Thailand’s economy in recent years has felt the impact of a seemingly endless list of challenges, such as the COVID-19 pandemic, global economic recession, repercussions from wars and armed conflicts, slumping exports, and recurring internal political turmoil. Many Thai companies simply went bankrupt during this time, but many others have gone through the process of business rehabilitation as laid out in Thailand’s Bankruptcy Act.
This article outlines Thailand’s business rehabilitation procedures and explains how creditors can collect debts from companies involved in rehabilitation.
Business rehabilitation in Thailand
Under the Bankruptcy Act, a creditor, debtor, or government agency under certain circumstances can file a business rehabilitation petition when all of the following conditions are met:
- The debtor is insolvent or unable to pay the debt due for payment (cash-flow insolvency).
- The debtor is a juristic person indebted to one or more creditors for a total of at least 10 million baht.
- The debt can be determined in a definite amount, irrespective of whether it is due for payment immediately or in the future.
- There is a reasonable prospect of the debtor’s business being rehabilitated.
“Insolvency” means a debtor has more debts than assets. However, the Bankruptcy Act also gives some criteria for being able to assume that a debtor is insolvent. Examples include debtors declaring to the court that they are unable to pay their debts, or debtors defaulting on debt payments after receiving at least two demand letters from a creditor (with at least 30 days between the letters).
Once the court receives a business rehabilitation petition, the debtor will be protected under an “automatic stay.” This means that any creditor cannot sue or force the debtor to pay a debt, and the debtor is not allowed to pay any debt unless it falls into one of the exceptions of the Bankruptcy Act.
In addition, the court will schedule a hearing to consider the facts. If the court finds that the conditions above are met, it will issue an order to approve the rehabilitation of the debtor’s business.
The court will also appoint a planner. The planner must prepare a business rehabilitation plan in accordance with the requirements of the Bankruptcy Act. If the court does not appoint a planner, the court will order an official receiver to organize a creditors’ meeting to select the planner.
Once the court appoints the planner, the power and duties in managing the debtor’s business and assets, and all legal rights of the debtor’s shareholders (except the right to receive any dividends), are vested in the planner.
When the court approves the rehabilitation of the debtor’s business but does not appoint a planner, the debtor’s executives must hand over all company assets, company seals, accounting ledgers, and documents related to the debtor’s assets and business to an appointed temporary administrator or official receiver. The official receiver must publish the court’s rehabilitation order in the Government Gazette and in at least two widely circulated daily newspapers.
Seeking debt repayment
Once the court issues its order to appoint a planner, all creditors must submit a debt repayment application and a copy of it to the official receiver within one month of publication of the planner’s appointment.
At this time, creditors can seek repayment of their debts by submitting a debt repayment application to the official receiver if the debt obligation:
- occurred before the court issued an order to rehabilitate the business regardless of whether the debt has matured or is conditional,
- did not arise in violation of legal prohibitions or good morals, and
- is legally enforceable.
The creditor will have voting rights corresponding to the full amount of the obligation as stated in the debt repayment application if the other creditors, the debtor, and the planner do not object. However, if one of these parties does object to the debt repayment application, the official receiver must determine whether the creditor will be allowed to vote and in correspondence to what amount of the debt. After finishing the investigation, the official receiver may dismiss the debt repayment application, approve full repayment of the debt, or approve partial repayment of the debt.
However, any “concerned person” relating to the debt repayment application can file an objection with the court within 14 days of the acknowledgment date of the official receiver’s order.
If the debt is in a foreign currency, the amount must be converted into Thai baht according to the daily exchange rate announced by the Bank of Thailand on the date that the court issued the order to rehabilitate the business.
Creditors can also set off debt in certain circumstances. A setoff can occur if a creditor is entitled to submit a debt repayment application and the debtor is indebted to the creditor when the court issues the business rehabilitation order.
Business rehabilitation compliance
As has happened frequently in recent years, businesses in Thailand may face crises and other problems, and it may be beneficial for them to bring their business under the protection afforded by Thailand’s business rehabilitation process under the Bankruptcy Act. However, it is important that they ensure the proper rehabilitation procedures are followed in accordance with the law. While business rehabilitation can be a helpful tool for many business owners, failing to keep up with the legal requirements of the process could open them up to criminal and civil liability.
This article was originally published in the Bangkok Post.