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04 August 2010
The management of the Brazilian Aeronautical Registry (RAB), and in particular its legal department, tends to change frequently. The RAB legal department is usually staffed by lawyers seconded from other government agencies who stay for no more than two to three years. Lawyers arriving at the RAB frequently have no prior experience of aircraft registration and the staffing changes are often accompanied by new policies regarding the requirements for RAB filings.
Earlier in 2010 the RAB promulgated several changes that have caused considerable confusion and altered the way in which parties must organise closings. There have been rumours that some of the new rules may be repealed or amended, so some of the requirements discussed in this update may change. Consequently, it is advisable to check current requirements with local counsel when planning closings in Brazil.
The change that may have the most far-reaching consequences is one that may seem innocuous to non-Brazilians. For many years the RAB has required signatures on all documents submitted to it to be notarised, including the signatures of two witnesses. There are two methods to notarise a document signed in Brazil. The simpler method is notarisation by similarity. Signatories can register their signatures in one or more public notarial registries. A person signs a signature card similar to a bank signature card. Signed documents can be brought to a registry where a signatory's signature has been previously registered and notarised 'by similarity' at any time. Thus, the document need not be signed in the presence of a notary or notarised on the date that it is physically signed.
The second method of notarisation is notarisation by authenticity. This method is similar to notarisation in the United States or the United Kingdom. The signatory signs a document in the presence of a public notary and the notary affirms the identity of the signatory in a notarisation block. The notarisation block attributes a date to the document so that documents notarised by authenticity bear the date on which they are signed.
Until recently, the RAB required notarisation by authenticity for bills of sale. However, other registration documents, such as leases, lease amendments, mortgages, notices, consents and contracts in general, could be notarised by the similarity method. This allowed parties considerable flexibility to sign documents in advance, undated, and then to date them on a closing date. The notarisation could be procured on the morning of the closing date to enable such documents to be filed with the RAB on the same date. This was particularly easy when the signatory had his or her signature registered with notarial offices in Rio de Janeiro, where the RAB is located.
Under the RAB's new policies, all registration documents must be notarised through the authenticity procedure. If this rule remains in effect, it will complicate closings considerably. It will become impossible to sign undated registration documents to be held in advance of a closing. Such documents will have to be signed on the closing date in the presence of a notary. Most non-Brazilian lessors and lenders provide powers of attorney to persons in Brazil to sign on their behalf. Closing procedures in these cases will be easier to adapt, particularly if the signatory can be in Rio de Janeiro on the closing date. Nevertheless, due to the time that notaries take to notarise documents (a few hours) and the RAB's limited filing times (until recently, it closed at 3:30pm local time, but now closes at 3:00pm), there is a strong chance that documents signed on the morning of a closing date may not be ready for filing on the same date. Most registration documents are signed in English, which exacerbates the procedure because such documents must be physically delivered to a public translator for translation after they have been notarised, but before they are eligible for filing at the RAB.
However, as difficult as the new policies may be for attorneys, Brazilian airlines will find meeting the RAB's new notarisation policies even harder. Most airlines require the signatures of two directors, but airline lawyers rarely know which two directors will be available to sign agreements on any given day. Usually, once documents are ready for execution airline lawyers look for directors in the airline's headquarters who are available to sign documents. Scheduling public notaries to witness such signatures by airline directors is impractical, if not near impossible. This problem has not arisen in the past because airlines rarely sign bills of sale. The documents that airlines typically sign (eg, leases, amendments and acknowledgments) did not require notarisation by authenticity in the past.
At present, there is considerable inconsistency in relation to adherence to the new notarisation policy. When asked, RAB representatives usually insist that notarisation by authenticity is required. Some airlines and other operators have ignored the new policy and, to date, the RAB has not rejected documents at the filing stage. Other airlines are adhering to the new policy despite the considerable inconvenience. The inconsistency in adherence to the policy continues to cause considerable confusion, but there is a general expectation that the RAB will clarify its policy within the coming months. In the meantime, some techniques are available to overcome the notarisation issue, such as inclusion of effective time language in documents that previously did not include such provisions.
Another area where the RAB is innovating relates to bills of sale. Traditionally, bills of sale registered with the RAB, similar to bills of sale filed in other countries, recite nominal consideration such as "$10 and other valuable consideration". Recently, however, the RAB general counsel has begun to reject such bills of sale and to require that they include the genuine consideration paid. The RAB is not reviewing or questioning values that are not obviously nominal; however, in some recent cases the RAB has rejected bills of sale with symbolic values. To exacerbate matters, however, the RAB has still accepted some bills of sale that recite nominal consideration. In addition to problems arising from the inconsistent policy, requiring inclusion of real consideration will cause parties to lose the ability to maintain confidentiality of sensitive pricing information. Documents filed with the RAB are public and redacting financial data from documents is not a practice that is followed in Brazil. Therefore, this change in RAB policy may affect the privacy of parties engaged in buying and selling aircraft registered with the RAB.
Another RAB innovation relating to bills of sale is to require the signature of both the seller and the purchaser. Again, this policy has been applied inconsistently.
Another recent tendency at the RAB that does not represent a change in policy, but nonetheless affects closings, is the time that the RAB takes to issue certificates confirming registration of closing documents. Such certificates used to be issued within 30 to 45 days of a filing date. Currently, the RAB tends to take two to four months (and sometimes even longer) to issue such certificates. Without this type of certificate, local counsel cannot render bring-down opinions confirming that closing documents have been definitively registered at the RAB. This tends to draw out the post-closing period for new deliveries or sales of aircraft on the Brazilian register for weeks or months.
With all the uncertainty surrounding new RAB policies, doubts arise and local counsel are frequently asked to check with the RAB in advance of a closing to determine whether a planned closing procedure will work. In the past, RAB lawyers have been available on an informal basis to answer questions. However, according to a new RAB policy announced this month, consultations will have to follow a more formal route. First, questions must be submitted to the RAB by email. The email route for requesting decisions has existed for a few months and the RAB usually answers emails. The problem, however, is timing. Some emails are not answered for weeks, which can make a scheduled closing difficult if there are unorthodox issues. Telephone consultations are now permitted only if an email is not answered and personal meetings are to be scheduled on an infrequent basis and only when absolutely necessary.
The objective of the RAB in promulgating these and other changes is to streamline the filing and registration process. This is a laudable objective and over the long term may be met; however, in the short term, the confusion caused by ever-changing RAB policies has reached new levels. Hopefully, the new policies will result in more consistently applied policies that will help closings to proceed without delays.
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