Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts, while reorganization is a process where a company establishes and implements a plan to organize its debts, capital, fundraising as well as management and exploitation of the company's property. The proceedings for both of these procedures are outlined below.
According to Section 9 of the Thai Bankruptcy Act ("BA"), a creditor must file a case in the Bankruptcy Court for a debtor to be declared an insolvent person. Also, a company liquidator may file for bankruptcy during the liquidation process pursuant to Section 88 of the BA.
If a juristic person has a debt of not less than two million baht, the creditor of such debt may initiate the bankruptcy proceedings.
Other grounds for such proceedings may be that the company (the debtor) becomes insolvent as defined by the BA. Section 8 of the BA contains nine circumstances which would provide the presumptions to the creditor that the debtor is insolvent. These presumptions include the debtor receiving a demand letter from the creditor twice with an interval of not less than thirty days and failed to make a repayment of the debt, or if the debtor transfers his property with fictitious intent. After the Court has received the lawsuit, a receivership may be ordered, and a meeting of creditors may be summoned for considering whether to accept the debt composition proposed by the debtor or whether to request the Court to adjudge the debtor bankrupt and considering the method for further management of the debtor's property whether the debts could be settled. The appointed receivership will then make a report to the Court about the meeting. A decision to declare the company bankrupt will then be rendered, depending on the result of the meeting.
Apart from the creditor initiating a lawsuit, the liquidator(s) may also file a petition with the Court. Section 88 of the BA states that the liquidator may file a petition with the Court to adjudge the company bankrupt if full payments of the contribution or number of shares have been made. The assets are insufficient for repayment of debt.
It must be noted that a similar provision is also reflected under Section 1266 of the CCC. Therefore, it is the duty of the liquidator(s) to file for bankruptcy against the company. After the petition is received, the Court will issue an absolute receivership order against the company.
Interestingly, under Thai law, the company director has neither a duty nor the possibility to file for bankruptcy.
Upon the Court's receivership order against the company, it shall not do any act to its property or business and deliver all property, seals, account books, and documents related to its property and business to the receiver.
The receiver alone has the powers as follows:
i. To manage and dispose of the debtor's property or to act
as necessary for the accomplishment of the debtor's unfinished
ii. To collect and receive money or property that will devolve upon the debtor or the debtor is entitled to receive from other persons;
iii. To conclude a compromise or institute any action or defend in any action connected with the debtor's property.
c. Distribution of Property
After the Court adjudges the debtor bankrupt, the receiver shall distribute the debtor's property to the company's creditors until the debts have been paid in full or there is no more property for distribution. The bankruptcy shall be annulled upon application of an interested person or the receiver if it appears the bankrupt's debts have been paid in full or, over a period of ten years when there is no more property for distribution amongst creditors, where the receiver has been unable to collect any further property of the debtor, and no creditor has made a request for collection of the property of the bankrupt.
d. Costs of Bankruptcy Procedure and Timeline
For a bankruptcy lawsuit, some of the necessary costs involved are lawyer's fees, operation costs for running the company, and if it enters into a business reorganization, the deposit fee that is requested by the Court.
The time required for the bankruptcy process depends entirely on the Court's process, the number of creditors, or if the business reorganization process is entered into or not.
The procedures for business reorganization are governed by Sections 90/1 et seq. of the BA.
The process of business reorganization involves a court procedure which can be unilaterally initiated by the debtor, creditor, or a state agency. If the debtor company chooses this approach, it would still be able to operate, and a debt restructuring procedure can be commenced.
Business reorganization provides the debtor with protection by declaring an automatic stay, which restricts creditors' ability to take action against the company to recover any sums owed to them. Additionally, it prevents any form of the legal process being commenced or continued against the debtor, as well as prevents creditors from filing dissolution or bankruptcy petitions.
To enter into a business reorganization, the company must become insolvent where it is indebted to one or several creditors altogether in a definite amount of not less than ten million THB under Section 90/3 of the BA. The persons who are entitled to file a petition with the court for the business reorganization are under Section 90/4such as:
- the debtor who is insolvent, indebted to one or several creditors in a definite amount of more than THB 10,000,000, reasonable grounds and a prospect for the reorganization of the debtor's business; or
- one or several creditors with a definite amount of debt, not less than THB 10,000,000. Or
- the Bank of Thailand, the Office of Securities and Exchange Commission, the Department of Insurance, or the State agencies, in case that the company's business is under control of the said agencies.
After the Court's approval for business reorganization, a plan preparer must be appointed to make the reorganization plan.
The Court fee for the business reorganization is THB 1,000 and a deposit of THB 50,000 as security for expenses to be borne by the debtor for the business reorganization. However, if it is not sufficient, the Court may require an additional deposit, the amount of which is determined under Section 90/7. If the debtor refuses to deposit additional money as security, and if the Court has yet to issue a business reorganization order, it shall be deemed that the debtor abandons the petition.
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.