A Fool and His Money Are Soon Parted

November 16, 2021 Edward Dever

As the Australian Government's Scams Awareness Week closes, it is worth highlighting perhaps one of the oddest scams of recent times.

In Texas last month, the self-proclaimed ‘Money Doctor’, the 80 year-old William Gallagher was sentenced to three life prison terms in Tarrant County for defrauding investors. This is in addition to a 25 year term for similar offences in Dallas County.

The Money Doctor bought time on a Christian radio station where he gave financial advice with a Christian theme, signing off his broadcasts with ‘see you in Church on Sunday’.

One of the most bizarre investments he promoted through his Ponzi scheme was a plan to use a satellite via a company called Hoverlink to shine holographic advertising down to Earth. Over time, Hoverlink morphed from a hoverboard rink to a cancer-curing pharmaceutical to law enforcement body armour before going galactic with its satellite plans.

It was all a scam. Yet people piled into the schemes, all neatly packaged in religious wrapping.

It reminds me of the time I gently nudged ASIC to force a Qld company to issue a supplementary prospectus to protect investors' interests.

A former sportsman who moved into property development was looking to swap his high levels of bank debt for income securities, issued mainly to retirees.

Investor presentations were organised in regional areas, including in church halls, offering returns around 12% p.a.

In my view, this was an attempt to replace sophisticated Big 4-type lenders with unsophisticated investors. A couple of phone calls to real estate agents quickly uncovered that the sales data in the prospectus was somewhat misleading.

The ex-sportsman was on a generous salary and car package and the company had licensed the use of his name at significant annual cost. Given how the company had performed to that time, it was arguable that killing off all these costs and installing a new CEO may have been a better option.

In the end, ASIC forced the issue of a supplementary prospectus and, given the delay, only a paltry sum was raised.

Unfortunately, the company collapsed a number of years later leaving over 150 small creditors out of pocket to the tune of $17 million. It seems the fund raising hadn't ended with the supplementary prospectus. His company was apparently subsequently offering returns as high as 20% p.a. paid monthly to lure investors.

In the end, slow property sales, poor land purchase decisions and mountains of lender debt (some at 30% p.a.) and investor debt brought the company down. Ex-sports personalities don't necessarily make good business people. Cold comfort to those who lost money.

A Christian talk show host promised to enrich clients. His Ponzi scheme bilked them out of millions.

November 2021

The content of this publication is intended to provide a general overview on matters which may be of interest. It is not intended to be comprehensive. It does not constitute advice in relation to particular circumstances nor does it constitute the provision of legal services, legal advice or financial product advice.

Thai-based Airlines Battle Covid Restrictions

August 15, 2021 Edward Dever

Flying under the radar is the recent creditor approval of the rehabilitation plan for Nok Air. The plan goes before the Central Bankruptcy Court on 26 August 2021 for approval.

The prospects for airlines such as Nok Air and Thai Airways seem grim at present given the surge in Covid-19 cases throughout Thailand.

In July, the Civil Aviation Authority banned all flights to and from provinces declared Covid-19 hotspots (dark red zones) forcing all airlines to halt domestic operations. Nok Air shifted its temporary base to U-tapao airport near Rayong in an effort to keep some flights operational and continue to service Phuket which has reopened to vaccinated foreign tourists under a Sandbox model, as well as limited other flights.

The Government was forced to make exceptions to the grounding of flights to support the viability of the Sandbox programs like Phuket and Koh Samui.

Reported Covid-19 cases in Thailand currently exceed 20,000 per day (out of an estimated population of 70 million). The actual case numbers are likely to be significantly higher. The Government's admission that cases are likely to double in the next month indicates a failure of current restrictions to contain the spread of the Delta variant. The Government's approach to dealing with the Delta variant has been 'too little too late' although the rollout of vaccinations continues.

After much success battling Covid-19 in 2020, several policy failures have helped the spread of Covid-19 throughout Thailand, including the failure to cancel the Songkran New Year holidays in April and shifting Covid-19 positive cases back to their home provinces to alleviate the strain on Bangkok's medical resources.

The failure to enforce a proper lockdown is linked to business pressures and an inability to offer anything more than meagre Government financial support to individuals affected by a lockdown. Lockdowns also make social distancing more difficult for multi-generational households.

With a significant portion of the country's annual GDP linked to foreign tourism, the battle ahead for Thai-based airlines and other tourism related business is a mammoth one. The Government's plans to completely open up the country to vaccinated foreign tourists by mid-October (the 120 day plan) seem in tatters with the airlines remaining on life support.

Nok Airlines PCL - Creditors’ Meeting Resolution

CAAT allows special Sandbox charter flights to Bangkok

Country to reopen 'in 120 days'

August 2021

Thai Airways - Negative Equity Until 2030

March 29, 2021 Edward Dever

Thai Airways is in the midst of its rehabilitation plan with a creditors' vote on the plan scheduled for 12 May 2021.

THAI's balance sheet insolvency has forced it to make a further disclosure to the Stock Exchange of Thailand as it faces delisting.

In their SET notice on 26 March 2021, THAI indicates that it will remain balance sheet insolvent until 2030. Given that THAI has a three year period to remedy its negative equity position, it admits that the Company may be delisted in due course from the SET.

THAI also gives further insight into its rehabilitation plan, disclosing that it expects a capital increase and creditors will have the option of a debt to equity swap.

It is not clear whether the Thai Government will participate in any capital increase or debt to equity conversion in order to maintain its shareholding in THAI,

Also unclear is whether creditors will accept equity in what may become a non-listed entity.

Meanwhile THAI is disputing around half of its liabilities by claiming that these amounts relate to future expenses and were incurred after the airline entered rehabilitation proceedings.

THAI is disputing around 192 billion baht (USD 6.3 billion) claimed by 48 lessors including BOC Aviation Ltd and SMBC Aviation Capital Ltd, and another 33 billion baht (USD 1.1 billion) that Rolls-Royce says it is owed for maintenance services.

The Thai Bankruptcy Act provides for disputed claims to be resolved by the Official Receiver with a right of appeal to the Bankruptcy Court for any aggrieved party.

THAI - SET Notice - 26 March 2021

Thai Airways disputes $7.4bn of aircraft lessor claims

March 2021

Is The Thai Airways Rehabilitation Plan A Missed Opportunity?

March 3, 2021 Edward Dever

Media reports indicate that THAI's plan submitted on 2 March 2021 to the Bankruptcy Court in Bangkok does not deal with its massive debt burden. The plan apparently contemplates increasing THAI's debts.

THAI has around THB 410 billion (USD 13.5b) in debt.

It needs to raise around THB 50 billion (USD 1.65b) over the next two years.

This may be achieved through “borrowing, investment or debt to equity conversion” according to THAI. (Any debt/equity conversion would not raise new funds.)

The plan does not require haircuts or debt reductions, apparently out of fear that creditors may not approve the plan. Instead, THAI has asked for a three-year debt moratorium after which the debt will be repaid.

THAI's plan is to create a three year debt time out during which it will attempt to turn around the airline. It plans to achieve this via four steps including making it the airline of choice, expanding services, upgrading digital capabilities and improving operational and cost efficiencies.

The lack of balance sheet reform under the plan will remain an IED with a three year fuse. Worse, it looks like a missed opportunity.

There are two main reasons for using court-sanctioned rehabilitation proceedings in Thailand:

1. To protect a company from creditors while it restructures.

2. To implement balance sheet reform using the Bankruptcy Act's plan voting procedures to cram down creditors.

No doubt there are political issues at work but not using the Act's provisions to implement balance sheet reform does seem like a missed opportunity.

THAI's financial woes preceded Covid-19 and it seems unlikely that THAI will have such a change in its fortunes that, in three years, its debt burden becomes sustainable.

THAI has long been burdened by its vast array of aircraft and engine types so plans to reduce its types of aircraft from twelve to five and types of aircraft engines from nine to four are a step in the right direction.

THAI's creditors will meet on 12 May 2021 to vote on the plan.

Thai Airways seeks to raise B50bn

THAI - SET Notice Re Plan

March 2021

When Reverse Ghost Employees Emerge On A Restructuring

February 25, 2021 Edward Dever

Reports have emerged that Thai Airways has allegedly suffered fraud by employees claiming funeral benefit payouts for themselves while continuing to work for the company.

Since 2013, this alleged fraud is estimated to have cost THAI around USD 500,000.

A number of years ago, I was involved in a restructuring which was almost derailed at the 11th hour when it became apparent that a relative of senior management was still drawing a salary from the company five years after their death.

It is very odd that THAI's Human Resources Department does not cross check its payroll against employees who have "died" with resulting payouts by the Savings Cooperative for Employees of Thai Airways.

It is worth remembering that, apparently, THAI could not even provide a single comprehensive list of its frequent flyer program members as it entered formal rehabilitation proceedings.

Thai Airways employees accused of faking death to claim funeral payout

February 2021

Thai Airways - Final Deadline For Rehabilitation Plan

January 29, 2021 Edward Dever

Thai Airways has secured a second and final extension for submission of its rehabilitation plan to the Central Bankruptcy Court. The new deadline is 2 March 2021. (THAI - final deadline)

Work on the rehabilitation plan has not prevented THAI selling some non-core assets. THAI has announced that it has completed the sale of a 15.5% stake in Bangkok Aviation Fuel Services (BAFS) to Ratch Group for Bt 2.7 billion (US$90 million). THAI retains at 7.06% stake in BAFS.

The Central Bankruptcy Court approved the sale on 3 December 2020 with completion on 19 January 2021. BAFS is no longer an affiliate of THAI. (THAI sells BAFS)

Ratch Group is 45% owned by EGAT, the Thai government electricity generating authority, so the sale is somewhat of a shuffle amongst government related entities.

The treatment of creditors under the draft rehabilitation plan remains unclear.

January 2021

Why Smaller Companies Choose Formal Rehabilitation Proceedings

November 16, 2020 Edward Dever

The rehabilitation proceedings under Ch. 3/1 of the Thai Bankruptcy Act have generally been utilised by larger companies. Think TPI, NTS Steel and, more recently, Pace Development and Thai Airways.

Given costs and time frames involved, why would a smaller company choose this restructuring route?

First, an automatic stay applies.

Under S. 90/12, all existing court proceedings are stayed and no new proceedings may be commenced. Property essential to business operations cannot be recovered. This may be critical to survival of the business. For smaller companies, this means essential leased equipment or factories cannot be seized.

Second, formal proceedings offer a new investor a clean slate.

Under Ch. 3/1, all creditors must file claims for repayment which are dealt with under the plan. Any investor then has a clear understanding of the business's liabilities. This may favour a company acquisition rather than an asset acquisition where 7% VAT would apply.

Third, debt to equity conversions are permitted.

As a general rule, the Thai Civil and Commercial Code (for limited companies) and the Thai Public Limited Companies Act (for public limited companies) prohibit debt to equity conversions. The exceptions under S. 90/42 of the Bankruptcy Act allow for an easier clean up of the balance sheet, subject to sufficient creditor approval when voting on the plan.

Where existing management does most of the work, including acting as the planner, it may be possible to keep the rehabilitation costs as low as possible. Limited numbers of creditors and general consensus between debtor and creditors would also limited rehabilitation costs.

November 2020

Nok Air Enters Rehabilitation Proceedings

November 5, 2020 Edward Dever

Airlines are flavour of the month at Thailand's Central Bankruptcy Court.

The Court has now approved the rehabilitation petition of Nok Airlines PCL, the budget airline part owned by THAI. This follows THAI's entry into rehabilitation proceedings earlier this year.

On 4 November 2020, the Court approved the appointment of Grant Thornton Specialist Advisory Services, Nok Air CEO Wutthiphum Jurangkool and three other board members to prepare the rehabilitation plan.

Creditors may file claims for repayment of their debts within one month of the Planner's appointment being published in the Government Gazette.

Nok Air gets green light to restructure debt

November 2020

Thai Airways Rehabilitation Proceedings Recognised In Australia

August 31, 2020 Edward Dever

The recent Australian Federal Court judgment recognising the rehabilitation proceedings in Thailand of Thai Airways reveals several interesting facts regarding THAI.

- THAI's Royal Orchid Plus frequent flyer member details (1.398 million members) are not maintained in a single searchable data base. (Over 87,000 members are based in Australia.) This is extraordinary and likely due to a lack of foresight in upgrading the membership systems as membership grew. It highlights the difficulty of dealing with this group as part of the restructuring.

- In addition to Australia, THAI has sought and obtained orders for the recognition of the Thailand rehabilitation proceedings in Germany, Switzerland and Singapore. THAI has also sought recognition in Japan.

- Trading losses for the financial year to 31 December 2019 were the THB equivalent of AUD 567.7 million. Note this was before the onset of Covid-19 and the shutdown of flights.

- THAI's assets in Australia comprise primarily leased assets and cash.

Didyasarin v Thai Airways International Public Company Limited [2020] FCA 1154

August 2020

Nok Air Follows THAI Into Formal Rehabilitation Proceedings

July 31, 2020 Edward Dever

Thai-based airline, Nok Air, has announced it will follow Thai Airways International into formal rehabilitation proceedings.

Nok Air is part owned by THAI (around 13%) and has been unable to fly its 18 international routes due to Covid19 and its domestic routes in 23 provinces are running at around 30% of its normal schedule.

Nok Air claims that only 200 customers are still awaiting refunds.

"Nok Air insisted on Thursday its business would be able to return to solvency despite the airline following Thai Airways' lead and filing a business rehabilitation request with the Central Bankruptcy court."

Nok Air will be just fine, insists CEO

July 2020