Updated on 16th March 2020
In the previous edition of the overview on Thailand’s approach to bankruptcy, we covered how parties petition for bankruptcy proceedings, the processes involved, alternatives available to parties, as well as the way in which one is discharged from the proceedings. As a result of the economic difficulties faced in the Kingdom due to the spread of COVID-19, among other things, we have decided to revisit the topic to provide additional insight into Thailand’s bankruptcy proceedings.
As previously mentioned, Thai proceedings are highly complex 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 requires a specialized bankruptcy court to preside over matters pertaining to bankruptcy and insolvency. Under Thai law, bankruptcy is defined as a state in which the court permits the distribution of assets that belong to a debtor among their creditors within the parameters of the law.
Generally speaking, Thai bankruptcy law makes a distinction between claims filed by secured and unsecured creditors, where the former takes priority after labor obligations. This means that when proceeds from the disposal of assets in a bankrupt estate do not sufficiently satisfy the claims of all creditors, the court will prioritize outstanding payments for employees followed by claims made by secured creditors; claims made by unsecured creditors will then be resolved after the aforementioned. Special rules, however, are applied to claimants that are considered companies or corporations.
Assets are generally considered to include fixed assets, machinery, accounts receivable, and financial assets.
How do they work?
According to Thailand’s Bankruptcy Act, a debtor will be presumed insolvent if a creditor files a suit against them for claims reaching more than THB 2 million for debtors that are considered companies or business entities. The Act also stipulates other grounds for insolvency, including any attempt by the debtor to avoid paying their debt, transferring the rights to manage their assets, or simply declaring their insolvency to the court. If any of these conditions are satisfied, the court will allow the bankruptcy proceedings to take place.
Alternatively, corporate entities such as private companies or partnerships can also be considered insolvent if their share capital has been fully spent or if their assets are less than their liabilities. However, the court maintains that claims must be a definite amount, and not an approximate number.
Once the court has accepted the proceedings and issued an order for absolute receivership, neither the debtor nor the creditor can petition the court for restructuring. The court will assign an administrator, also known as an official receiver, who will assume the responsibility of managing the debtor’s affairs, specifically those concerned with the collection of cash, property, or any other assets that may be used to pay back their debts. Once the administrator seizes control of the debtor’s assets, an order must be made publicly in the Royal Thai Gazette and one widely circulated newspaper for creditors to be made aware of debtor’s insolvency. Local creditors will then be given two months following the date of publication while those residing outside of Thailand will be given four months to submit proof to the administrator that they are among the estate’s creditors.
Alternative to bankruptcy
Prior to the court’s adjudication of bankruptcy proceedings, it is also possible to undertake a process called composition in order to avoid the long and protracted process. 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 administrator 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 it; however, it will only do so if the proposal highlights provisions for the repayment of debts.
After the bankruptcy proceedings, 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 one within three months from the date of the previous composition. Successfully pursuing a composition will act as a termination of the bankruptcy and return control to the debtor to manage their debts.
If the debtor is a juristic person, they can likewise opt to undergo restructuring, but only if they choose to do so prior to the court issuing an order for absolute receivership. This takes place under the supervision of a court-appointed planner who will oversee the creation of a restructuring plan that will be approved by the creditors. For companies, this means that they are able to continue business operations, and hopefully trade themselves out of their position, so creditors can profit from these activities in a way that is more beneficial than if the company were to be liquidated.
Debtors should take note, however, that according to Section 60 of the Bankruptcy Act, if they fail to meet their obligations under a composition, the court will automatically declare the debtor bankrupt.
Discharge from Bankruptcy
A bankrupt debtor can be discharged either by an order of the court or by automatic discharge. A court-ordered discharge can be pursued by filing a motion to the court requesting for an order of discharge which is usually granted if a minimum of 50% of the assets have been liquidated 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 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 following the court’s judgement, although this can be extended to five years if the debtor has been previously bankrupt within five years of their 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 in the Royal Thai Gazette and one daily newspaper. It should be noted that discharge does not absolve the debtor from tax liabilities or debts that result 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 ensure all prerequisites and procedures are pursued correctly.
For more information about our bankruptcy practice, please feel free to contact us at [email protected] or use the contact form provided.