There are three main reasons creditors can cite for protesting against the planners nominated by Thai Airways International Plc. In Part I, we examined the first two reasons: a lack of trust and conflict of interest.
This Part II continues to discuss the issue of conflict of interest in case there is a creditor’s allegation of fraudulent preferences which require that both the debtor and the favored creditor knew of Thai Airways’ insolvency at the time the alleged contract was made.
An aircraft-financing deal entered within a short period of one year prior to the rehabilitation filing was offered as an illustration.
The third reason for objection to the planners wraps up this episode: there is no reputable international independent aviation expert on the debtor’s team.
Planner’s Role Clashing with Director’s Duty
On the conflict of interest issue. The dual role of directors of Thai Airways who serve as planners raises an array of unanswered legal questions and could expose the directors-planners to personal liability.
If the planners refuse to act against the company as alleged by a creditor and shove the duty to the official receiver instead, would the planners be in breach of their rehabilitation duty?
The question could come to a head in an event a creditor accuses the debtor of engaging in fraudulent preferences in favor of another creditor or fraudulent transfers of assets away from the limited pool.
On the other hand, if the planners abide by their regulatory rehabilitation obligation by petitioning the bankruptcy court against the company as requested by the injured creditor, would the planners then be held personally liable by shareholders of Thai Airways, claiming that the planners as directors of the company are acting against the interest of the company in breach of the fiduciary function of directors?
Complicating the directors-turned planners’ situation even further: a shareholder who wishes to take the controversial directors to task cannot go straight to court under the law. In rehabilitation, the complaining shareholder’s right has to be exercised by the planners. Can the planners prosecute themselves in the conflicting role as directors in breach of duty? If not, does the official receiver have the power to prosecute the directors on behalf of the shareholder?
You Did it Knowingly!
Back on the fraudulent preference potential.
The rehabilitation law presumes that within one year—on or after May 26, 2019—prior to the debtor filing its application for business rehabilitation with the Central Bankruptcy Court on May 26, 2020, the debtor and the “enriched” creditor knew of the debtor’s insolvency at the point of making the contract.
This joint knowledge gives rise to any injured creditor’s right to ask the court for the cancellation of the allegedly fraudulent contract and the subsequent undue payment.
The law dictates the injured creditor to make the cancellation request through the planners who have the duty to investigate and then petition the court for the revocation of the fraudulent preference.
For the purpose of discrediting the debtor’s planners in a creditors’ meeting, creditors in general can argue that in this hypothetical case the planners have a conflict of interest to conduct an investigation and file a petition with the court against their own organization.
Thai Airways’ response would be: there is no reason to believe the planners will not honor the creditor’s request if there is sufficient evidence to pursue the claim.
And the law also offers a choice to creditors to file a fraudulent-preference revocation petition with the court through the official receiver, rather than through the planners.
No Independent International Aviation Expert
The third reason for the objection is that there appears to be no well-known international independent aviation expert on the team.
Thai Airways’ readily available response would be two of the board members have had experience managing international business of the company at the top, one with a successful record. They are not independent but their expertise will certainly be helpful for the implementation of the plan.
He-Said-She-Said to be Decided by Two-Thirds Majority of Creditors
No matter what your reasons as a creditor are for protesting against the planners proposed by Thai Airways, and irrespective of the company’s reaction to those reasons, a creditors’ meeting will be the forum to decide which team of planners they will select: the creditors’ team or the debtor’s team.
You need a vote of two-thirds or 66.67% of the total debt to name your own team. Failing that, the debtor’s planners win outright.
Roughly, the seven foreign aircraft-financing firms hold 50% of the debt. You need an alliance of another 16.67%, presumably from fellow foreign creditors.
The easy way out is to put your preferred planners on the table during the ongoing negotiations with Thai Airways; the company is reaching out and trying to persuade you not to impound its overseas airplanes.
Prove Your Debt Before Attending Creditors’ Meeting
Just in case a showdown in a creditors’ meeting is necessary, the selection of planners is a very preliminary step in the process and you as a creditor cannot file an application to receive debt payment yet, as that application must be filed after the appointment of planners—one month after the appointment of planners is announced in the Royal Gazette—to be exact.
In order to attend the creditors’ meeting to vote for your choice of planners, you need to fill in an official request form to attend the meeting as provided by the official receiver and provide preliminary proof of your status as a creditor.
The proof won’t be as intense as the subsequent probe for debt payment application, but must be enough to satisfy the official receiver, with evidence provided, such as the debtor’s list of creditors filed with the court bearing your name, a copy and the original of an underlying contract, a statement of a witness present at the signing of the contract, etc.
It’s worth pointing out that, contrary to the understanding of many who tend to believe that financial instruments are good debt substantiation, the high court years ago held that a promissory note alone, with no other accompanying documents, no security and no testimony of witnesses, is not evidence of a loan debt.
Wirot Poonsuwan is Senior Counsel and Head of Special Projects at Bangkok law firm Blumenthal Richter & Sumet and can be contacted at firstname.lastname@example.org.