Understanding Business Rehabilitation: Legal Grounds And External Factors In Thailand

Thailand is facing unstable economic conditions due to political transitions, global interest rate fluctuations, technological advancements, trade conflicts, and effects of COVID-19 pandemic. These disruptions have impacted businesses, causing financial strain, and for some, temporary inability to meet debt obligations.

During these challenging times, entering business rehabilitation process under the Bankruptcy Act B.E. 2543 (Bankruptcy Act) is crucial for companies facing financial crises. Business rehabilitation provides a stabilising framework that allows businesses to continue operations with the aim of recovery. Through this process, debtor companies can negotiate with creditors to restructure debts, improve organisational efficiency, and implement operational plans.

Debtors gain protection from enforcement actions through the Automatic Stay¹, giving them flexibility to negotiate repayment terms while continuing operations. Creditors receive repayments within a clear and fair timeframe, ensuring equitable treatment among those holding similar claims.

To enter the business rehabilitation process under the Bankruptcy Act, a company must meet four key legal conditions²:

1. The debtor must be insolvent or unable to pay debts as they fall due.
2. The debtor must owe a definite amount of at least 10 million Baht, whether to a single creditor or multiple creditors combined.
3. The debt must be clearly defined, regardless of whether it is immediately due or scheduled for future payment.
4. There must be a credible basis and realistic opportunity for the company to recover and continue operations through rehabilitation.

To qualify for business rehabilitation under the Bankruptcy Act, a company must meet the condition of being insolvent or unable to pay its debts as they fall due. The concept of "inability to pay debt" was added in a 2018³ amendment to the Bankruptcy Act. This change supports debtors facing temporary financial distress or liquidity issues, allowing them to petition for rehabilitation before reaching full insolvency. This legal mechanism helps stabilise operations early, preserving business continuity and avoiding complete financial collapse.

While the condition of "inability to pay debt" as they fall due is recognised under the Bankruptcy Act, its interpretation remains subject to judicial discretion. The law does not specify how long the debtor must be unable to pay, nor does it define a minimum amount of unpaid debt.

According to the Bankruptcy Act, the court shall conduct hearing on a business rehabilitation petition based on the facts prescribed by law, and the petition must be filed in good faith⁴. The court's primary focus will be to assess whether the conditions for rehabilitation are met. Among the four legal conditions, two require consideration of external factors and must be clearly demonstrated to the court: (1) the cause of insolvency or the debtor's inability to pay debts, and (2) the justification for rehabilitation, and the feasibility of the proposed recovery plan.

These two conditions are closely interrelated. If the debtor is facing temporary liquidity issues, there may be an opportunity to rehabilitate the business or restructure its debts to restore normal operations. However, this requires a well-founded justification demonstrating that the debtor still has the capacity to operate the business sustainably over the long term.

Therefore, proving facts and presenting evidence during the court's hearing of the rehabilitation petition is critically important. It requires meticulous preparation and thorough collection of supporting documents to meet the legal conditions prescribed by law.

This article first appeared on https://thelegalindustry.com/thailand/

Footnotes

1. Section 90/12 of the Bankruptcy Act, B.E. 2483 (1940)

2. Section 90/3 of the Bankruptcy Act, B.E. 2483 (1940)

3. Section 90/3 as amended by the Bankruptcy Act (No. 10), B.E. 2561 (2018)

4. Section 90/10 of the Bankruptcy Act, B.E. 2483 (1940)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.