Updated on 16th March2020

In the previous edition of the overviewon Thailand's approach to bankruptcy, we covered how partiespetition for bankruptcy proceedings, the processes involved,alternatives available to parties, as well as the way in which oneis discharged from the proceedings. As a result of the economicdifficulties faced in the Kingdom due to the spread of COVID-19,among other things, we have decided to revisit the topic to provideadditional insight into Thailand's bankruptcyproceedings.

As previously mentioned, Thai proceedings are highly complexwith several procedures and conditions that need to be met in orderto come to a successful conclusion. Thailand's bankruptcy lawis modeled after that of the United States, which providesrestructuring proceedings that requires a specialized bankruptcycourt to preside over matters pertaining to bankruptcy andinsolvency. Under Thai law, bankruptcy is defined as a state inwhich the court permits the distribution of assets that belong to adebtor among their creditors within the parameters of the law.

Generally speaking, Thai bankruptcy law makes a distinctionbetween claims filed by secured and unsecured creditors, where theformer takes priority after labor obligations. This means that whenproceeds from the disposal of assets in a bankrupt estate do notsufficiently satisfy the claims of all creditors, the court willprioritize outstanding payments for employees followed by claimsmade by secured creditors; claims made by unsecured creditors willthen be resolved after the aforementioned. Special rules, however,are applied to claimants that are considered companies orcorporations.

Assets are generally considered to include fixed assets,machinery, accounts receivable, and financial assets.

According to Thailand's Bankruptcy Act, a debtor will bepresumed insolvent if a creditor files a suit against them forclaims reaching more than THB 2 million for debtors that areconsidered companies or business entities. The Act also stipulatesother grounds for insolvency, including any attempt by the debtorto avoid paying their debt, transferring the rights to manage theirassets, or simply declaring their insolvency to the court. If anyof these conditions are satisfied, the court will allow thebankruptcy proceedings to take place.

Alternatively, corporate entities such as private companies orpartnerships can also be considered insolvent if their sharecapital has been fully spent or if their assets are less than theirliabilities. However, the court maintains that claims must be adefinite amount, and not an approximate number.

Once the court has accepted the proceedings and issued an orderfor absolute receivership, neither the debtor nor the creditor canpetition the court for restructuring. The court will assign anadministrator, also known as an official receiver, who will assumethe 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. Oncethe administrator seizes control of the debtor's assets, anorder must be made publicly in the Royal Thai Gazette and onewidely circulated newspaper for creditors to be made aware ofdebtor's insolvency. Local creditors will then be given twomonths following the date of publication while those residingoutside of Thailand will be given four months to submit proof tothe administrator that they are among the estate'screditors.

Prior to the court's adjudication of bankruptcy proceedings,it is also possible to undertake a process called composition inorder to avoid the long and protracted process. A composition takesplace when a debtor expresses in writing their wish to settle theirdebt, either partially or in any other manner, within seven days ofsubmitting their explanation of matters related to the bankruptcyor during a time period prescribed by the receiver. After theproposal for a composition has been submitted, the administratorwill then call for a meeting among creditors to consider whether ornot to accept the proposal. If the proposal is accepted, the courtwill approve the composition in order to legally execute it;however, it will only do so if the proposal highlights provisionsfor the repayment of debts.

After the bankruptcy proceedings, it is also possible for adebtor to propose a composition following the court'sadjudication of bankruptcy. However, if they had a previouscomposition agreement that was unsuccessful, they will not beallowed to file for another one within three months from the dateof the previous composition. Successfully pursuing a compositionwill act as a termination of the bankruptcy and return control tothe debtor to manage their debts.

If the debtor is a juristic person, they can likewise opt toundergo restructuring, but only if they choose to do so prior tothe court issuing an order for absolute receivership. This takesplace under the supervision of a court-appointed planner who willoversee the creation of a restructuring plan that will be approvedby the creditors. For companies, this means that they are able tocontinue business operations, and hopefully trade themselves out oftheir position, so creditors can profit from these activities in away that is more beneficial than if the company were to beliquidated.

Debtors should take note, however, that according to Section 60of the Bankruptcy Act, if they fail to meet their obligations undera composition, the court will automatically declare the debtorbankrupt.

A bankrupt debtor can be discharged either by an order of thecourt or by automatic discharge. A court-ordered discharge can bepursued by filing a motion to the court requesting for an order ofdischarge which is usually granted if a minimum of 50% of theassets have been liquidated to pay off creditors. Discharge willnot be granted if the debtor is considered dishonest, which ispresumed if the debtor continues to conduct business in theknowledge that they are unable to pay their creditors, engages inembezzlement, or gives preference to a particular creditor. Inspite of being discharged, however, a debtor will still beobligated to work towards the distribution of their assets tocreditors, and the court may withdraw the discharge if it deemsthat the debtor is not contributing towards repayment.

Individual debtors can also be discharged automatically frombankruptcy after three years following the court's judgement,although this can be extended to five years if the debtor has beenpreviously bankrupt within five years of their current bankruptcy.The automatic discharge period can also be extended to 10 years ifthe debtor engages in unscrupulous activities.

A discharge from bankruptcy, either by court order or viastatute of limitations, will be published in the Royal Thai Gazetteand one daily newspaper. It should be noted that discharge does notabsolve the debtor from tax liabilities or debts that result fromdishonest or fraudulent activities.

Undergoing bankruptcy proceedings can be a complex affair forindividuals, particularly for foreign nationals, given thecomplexity of the matter. It is therefore crucial for individualsinvolved in bankruptcy proceedings to seek assistance fromspecialized law firms such as Silk Legal to ensure allprerequisites and procedures are pursued correctly.

Originally published March 16, 2020

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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Bankruptcy Proceedings In Thailand: An Updated Overview - Insolvency/Bankruptcy/Re-structuring - Thailand - Mondaq News Alerts