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June 11, 2024

“Prospects of Success” and “Good Faith” in Thai Business Rehabilitation Petitions

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Over the past decade, business rehabilitation proceedings in Thai courts have received a great deal of attention from debtors and creditors, especially after the COVID-19 pandemic. Business rehabilitation and bankruptcy proceedings have different objectives in court. As a result, Thai courts have a different perspective and set of criteria for considering and approving rehabilitation proceedings than for bankruptcy petitions. Both proceedings are outlined in the Bankruptcy Act B.E 2483 (1940). This article mainly discusses in-court business rehabilitation proceedings.

Three parties can petition the court to initiate business rehabilitation proceedings:

  • Debtors;
  • Creditors; and
  • Certain authorities, such as the Bank of Thailand

For a debtor to be subject to business rehabilitation proceedings, it must:

  • Be insolvent or unable to repay debt of at least THB 10 million (for corporate debtors) or from THB 2 million to less than 10 million (for SME debtors);
  • Have debt that is determinable but has not yet become due;
  • Be indebted to one or more creditors, where the combined total of the debt is within the required debt amounts above; and
  • Have reasonable cause and possible ways to rehabilitate its business.

Court Approval of a Petition

Upon receipt of the business rehabilitation petition, the Bankruptcy Court will schedule a hearing on it. In conducting an inquiry into the petition, the court will consider whether:

  • The facts in the petition are true;
  • There are prospects of success for business rehabilitation; and
  • The petitioner has filed the petition in good faith.

If these three criteria are met, the court will approve the business rehabilitation.

Prospects of Success

In considering whether there are prospects of success for business rehabilitation, the court will look at whether the business rehabilitation petition contains reasonable grounds as well as appropriate and feasible solutions for rehabilitating the business. In that regard, the petitioner must consider whether the business can reasonably be expected to continue with its normal operations after rehabilitation. In other words, the petitioner must be able to see the possibility of continuing to operate its business after the rehabilitation proceedings to revive the company.

There were several cases stemming from COVID-19 in which the court granted business rehabilitation petitions. One high-profile example is the successful rehabilitation of multiple leading airlines in Thailand. These airlines filed petitions containing logical grounds and highly plausible ways of rehabilitating the business. Examples of those grounds are as follows:

  • The company has solid business fundamentals and can recover after entering the rehabilitation proceedings.
  • The company has built its good reputation over a long period but is now indebted after several adverse factors. However, with its good reputation, large customer base, and good credit, the business can be in a better state if it operates under the rehabilitation process.
  • With the debt restructuring under the rehabilitation process, the company can generate sustainable revenue in the future.
  • If the company was kept from undergoing business rehabilitation, the negative impacts would be far greater than in the current situation.

Business rehabilitation proceedings open the door for the debtor to engage in negotiations regarding debt restructuring with both domestic and foreign creditors. Furthermore, they enhance the chance of improving the business organization structure.

Good Faith

The court has discretion and authority to approve a petition for business rehabilitation under the Bankruptcy Act, which provides that “a petitioner must file the petition in good faith.” The law does not expressly state the meaning of “good faith”; there are also no specific descriptions of “bad faith” under the Bankruptcy Act. However, the court has dismissed business rehabilitation cases due to the bad faith of the petitioner. For instance:

  • From the Court’s perspective, if there is clear and sufficient evidence that the debtor has no ability to rehabilitate its business (for example, there are many unsolved internal and external business problems, the firm has been sued by a large number of other parties, and there are a large number of ongoing labor cases filed by the firm’s employees) but the petitioner still files a petition, there is a high chance that the court will dismiss the petition for bad faith.
  • There was a case in which the court dismissed a petition for bad faith because the petitioner was prohibited by Section 90/94 of the Bankruptcy Act from filing for business rehabilitation. Under this section, the petitioner is not allowed to file a petition for rehabilitation within six months of the court dismissing the petitioner’s previous petition. The court determined that the petitioner attempted to file the petitions to get legal protection (i.e., from an automatic stay) in order to avoid repayment of debts.
  • To support a petition, a corporate debtor submitted financial statements that contained false information regarding its financial status, resulting in the court finding that the petition was made in bad faith.

Conclusion

There are reasonable chances of success for petitioners, both debtors and creditors, in a business rehabilitation process if they have legal grounds and sufficient evidence, together with appropriate guidance from a legal advisor. The grounds for the court to approve the petition for business rehabilitation may vary, subject to the facts of each case. However, the above guidelines can provide some clarity to petitioners seeking information on the expectations surrounding business rehabilitation petitions and the court’s criteria for considering and accepting them.

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