ผู้เขียน | Wirot Poonsuwan |
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Thai Airways-Business Rehabilitation-Banks’ Financing Security Stands on Shaky Ground
The lessor’s assignment of aircraft rent to the bank in order to secure the aircraft financing loan that it used to source an airplane before leasing it to Thai Airways International Plc does not confer the status of a secured creditor on the bank, unless the assignment is registered with the Department of Business
Development (DBD) under the Business Security Act of 2015.
Even if registered, the enforcement of the security could be barred by an automatic stay enjoyed by the national airline since the Central Bankruptcy Court ordered the acceptance of its business rehabilitation petition last year.
Global Banks Cannot Register as a Secured Creditor:
Global banks with no branches in Thailand are not protected by the Business Security Act and do not qualify to register as a secured creditor, unless they form a syndicate with Thai banks or foreign bank branches operating in the country and jointly lend to the aircraft lessor.
Technically, overseas banks fall outside the definition of “financial institutions” under the Financial Institution Business Act of 2008. The Business Security Act only allows financial institutions as defined by the Financial Institution Business Act to register as a “recipient of security” or secured creditor.
There is an exception, however, under a ministerial regulation issued by the Ministry of Finance under the Security Business Act—which is under the joint administration by the Ministry of Commerce (through the DBD) and Ministry of Finance.
A finance ministry regulation permits only one scenario of a company incorporated under the laws of a foreign country to register as a secured creditor: a foreign bank with no branches in the nation that jointly lends with a syndicate of Thai banks or foreign bank branches licensed to do business here.
No other foreign entities, banks or non-banks, qualify—not even overseas banks with a representative office in Bangkok.
Most Banks Forfeit Registration and Put Themselves at Risk:
In the real world, only one or two Thai banks have registered an assignment of aircraft rent payable by Thai Airways as security with the DBD.
International banks prefer to lend alone or jointly with their overseas counterparts with no presence on the ground and forfeit the opportunity to be recorded as a secured creditor under Thai law.
In bankruptcy or business rehabilitation, only secured creditors have a priority right to get paid from their security over other creditors.
It was perhaps beyond their imagination that there would be a day when a solid company such as Thai Airways would be presumed by the court to be insolvent, the basis for business rehabilitation.
The rent payable by Thai Airways under the assignment will not belong to the aircraft financing banks but will be shared among all the creditors.
Secured Creditor Not Out of the Woods:
Thai banks that have registered their rent assignments as business security and thereby are bestowed the status of a preferred secured creditor under the Bankruptcy Act of 1940 are not safe either.
Nothing can be pointed to the fault of the secured creditor but rather the contradictory provisions between the Business Security Act and the Bankruptcy Act.
According to the Business Security Act, the bank as the secured creditor can enforce the assignment as the security by sending a notice of assignment to the debtor of the assignment, in this case Thai Airways, to have the registered security binding on the airline.
The notice of the assignment would instruct Thai Airways to pay rent to the bank instead of the aircraft lessor. And, pursuant to the Business Security Act, the secured bank was purported to be entitled to its priority right in the rent paid to them without having to care about the competition from other creditors.
The notice would have been sent when Thai Airways filed for business rehabilitation, an event of default under the aircraft financing agreement.
Automatic Stay Complicates Right of Secured Creditor:
Not so fast. This is where the headache kicks in.
Upon the Central Bankruptcy Court accepting the business rehabilitation petition of Thai Airways, the company started to receive the U.S. Chapter 11 style bankruptcy protection in the name of an automatic stay.
The creditor freeze would stop any creditor from enforcing its security and prohibit Thai Airways from making payment for its debt pending the preparation of a restructuring plan, except for the debt essential to the continuation of its operation in the ordinary course of business.
A problem arises whether or not a payment of rent in default to the bank under the aircraft financing agreement, not to the lessor under the aircraft leasing contract, is essential to Thai Airways’s business operation in normalcy.
The automatic stay also raises a tricky question of whether or not the secured aircraft financing bank is eligible to send a notice of assignment to Thai Airways at all, as sending the notice would constitute the security enforcement under the Business Security Act, restricted by the Bankruptcy Act.
Another heart-wrenching question follows. Would the notice of assignment, once dispatched, be binding on Thai Airways the way the Business Security Act stipulates?
Thai Airways Wins:
It does not matter whether the answer to any of the above questions is yes or no.
Thai Airways seems able to ensconce itself in a comfortable position of not having to pay the rent to the secured aircraft financing bank until the court orders otherwise or until the business rehabilitation plan sorts the mess out.
Make no mistake, the right of the bank as the secured creditor would be rejudiced until then.
The ambiguities will likely play out soon when creditors start to challenge each other’s claims after they have been filed.
Wirot Poonsuwan is Senior Counsel and Head of Special Projects at the Bangkok law firm of Blumenthal Richter & Sumet and can be contacted at [email protected].