Sale and leaseback structures and pledges of an aircraft are primary tools in Thailand for lenders to secure aircraft financing. However, these prevalent approaches come with certain limitations. Sale and leaseback structures usually require lots of documentation, while the use of pledges requires delivery of the pledged property to the pledgee and the pledged property must always remain in the possession of the pledgee or a third-party custodian as agreed to by the parties, because the pledge will be legally discharged if the pledged property is returned into the possession of the pledgor.
Since 2015, there has been another alternative for securing aircraft financing in Thailand. This came with the introduction of the Business Security Act B.E. 2558 (“BSA”). The BSA allows creation of a security interest over movable property (including aircraft) as collateral to secure debt repayment or other obligations without having to deliver the property to the secured party. Therefore, it is now possible for a security interest to be created over an aircraft on a non-possessory basis.
To realize this type of security interest, the BSA requires that a business security agreement be made in writing and registered with the Business Security Registration Office. Unless the parties agree otherwise, the security providers still retain the right to transfer or dispose of the secured property. However, the BSA prohibits the security providers from transferring or selling the secured property when there is a cause for enforcement of the secured property and the security receivers have notified the security providers about this cause in writing.
According to the BSA, entities that are eligible to be a security holder and take business security as a secured creditor include financial institutions and other persons prescribed in ministerial regulations issued by the Ministry of Commerce or the Ministry of Finance.
However, at present, “business security” under the BSA also has its own limitations, as “financial institutions” under the BSA only include the financial institutions within the meaning of the Financial Institution Business Act B.E. 2551 (2008), as amended, which are banks, finance companies, and insurance companies licensed to operate in Thailand. This effectively means that non-financial institutions (either onshore or offshore) and offshore banks without a banking license in Thailand are currently not permitted to hold business security under the BSA in their favor. Currently, the only exception in which a foreign entity would be allowed by a ministerial regulation to take business security is if the foreign entity is a bank granting a loan in syndication with one or more Thai financial institutions.
This article was first published in the October 2023 Thailand edition of The Legal Industry Reviews, an international platform that publishes news and applied law updates from industry-leading law firms in about 30 jurisdictions worldwide. To read the full aviation contribution, or to browse the complete issue, please visit The Legal Industry Reviews website.
For further information, please contact:
Santhapat Periera, Partner, Tilleke & Gibbins