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18 November 2020
In 2006 the Security Interest Law (28677) was enacted to regulate the granting of guarantees on movable assets to back up certain obligations. Although this law was not the perfect solution regarding liens on movable property, it granted parties a relatively straightforward mechanism to enter into security agreements under Peruvian law in order to secure creditors the compliance of debtors' obligations. Nevertheless, in 2018 the law was replaced by Legislative Decree 1400, which approved the security interest regime but is not yet in force.
For the aviation industry, an aspect of relevance brought by the Security Interest Law is that it defined aircraft as movable property. This inclusion supposed a significant opportunity to aircraft financing entities (lessors and financiers), insofar as it expressly enabled the constitution of a security interest over aircraft or its engines through a mechanism better suited than the mortgages regime. For a non-Cape Town jurisdiction such as Peru, this tool was particularly relevant and, to a certain extent, reduced the risk of the (sub)lease of aircraft in favour of operators carrying out their activities in the Peruvian domestic market.
The Security Interest Law defined the security interest as a lien created on movable property by virtue of a legal act. The Security Interest Law was foreign friendly, expressly enabling any entity – local or foreign – to act under a security interest agreement as debtor, creditor or beneficiary.
The Security Interest Law also regulated the procedure to register the security interests granted under Peruvian law. According to local law, in order for this lien to be enforceable before third parties, it had to be registered before the Peruvian Public Registry (SUNARP). Once the entitled party filed the form to register the security interest agreement, the registrar had to perform a qualification of the legality and validity of the act under registration. Such assessment by a registrar gave creditors legal security on the guarantees granted on their favour.
On the other hand, Legislative Decree 1400 has introduced some developments which may affect the relevance that security interests have for creditors. Contrary to the Security Interest Law, Legislative Decree 1400 removes the duty to qualify the legality and validity of a security interest. Article 28.1 of Legislative Decree 1400 indicates that "the [Information System of Secured Transactions and Contracts (SIGM)] does not grant property rights, as it is a registry of electronic notices without the pronunciation from the registry". This means that the recordings of a security interest in the system created through Legislative Decree 1400 does not guarantee that the information set out in the system is valid or accurate. In fact, Legislative Decree 1400 releases SUNARP from any liability regarding the information provided to the security interest system, as per the following:
21.2 SUNARP, as the manager of an electronic database, is not responsible for the content of the electronic notices that are entered into the SIGM database.
21.4 The electronic notice is independent from the constitution of the security interest, so it does not validate legal acts or contracts, nor does it qualify its existence, effectiveness or validity. Similarly, the electronic notice does not confer veracity of the published information. (Emphasis added.)
While Legislative Decree 1400 will enter into force once the security interest system comes into operation and this is still pending, it is important to examine the shortcomings of its provisions. For certain, a system which uses recordings that may be based on unreliable information is a setback to this tool.
Credit-related mechanisms must provide certainty, predictability and, above all, security that they are embodied in a reliant system. It is hoped that after Legislative Decree 1400 enters into force, interested parties will find the contractual means to take the best advantage of the security interest on aviation-related assets (eg, aircraft, engines and rentals income) and reduce any contingencies that the new law may introduce.
For further information on this topic please contact Fernando Hurtado de Mendoza at Kennedys Law LLP by telephone (+51 1562 5150) or email (firstname.lastname@example.org). The Kennedys Law LLP website can be accessed at www.kennedyslaw.com.
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