This Legal Update provides an outline of the Thai rehabilitation process, by reference to the Thai Airways proceedings currently underway in Bangkok's Central Bankruptcy Court.

Toward the end of this Legal Update, we also touch on how airlines could use US Chapter 11 proceedings, a process understood to have been mooted by Thai Airways.


As the world cautiously emerges from its COVID-19 hibernation, few industries have fallen as far and as fast as tourism. The travel revolution that made the world a smaller place—a revolution that fuelled one billion trips a year— is partly blamed for spreading a highly contagious virus.

The airline industry is characterised by high fixed costs, cyclical demand for its services, intense competition and vulnerability to external shocks. As a result of travel restrictions that have nearly eliminated international travel, the International Air Transport Association (IATA) estimates1 that global air transport revenue could total US$419 billion in 2020, a 50% reduction on 2019 figures. Only airlines focused on a few domestic markets – China, Europe and the United States – have seen traffic levels grow from the nadir in April.

Any green shoots of recovery have come too late for Thai Airways International, Thailand's national flag carrier: on 27 May 2020, the Central Bankruptcy Court accepted a rehabilitation petition. With an estimated 2 million creditors (which includes its air miles holders), Thai Airways' proposed rehabilitation has brought the provisions of Thailand's Bankruptcy Act 1940 (as amended) back into focus.

Rehabilitation proceedings can be initiated in Thailand by a debtor, as in the case of Thai Airways, provided that:

  • The debtor is insolvent or is unable to pay its debts when they fall due.
  • The debtor owes an aggregate amount of not less than THB 10 million to its creditors, regardless of the term of the debt.
  • There must be reasonable grounds and prospects to rehabilitate the business of the debtor to allow it to continue as a going concern at the conclusion of the proceedings.

The main benefit of Thai rehabilitation proceedings is that, upon acceptance of the petition by the Court, an official receiver will be appointed to supervise the process, and an automatic stay comes into effect in Thailand. Once an automatic stay is in place:

  • Any civil action in any court or any submission to arbitration or any bankruptcy action against the debtor will be suspended;
  • The debtor's right to pay and incur debts is restricted; and
  • A moratorium affecting creditors' rights comes into force from the date on which the court accepts the business rehabilitation petition.

As a substantial portion of Thai Airways' debt is in the form of finance leases for its aircraft, the automatic stay will prohibit lessors from repossessing any aircraft, at least those located in Thailand.

Given that Thailand is not party to any international treaties as regards restructuring and insolvency , such as the UNCITRAL Model Law on Cross-Border Insolvency 1997 (UNCITRAL Model Insolvency Law), Thai Airways will need to seek protection in the courts in other jurisdictions to protect any assets located there. We understand Thai Airways has already sought to obtain this protection in Switzerland, Germany, Japan and Australia and is considering applying for asset protection in the United States under its Chapter 15 provisions which recognise foreign insolvency proceedings.

Creditors' Claims

On acceptance of the petition by the Court, a moratorium against creditor claims comes into force. At the first hearing the Court will either issue a rehabilitation order or dismiss the petition.

If the Court makes a rehabilitation order in respect of the debtor, creditors are required to file a proof of debt with the official receiver within one month of the date on which the order appointing a planner is published in the Royal Gazette. Failure to file a claim within the onemonth period will result in the creditor losing its debt claim against the debtor.

What's the Plan?

Once the rehabilitation order is made, the Court will appoint a Planner to formulate and prepare a business rehabilitation plan (the Plan) which serves as a 'roadmap' to rehabilitate the business of the company to normal trading. The planner is generally nominated by the debtor. However a creditor has the right to object to a debtor's nomination of Planner at the first Creditors' Meeting, as can the Court, should it be of the opinion that the nominee is not suitable and, if so, the Court will order the official receiver to call a creditors' meeting as soon as possible to consider and approve a suitable replacement.

  • If the Planner is elected at the first creditors' meeting and the court approves that election, the court will appoint the elected person to be Planner.
  • If the court disapproves of the appointment, it will order the receiver to call a second creditors' meeting to elect a Planner nominated by the creditors or the debtor.
  • If the first creditors' meeting is unable to elect the Planner, the receiver must call another meeting to elect the plan preparer, unless the court exercises its discretion to cancel the business rehabilitation order.
  • If the second creditors' meeting successfully elects the Planner, the court will appoint that person as the Planner. However, if there are reasonable grounds not to appoint the person elected by the meeting to be the Planner, or the meeting is unable to elect the Planner, the court can repeal its order for the business rehabilitation. The Planner (where appointed) will then draft the Plan. Once the Plan is completed, a special resolution of the creditors' meeting must approve it, with the meeting made up of each class of creditor or at least one group of creditors where the total debt of creditors is not less than 50% of the total indebtedness.

The Plan must classify the creditors as follows:

  • Each secured creditor with a secured debt of 15% or more of the total indebtedness will be grouped as a class;
  • Secured creditors not classified under the first point above will be grouped as a class;
  • Unsecured creditors can be classified into several groups (however, unsecured creditors whose claims or interest are identical or similar in material aspects can be the same class);
  • Creditors who by law or by contract have the right to receive repayment, only after the other creditors have received repayment in full, will comprise one class.

If the creditors have passed a resolution accepting the plan, the Court will consider the Plan and will issue an order approving it provided that:

  • The Plan contains all required items;
  • The rights of the creditors within the same group are treated equally, and the proposals for repayment of debt under the plan are in accordance with the sequence stipulated by the law regarding the distribution of assets in a bankruptcy case (except where those creditors have given their consent for another arrangement);
  • When the Plan has been implemented successfully, creditors will receive debt repayments in amounts that are not less than would be the position were the Court to adjudge the debtor as bankrupt.

After the Court has approved the Plan, if it becomes necessary to revise the plan to accomplish the business rehabilitation, the Plan can be revised or improved with the approval of a creditors' meeting and the Court.

Before the court issues the order for business rehabilitation, the debtor is allowed to manage its own business, provided that it does not dispose of, distribute, transfer, let, pay debt, create debt or do any act which creates encumbrance over its assets, except where such act is essential to the normal operations of the debtor. In the case of Thai Airways, critical creditors might include maintenance debts, ticket processing and fuel purchases.

These processes can be extremely protracted, with each stakeholder in the process attempting to assert its rights. Delays can be exacerbated from a creditor's point of view by the fact that much of the power at creditors' meetings will always be subject to the discretion of the Court, regardless of the rights and interests of the various classes of creditor. The debtor's shareholders, which in Thai Airways' case includes the Ministry of Finance, will also participate and will add an extra frisson to negotiation at any creditors' meeting.

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