The Kingdom’s bankruptcy proceedings can be a complex affair, with several procedures and conditions that need to be met in order to come to a successful conclusion. Thailand’s bankruptcy law is modeled after that of the United States which provides restructuring proceedings that require trained judges who specialize in the matter to precede over them. According to the law, bankruptcy is defined as an involuntary state which permits the distribution of assets belonging to a debtor among their creditors within the parameters of the law.
A bankruptcy proceeding can only begin when a creditor files a suit against an insolvent debtor who owes more than THB 1 million to individuals or THB 2 million to juristic persons. There are several cases stipulated by the law where debtors can be considered bankrupt, most notably when they commit acts in an attempt to avoid paying their debts or if they communicate their inability to pay their debts to their creditors.
The law also distinguishes between secured and unsecured claims, where the former is prioritized. In the case where the proceeds from a bankruptcy estate is not sufficient to satisfy the claims of all creditors, the court will settle the claims equally among creditors within each category. Special rules are applied for claimants that are juristic persons.
Alternative to bankruptcy
Within bankruptcy proceedings, it is also possible to undertake a composition in order to avoid the long and protracted process involved. A composition takes place when a debtor expresses in writing their wish to settle their debt, either partially or in any other manner, within seven days of submitting their explanation of matters related to the bankruptcy or during a time period prescribed by the receiver. After the proposal for a composition has been submitted, the receiver will then call for a meeting among creditors to consider whether or not to accept the proposal. If the proposal is accepted, the court will approve the composition in order to legally execute the proposal; however, it will only do so if the proposal highlights provisions for the repayment of debts.
It is also possible for a debtor to propose a composition following the court’s adjudication of bankruptcy. However, if they had a previous composition agreement that was unsuccessful, they will not be allowed to file for another within three months from the date of the previous composition. Successfully pursuing a composition will act as a termination of the bankruptcy and will restore control to the debtor to manage their debts.
If the debtor is a juristic person, they can likewise opt to undergo restructuring. This is a proceeding that takes place under the supervision of the court that defers the distribution of the debtor’s assets which would lead to the liquidation of the debtor. For companies, this means that they are able to continue business operations so creditors can profit from these activities in a way that is more beneficial than liquidation.
Discharge from bankruptcy
A bankrupt debtor can be discharged either by an order of the court or by automatic discharge. This can be pursued by filing a motion to the court requesting for an order of discharge and is usually granted if a minimum of 50% of the assets have been disbursed to pay off creditors. Discharge will not be granted if the debtor is considered dishonest, which is presumed if the debtor continues to conduct business in the knowledge that they are unable to pay back their creditors, engages in embezzlement, or gives preference to a particular creditor. In spite of being discharged, however, a debtor will still be obligated to work towards the distribution of their assets to creditors, and the court may withdraw the discharge if it deems that the debtor is not contributing towards repayment.
Individual debtors can also be discharged automatically from bankruptcy after three years, although this can be extended to five years if the debtor has been previously bankrupt within five years of the current bankruptcy. The automatic discharge period can also be extended to 10 years if the debtor engages in unscrupulous activities.
A discharge from bankruptcy, either by court order or via statute of limitations, will be published on the Royal Thai Gazette and one daily newspaper. It should be noted that discharge does not absolve the debtor from tax liabilities or debts from dishonest or fraudulent activities.
Undergoing bankruptcy proceedings can be a complex affair for individuals, particularly for foreign nationals, given the complexity of the matter. It is therefore crucial for individuals involved in bankruptcy proceedings to seek assistance from specialized law firms such as Silk Legal to give proper counsel on how to proceed with the proceedings.
For more information about our bankruptcy practice, please feel free to contact us using the contact form provided.