getting involved in these efforts, please contact the ELFA Federal Government Relations Staff. For further background informa-tion on the Convention, please visit www.unidroit.org/english/conventions/ mobile-equipment/main.htm . ■ For more information, please contact Andy Fishburn , ELFA Vice President of Federal Government Relations, at afishburn@ elfaonline.org. Functions of the Cape Town Convention The treaty framework accomplishes three main functions. First, it creates a new type of international creditor’s interest that will be recognized in all countries that are parties to the Convention. Second, the treaty establishes a cen-tralized international registry for the security interests and leases, which enables a creditor to preserve its pri-ority against later interests. Third, the treaty provides a creditor with basic remedies when the debtor defaults. Additionally, a ratifying state can also make declarations that adjust how certain provisions apply in that state, which allows tailoring to the economic and legal needs of each country. For example, the United States Export-Import Bank has offered a reduction of its guarantee fees for purchasers of air-craft in countries that ratify the treaty and select appropriate declarations. 52 JANUARY/FEBRUARY 2015 EQUIPMENT LEASING & FINANCE MAGAZINE SHUTTERSTOCK