by Cynthia M. Pornavalai

More than any period in the economic history of Thailand, the need for restructuring is greatest during this time. This country has been fortunate so far, as the legal and business infrastructures swiftly embraced the different avenues of restructuring. However, in Thailand, we see the bias of both the creditors and debtors towards the out-of-court restructuring. Statistics as at February of this year reveal that there are 197,165 cases of completed restructuring worth Baht 1,188,961 Million. Cases in the process of informal restructuring total 27, 498 cases with a value of Baht 1,086,655 Million. In contrast, there are only 46 filings at the Bankruptcy Court for a court-supervised restructuring. Out of this, only 25 have been approved - the rest have either been dismissed, withdrawn or are in the process of appeal. The total repayment amount is a mere Baht 243 Billion.

From the foregoing, it appears that in Thailand, although both the out-of-court and the court supervised restructuring are available, most financially troubled companies and their creditors first attempt to negotiate a consensual restructuring of debts. There are several reasons why a court-driven corporate restructuring may not appeal to both debtors and creditors alike in Thailand. Most of the arguments put forward against a court-supervised reorganization are its being relatively expensive and time-consuming. Use of out-of-court agreements is advantageous because they permit the continuation of the business without incurring the time and expense of a legal proceeding. They can also be directed to apply to specific issues rather than calling all business transactions, relationships, and the overall viability of the business into question. Out-of-court restructuring work-outs are generally simpler to consummate than court-driven restructuring cases since they typically involve the execution of a negotiated agreement. Court supervised restructuring work-out involves numerous forms, schedules and procedures which require substantial time, effort and cost to prepare. All these could affect the management’s ability to remain focused on stabilizing the business. Out-of-court restructuring will also often involve less adverse publicity than bankruptcy. In Thailand where most of the companies are run by families, bad publicity, is extremely a very sensitive issue. Needless to say, it can easily erode the confidence of the employees, vendors, and customers in the company’s future. In a service or consumer products business, consumer confidence can be diminished. On businesses that rely on trade credits such as retail, credit can become more difficult to get or more expensive. Contractually, confidentiality undertakings are imposed on all the parties to a restructuring. Such provision, in fact, exists in the Debtor-Creditor Agreement. Creditors’ preference for non-court oriented alternative may also be primarily because they may receive larger distributions in a shorter period of time. Finally, the creditors can control isolated creditors whose interests may be adverse to all other creditors by purchasing their claims.

Yet, while the court-driven corporate restructuring may not be viewed as an initial option to most restructuring work-outs presently undertaken in Thailand, its strengths as a system should not be discounted. Court supervised restructuring possesses many advantages, including the court’s ability to void preferential and fraudulent transfers, and to discharge the debtor from its debts. In cases involving alleged fraud or cases involving extensive investigation, the out-of-court approaches may not be appropriate. The automatic stay provisions under the Bankruptcy Act to prevent commencement, continuation or enforcement of actions against the debtors may also be favored by debtors. In addition, the court-supervised restructuring provides a single forum for negotiating, litigating and resolving creditor disputes. Finally, if creditor or inter-creditor disputes would be resolved only in court, then non-judicial reorganization attempts may only turn out to be a waste of time and money. In the end, the question as to which one works better, a judicially supervised or an out-of-court reorganization, is really moot.

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