1 Legal framework
1.1 What domestic legislation governs restructuring and insolvency matters in your jurisdiction?
The Bankruptcy Act BE 2483 (AD 1940) is the primary legislation governing bankruptcy matters and was last amended in February 2018. Chapter III/I of the act deals with reorganisations. Bankruptcy and reorganisation procedures are stipulated in:
- the Bankruptcy Act;
- the Establishment of and Procedures for the Bankruptcy Court Act BE 2542 (AD 1999); (EPB); and
- the Regulations for Bankruptcy Cases BE 2549 (AD 2006).
1.2 What international / cross-border instruments relating to restructuring and insolvency have effect in your jurisdiction?
Thailand is not a party to any international treaty on the recognition of foreign judgments. There are also no provisions under Thai bankruptcy law on international/cross-border restructuring and insolvency. Further, Chapter VIII, Part 2 of the Bankruptcy Act provides that receivership or bankruptcy under the Bankruptcy Act affects only the debtor's property located in Thailand. Similarly, receivership or bankruptcy under the law of any other country has no effect on the debtor's property located in Thailand.
1.3 Do any special regimes apply in specific sectors?
The Bankruptcy Act allows creditors to file bankruptcy petitions against both natural and legal persons that were domiciled in Thailand or operated business in Thailand within the year prior to the date on which the bankruptcy petition is filed with the court.
In reorganisation proceedings, only debtors that were limited companies or public companies could file for or be subject to reorganisation proceedings. There were no specific insolvency regimes for public enterprises. If such companies entered into reorganisation proceedings, they were required to follow the same regime as applied to a private limited company.
In 2014, the Bankruptcy Act modified the process for filing reorganisation petitions against legal persons included in the Ministerial Regulation of the Ministry of Justice dated 5 August 2014 (ie, credit union cooperatives).
In May 2017, the Bankruptcy Act was amended to introduce business reorganisation proceedings for small to medium-sized enterprises, which allows natural and legal persons to enter into reorganisation proceedings under certain conditions and following a specific procedure. Those debts must total at least THB 2 million for natural persons and THB 3 million for legal persons. However, if the debt exceeds TBH 10 million, the standard reorganisation procedure will apply.
1.4 Is the restructuring and insolvency regime in your jurisdiction perceived to be more creditor friendly or debtor friendly?
Thailand's bankruptcy and reorganisation proceedings are often viewed as slightly pro-creditor, taking into consideration all statutory requirements that each party must comply with.
1.5 How well established is the legal regime and infrastructure relevant to restructuring and insolvency in your jurisdiction (e.g. extent of recent legislative changes, availability of specialist judges / courts / advisers)?
The Bankruptcy Court is the specialist court for bankruptcy and reorganisation matters. Several specialist judges with appropriate backgrounds and expertise in bankruptcy and reorganisation proceedings sit in the Bankruptcy Court.
At this juncture, the Bankruptcy Act is not subject to any further reform.
2.1 What principal forms of security interest are taken over assets in your jurisdiction?
Mortgages of immovable assets, such as land and buildings, are the principal forms of security interest. Mortgages can also include movable property, such as machinery.
Pledges are also commonly granted as security. Shares and instruments (eg, promissory notes and bills of exchange) are commonly pledged under Thai law.
2.2 How can those security interests be enforced (and what factors could complicate or prevent this process)?
The method for enforcing a mortgage under Thai law is to obtain a court judgment ordering the seizure of the mortgaged property and its sale at a public auction. This can be done only after the mortgagee has first notified the debtor in writing and demanded that it perform its obligations within a reasonable timeframe, as specified in the notice, which cannot be less than 60 days. If the debtor fails to comply with the notice, the mortgagee may proceed to file an action with a court of competent jurisdiction.
On enforcement of the pledge, the pledgee must first notify the debtor in writing to perform the obligation and accessories within a reasonable timeframe as specified in the notice. The pledgee must notify the pledgor in writing of the time and place of the auction. No court order is required for such sale. Thai law prohibits parties from entering into agreements before an obligation becomes due which provide that the pledgee shall become the owner of the pledged property or may dispose of it other than by public auction in case of breach.
3.1 Are informal workouts available in your jurisdiction? If so, what forms do they typically take, and what are the benefits and drawbacks as compared to formal restructuring proceedings?
The Bankruptcy Act does not provide for workout options such as settlement of debts. However, prior to the commencement of formal reorganisation proceedings, the debtor can establish its own plans to reformulate the terms and conditions of payment, usually based on bilateral contracts by way of novation of debts or settlement agreements, since the automatic stay under Section 90/12 of the Bankruptcy Act will apply (see questions 3.4 and 3.5).
3.2 What formal restructuring proceedings are available in your jurisdiction, and what are the benefits and drawbacks of each?
In addition to bankruptcy proceedings, business reorganisation proceedings are a court-supervised formal attempt to rehabilitate the business of a distressed debtor. An insolvent debtor owing a definite amount of at least THB 10 million to one or more creditors is entitled to file a reorganisation petition or be subject to reorganisation proceedings filed by the creditors according to Sections 90/3 and 90/4 of the Bankruptcy Act.
3.3 How, by whom and on what grounds are formal restructuring proceedings initiated? What are the main preconditions for success?
Both debtors and creditors are entitled to file a reorganisation petition with the court, regardless of whether a bankruptcy action has been instituted against the debtor. In addition, state agencies are entitled to commence reorganisation proceedings against debtors; and debtors are entitled to request the reorganisation of their business with consent from the relevant state agency (eg, the Bank of Thailand in the case of a commercial bank or the Office of Securities and Exchange Commission in the case of a securities company).
The court will:
- fix the date of the hearing on the petition; and
- order that:
- the order accepting the petition as well as the date and time of the hearing be published in at least one widely circulated daily newspaper at least twice, at an interval of not more than seven days; and
- all known creditors be furnished with a copy of the petition.
The creditors may submit an objection not less than three days prior to the appointed date of the hearing. Otherwise, it shall be deemed that no objections have been made.
At the hearing, the court will endeavour to ascertain that:
- the debtor is insolvent;
- the debtor is indebted to creditor(s) in a definite amount of not less than THB 10 million;
- there are reasonable cause and prospects for the reorganisation of the debtor's business; and
- the petitioner has filed the petition in good faith.
3.4 What are the effects of the commencement of formal restructuring proceedings, both for the debtor and for creditors?
After the court has accepted the petition for consideration, the automatic stay under Section 90/12 of the Bankruptcy Act will apply (see question 3.5).
The debtor can continue operating its normal business. However, the powers and duties of the debtor's executive in managing the business and property shall cease once the court has ordered a business reorganisation; and the court may appoint any persons or the debtor's former executive as an interim executive until the plan preparer has been appointed.
3.5 Does a moratorium or stay apply and, if so, what is its scope? Are there exceptions?
The automatic stay comes into immediate effect the moment the reorganisation petition is accepted by the court, without any need for further court orders, and remains in force until the reorganisation petition has been rejected at the preliminary court hearing or until the rehabilitation process is completed or abandoned. The effects of the stay are as follows:
- The debtor is prohibited from selling, transferring or leasing assets, repaying or creating debt, or performing any action that creates an encumbrance over its assets, except in the normal course of business, without the approval of the court;
- The creditors are prohibited from filing civil actions in connection with the debtor's property or the dissolution of the debtor, and from filing dissolution or bankruptcy proceedings against the debtor, including the execution of existing judgments against the debtor;
- Any providers of public utilities, such as electricity, water and telecommunications, are prohibited from suspending services supplied to the debtor without the permission of the court;
- An owner of property which is essential for the operation of the debtor's business is prohibited from exercising the right to recover the property in the possession of the debtor or any other person relying on the debtor's rights, or from instituting an action for enforcement in connection with property and liabilities arising from such contract; and
- The registrar may not issue an order dissolving or registering the dissolution of the debtor, and the debtor may not be dissolved by any other means.
However, any creditor or person aggrieved by the restriction of rights under the stay may request the court for amendment or cancellation if that restriction of rights is not necessary for the reorganisation or fails to afford sufficient protection to the rights of secured creditors.
3.6 What process do restructuring proceedings typically follow (including likely length of process and key milestones)?
The court will schedule the preliminary court hearing to conduct an inquiry into the reorganisation petition within two to three months of the filing date.
At the preliminary hearing, the court will consider:
- whether to allow the debtor to proceed with its proposed business reorganisation; and
- the appointment of the person or persons who will prepare the debtor's reorganisation plan.
The court will order one of the following:
- an order commencing the business reorganisation and appointing the plan preparer;
- an order dismissing the petition; or
- an order commencing the business reorganisation without appointing the plan preparer and instructing the official receiver to convene a creditors' meeting to select the plan preparer.
The plan preparer may be a natural person, a legal person, a group of persons, a creditor or the debtor's executive.
Once the plan preparer has been appointed, it has the authority to manage the business and property and all rights under law of shareholders of the debtor. The debtor is allowed to continue undertaking its normal business operations during the reorganisation.
Within one month of publication of the order for the appointment of the plan preparer, all creditors – including judgment creditors and creditors that have instituted a civil action which remains pending – must file an application for repayment of debt with the official receiver.
Within three months of the date of publication of the order appointing the plan preparer, the plan preparer must create and prepare the plan for reorganisation and provide it to the receiver, together with a sufficient number of copies to be furnished to creditors entitled to vote and to the debtor. This period may be extended twice by the court for a maximum period of one month each time. The plan must be approved by resolution of the creditors' meeting and be confirmed by the court.
The plan administrator will continue to implement the plan, including repaying the claims of the creditors. The timeframe for implementation of the plan shall not exceed five years. This period may be extended twice by the court for a maximum period of one year each time. If the plan is successfully implemented, the court will issue an order cancelling the business reorganisation.
3.7 What are the roles, rights and responsibilities of the following stakeholders in restructuring proceedings? (a) Debtor, (b) Directors of the debtor, (c) Shareholders of the debtor, (d) Secured creditors, (e) Unsecured creditors, (f) Employees, (g) Pension creditors, (h) Insolvency officeholder (if any), (i) Court.
Upon acceptance of the reorganisation petition by the court, the debtor is prohibited from undertaking certain activities except in the normal course of business during the term of the automatic stay (please see question 3.5). In practice, the debtor will generally seek approval from the court even for those transactions which are concluded in the normal course of business, in order to avoid criminal liability under Section 90/82 of the Bankruptcy Act.
The debtor itself or its executives can be appointed as the plan preparer and plan administrator of the reorganisation proceedings if approved by resolution of the creditors' meeting and confirmed by the court.
(b) Directors of the debtor
Once the court has ordered a business reorganisation, the powers and duties of the debtor's executive in managing the debtor's business and property will cease, and will be transferred to the interim executive, the receiver or the plan preparer. Nevertheless, the debtor's executive still has the power to operate in the normal course of business.
(c) Shareholders of the debtor
Where the court has ordered a business reorganisation order, but the plan preparer has not yet been appointed, all rights under law of the debtor's shareholders shall terminate, except for the right to receive dividends, and such rights will be vested in the interim executive or the receiver. Where the court has issued an order appointing the plan preparer, the shareholders' rights shall vest in the plan preparer. Those rights will be restored when the court orders the cancellation of the reorganisation.
Shareholders' liabilities are strictly limited to the full payment of subscribed shares in the company.
(d) Secured creditors
Once a reorganisation petition is accepted by the court, the automatic stay will apply and a secured creditor will be prohibited from seeking to enforce its claim against property given as security.
However, a secured creditor may exercise the right to enforce the debt against the property given as security with no need to file an application for repayment of debt in the business reorganisation if the receiver or the plan preparer is allowed to examine such property.
(e) Unsecured creditors
The creditors have the right to submit an objection against the petition reorganisation not less than three days prior to the appointed date of the first inquiry. Otherwise, it shall be deemed that no objections have been made. The creditors also have the right to participate in creditors' meeting for the selection of the plan preparer and consideration of the proposed business reorganisation plan.
Employees whose employment is terminated during the reorganisation proceeding may claim severance pay and payment in lieu of notice against the employer in reorganisation proceedings. Employees must file an application for repayment in the reorganisation proceedings.
(g) Pension creditors
Under Thai law, there is no specific remedy for pension claims against employers in reorganisation proceedings. Pension creditors must file an application for repayment of debt in the reorganisation proceedings.
(h) Insolvency officeholder (if any)
The receiver is a government official who acts in an administrative capacity and has the following duties:
- serving notice of filing of the petition on the creditors;
- collecting repayment applications;
- convening the creditors' meeting for consideration of the proposed reorganisation plan; and
- serving notice of the court hearing for consideration of the reorganisation plan.
Reorganisation proceedings are a court-supervised formal attempt to rehabilitate the business of the distressed debtor. The court will assume a supervisory role and many actions must be ordered or approved by the court upon request by the debtor, the plan preparer and/or the plan administrator (eg, accepting the reorganisation petition; commencing the reorganisation proceedings; appointing the plan preparer; approving the reorganisation plan; cancelling the proceedings; and deciding on a request or challenge made by the creditors, the debtor, the plan preparer and/or the plan administrator).
3.8 Can restructuring proceedings be used to "cram down" and bind dissentient creditors to a transaction supported by other creditors? Are creditors separated into classes for the purposes of voting in the proceedings? What are the relevant voting thresholds? Is "cross-class cramdown" available?
The plan approved by the court is binding on creditors that actually file applications for repayment of debt in the business reorganisation, and on creditors that are entitled to file applications for repayment of debt in the business reorganisation.
Under Section 90/42 bis of the Bankruptcy Act, the classifications of creditors are as follows:
- A secured creditor with a secured claim which represents at least 50% of the total amount of claims for which applications for repayment of debt have been filed shall be treated as one group.
- Secured creditors not classified in the above group shall be treated as one group.
- Unsecured creditors may be classified into several groups, as long as those with claims or benefits of an essentially identical or similar nature are included in the same group.
- Creditors with other claims specified by law or by contract as having the right to receive payment only once all other creditors have received payment in full shall be treated as one group.
Creditors in the same group must receive equal treatment, unless those that are treated disadvantageously in that group have given their written consent thereto.
Any creditor that considers it has not been properly classified may file an application to the court within seven days of becoming aware of the classification, and the court may order that classification be expeditiously conducted de novo in a correct manner. The order of the court is final.
The resolution approving the plan must be:
- a resolution of a meeting of each and every group of creditors, not being a group of creditors that is deemed to have attended and voted to approve the plan, approved by a majority of each group of creditors with total claims of at least two-thirds of all claims in that group which are present at the meeting, in person or by proxy, and which cast their votes; or
- a resolution of a meeting of at least one group of creditors, not being a group of creditors that is deemed to have attended and voted to approve the plan, approved by a majority of the group of creditors with total claims of at least two-thirds both of all claims in that group which are present at the meeting, in person or by proxy, and which cast their votes, and when counting the total amount of claims of the creditors voting to approve in all meetings of every group of creditors, which represents not less than 50% of the total claims owed to all creditors present at the meeting, in person or by proxy, and which cast their votes.
3.9 Can restructuring proceedings be used to compromise secured debt?
Restructuring proceedings can be used to compromise secured debt in some circumstances, due to the voting regime. Once a reorganisation petition has been accepted by the court, an automatic stay will apply and a secured creditor will be prohibited from seeking to enforce its claim against the property given as security.
However, a secured creditor may exercise the right to enforce the debt against the property given as security with no need to file an application for repayment of debt in the reorganisation if the receiver or plan preparer is allowed to examine such property.
3.10 Can contracts / leases be disclaimed or otherwise addressed through restructuring proceedings?
Under Section 90/41 bis of the Bankruptcy Act, only the plan administrator, within two months of becoming aware of the court order approving the plan, has the power to refuse to accept property of the debtor or contractual rights that impose greater burdens on the debtor than the benefits derived therefrom, as specified in the plan. Any creditor or any person that suffers damage due to the actions of the plan administrator may file an application to court within 14 days of learning of such actions. The court has the power to issue an order affirming, overruling or correcting such actions, or such other order as it considers appropriate. Anyone that suffers damages has the right to apply for repayment of debt in the reorganisation in respect of the damages concerned.
3.11 Can liabilities of third parties (e.g. guarantors) be released through restructuring proceedings?
Under Section 90/60, paragraph 2 of the Bankruptcy Act, the court order approving the reorganisation plan has no effect on the liability of persons that are partners of the debtor or that bear joint liability together with the debtor or guarantor, or are in the same position as the guarantor for the debtor, with regard to debts existing before the date of the court order. Neither does it render such persons liable for debts created under the plan as from that date, unless such persons provide their written consent thereto.
3.12 Is any protection and/or priority afforded to the providers of new money in the context of restructuring proceedings (i.e. is "DIP financing" available)?
In Thailand, there are no specific provisions that protect or afford priority to such providers. The protection and/or priority afforded to such providers will be subject to the creditors' meeting and reorganisation plan.
3.13 How do restructuring proceedings conclude?
As mentioned in question 3.6, if the business reorganisation is successfully completed and all distributions are made in accordance with the plan, the court will issue an order cancelling the business reorganisation, the debtor's executive will resume the authority to manage the business and the shareholders' rights will be restored.
However, if the plan fails or if the timeframe for implementation of the plan expires before the reorganisation is successfully completed in accordance with the plan, the court will fix the date of a hearing and notify the official receiver of the appointed date and time. If the court deems it appropriate to adjudge the debtor bankrupt, it will issue an absolute receivership order against the debtor.
The order cancelling the reorganisation has the effect of discharging the debtor from the debts for which repayment can be claimed in the reorganisation, except for any debt for which an application for repayment was filed in the reorganisation proceedings. However, if the court revokes the reorganisation proceedings, all remaining claims that have not yet been repaid will remain outstanding.
4.1 What types of insolvency proceeding are available in your jurisdiction, and what are the benefits and drawbacks of each?
Bankruptcy proceedings are court-supervised proceedings to realise the assets of the debtor in order to distribute the proceeds among its creditors. Bankruptcy proceedings must be initiated by creditors against the debtor. Thai law does not allow the debtor to initiate a bankruptcy action against itself, except where the liquidator of a dissolved debtor files for bankruptcy proceedings because the dissolved debtor has insufficient assets to settle all debts.
4.2 How, by whom and on what grounds are insolvency proceedings initiated? Can the instigating party (or any other parties) select the identity of the relevant insolvency officeholder?
A single creditor or group of creditors may initiate a bankruptcy action against a debtor which becomes insolvent and is indebted to one or more of the plaintiff creditors in the following amounts (whether currently due or payable in the future):
- where the debtor is a natural person, not less than THB 1 million; and
- where the debtor is a juristic person, not less than THB 2 million.
Once the court has accepted the bankruptcy action, the date of the hearing will be expeditiously fixed. At trial, the court must be satisfied of the facts outlined above. If so, the court will issue an absolute receivership order against the debtor; otherwise, the court will dismiss the action.
In addition, before the court issues an absolute receivership order, the plaintiff creditor may submit an ex parte application for temporary receivership against the debtor. Upon receipt of this application, the court shall proceed with an inquiry. If the court is of the opinion that there is a prima facie case, it will issue a temporary receivership order; before doing so, it may require the creditor to provide security against potential loss sustained by the debtor in such amount as is deemed appropriate.
4.3 What are the effects of the commencement of insolvency proceedings, both for the debtor and for creditors?
Once the court has issued a receivership order against the debtor, the debtor's powers to act in relation to its property or business will be transferred to the receiver. The receiver has the following powers:
- to manage and dispose of the debtor's property and to act as necessary to complete the debtor's unfinished business;
- to collect and receive money or property which will devolve upon the debtor or which the debtor is entitled to receive from other persons;
- to issue a summons requesting the debtor to explain its business and assets; and
- to compromise or institute any civil action or defend any action, including acting on the debtor's behalf in all pending civil cases in connection with its property.
A creditor must request payment of its claims within two months of the date on which the court order appointing the receiver is published, even where the creditor is a judgment creditor or a creditor that has instituted a civil action which remains pending. This two-month period may be extended at the receiver's discretion if any creditors are domiciled outside Thailand for a further period of up to two months.
4.4 Does a moratorium or stay apply and, if so, what is its scope? Are there exceptions?
The Bankruptcy Act does not specifically provide for the application of an automatic stay in case of bankruptcy proceedings. If the court has not yet issued an absolute receivership order against the debtor, creditors may still file civil complaints against debtors.
4.5 What process do insolvency proceedings typically follow (including likely length of process and key milestones)?
The court will schedule the preliminary court hearing within two to three months of the filing date.
The court will issue an absolute receivership order against the debtor if it is satisfied that this is the appropriate course of action. The court will dismiss the action if:
- it is not so satisfied;
- the debtor can prove that it is in a position to fully repay its debts; or
- there are any other grounds to believe that it would be undesirable to make the debtor bankrupt.
Once the court has issued an absolute receivership order against the debtor, the receiver will convene the first creditors' meeting as soon as possible, at which the creditors will consider whether to:
- accept the debt composition proposed by the debtor; or
- request the court to adjudge the debtor bankrupt and consider the method for further management of the debtor's property.
Upon completion of the first creditors' meeting, the court will urgently conduct a public examination of the debtor in order to assess the business and property of the debtor, the reason for its insolvency and its conduct. However, if the court is of the opinion that a public examination of the debtor is not necessary, it may suspend this examination.
The court will adjudge the debtor bankrupt if the receiver reports that, at the creditors' meeting:
- the creditors passed a resolution requesting the court to adjudge the debtor bankrupt;
- the creditors passed no resolution;
- the creditors failed to attend the meeting; or
- the composition in satisfaction of debts was not approved.
In such case the receiver will have the power to manage the debtor's property for distribution among all creditors.
4.6 What are the respective roles, rights and responsibilities of the following stakeholders during the insolvency proceedings? (a) Debtor, (b) Directors of the debtor, (c) Shareholders of the debtor, (d) Secured creditors, (e) Unsecured creditors, (f) Administrator, (g) Employees, (h) Pension creditors, (i) Insolvency officeholder, (j) Court.
Once the court has issued a receivership order against the debtor, the debtor's power to undertake any act in relation to its property or business will cease and will be transferred to the receiver. The debtor will also be required to take the following actions:
- deliver all property, seals, account books and documents relating to its property and business which are in its possession to the receiver upon becoming aware of the receivership order;
- appear and take an oath before the receiver to confirm:
- whether it has entered into any partnerships;
- its business and property;
- the reason for its insolvency;
- its assets and liabilities;
- the names, addresses and occupations of creditors;
- property given to creditors as security;
- details of property which will vest in the debtor at a future date;
- where the debtor is an individual, property of the spouse; and
- property of other persons in the debtor's possession;
- attend every creditors' meeting and answer questions posed by the receiver;
- assist in the disposal and distribution of property among all creditors as and when required by the receiver;
- declare the revenue and expenses account to the receiver every six months; and
- not leave Thailand without written permission from the court or the receiver.
(b) Directors of the debtor
The liability of directors is separate from that of the company. However, if the receivership order is made against a registered ordinary partnership or a limited partnership, the creditor or receiver may file a petition to adjudge bankrupt any partners with unlimited liability in the partnership without instituting a new action.
Once the court has issued a receivership order, the powers of the director relating to the debtor's property and business will cease and will be transferred to the receiver.
(c) Shareholders of the debtor
The shareholders' liabilities are strictly limited to the full payment of subscribed shares in the company.
(d) Secured creditors
A secured creditor has rights over property given as security by the debtor prior to the receivership without any need to file an application for repayment of debt, but must allow such property to be examined by the receiver.
However, a secured creditor may file an application for repayment of debt under the following conditions:
- When agreeing to relinquish the property given as security for the benefit of all creditors, it may file an application for repayment of debt in full;
- Where enforcement has been made against the property given as security, it may file an application for repayment of debt in respect of the outstanding amount;
- Where a request has been made to the receiver for the sale by auction of the property given as security, it may file an application for repayment of debt in respect of the outstanding amount; and
- Where a valuation of the property given as security has been made, it may file an application for repayment of debt in respect of the outstanding amount. In such case, the receiver has the power to redeem the property at such price.
(e) Unsecured creditors
An unsecured creditor – whether the plaintiff creditor or not – may file an application for repayment of debt within two months of publication of the court order appointing the receiver, if the cause thereof arose prior to the date of the receivership order, even if such debt has not yet fallen due or is subject to conditions. However, if the creditor is outside Thailand, the receiver may grant an extension for up to two months.
The administrator is the receiver, who is a government official.
Employees whose employment is terminated may claim for severance pay and payment in lieu of notice. Employees must file an application for repayment of debt in the bankruptcy proceedings.
(h) Pension creditors
Under Thai law, there is no specific remedy for pension claims against employers in bankruptcy proceedings. Pension creditors must file an application for repayment of debt in the bankruptcy proceedings.
(i) Insolvency officeholder
Once the court has issued a receivership order, the debtor's powers to undertake any act in relation to its property or business will cease and will be transferred to the receiver, who will manage the debtor's property for distribution among all creditors (see question 4.4).
The receiver's duties include the following:
- to convene the creditors' meetings;
- to collect applications for repayment of debt;
- to give notice to related parties in proceedings; and
- to report to the court for further proceedings.
Bankruptcy proceedings are court-supervised proceedings aimed at realising the assets of the debtor in order to distribute the proceeds among its creditors.
The court will schedule one or more hearings to conduct an inquiry on the bankruptcy petition, a public examination of the debtor, composition, cancellation of bankruptcy and others at the request of the receiver or the debtor, as the case may be.
The court generally assumes a supervisory role and the receiver has a duty to report to the court, which may provide directions to the receiver upon request.
4.7 What is the process for filing claims in the insolvency proceedings?
A single creditor may initiate a bankruptcy action against an insolvent debtor (see question 4.3). Once the court has accepted the bankruptcy petition, the date of hearing shall be expeditiously fixed.
At trial, the court will seek to satisfy itself of the following:
- The debtor is insolvent;
- The debtor is indebted to:
- one or more creditors in an amount of not less than THB 1 million, where the debtor is a natural person; or
- one or more plaintiff creditors in an amount of not less than THB 2 million, where the debtor is a legal person; and
- The definite amount of such debt is determinable, whether it is already due or payable at a future date.
In addition, where the petitioner is a secured creditor, the court will seek to satisfy itself of the following:
- The secured creditor is not prohibited from enforcing payment of the claim against the debtor's property in excess of the property given as security; and
- The secured creditor has made a statement in the petition that, upon the bankruptcy of the debtor, it will waive the security for the benefit of all creditors or make an assessment of the security in the plaint and, once the amount of the debt has been deducted therefrom, the deficit amounts to not less than THB 1 million (where the debtor is a natural person) or THB 2 million (where the debtor is a legal person).
4.8 How are claims ranked in the insolvency proceedings? Do any claims have "super priority" and is there scope for subordination by operation of law (e.g. equitable subordination)?
Claims and expenses shall be paid in the following order:
- secured claims;
- expenses incurred in the administration of a deceased debtor's estate;
- expenses incurred by the receiver in the management of the debtor's property;
- funeral expenses of the deceased debtor appropriate to his or her status;
- fees for the collection of property;
- fees incurred by the plaintiff creditor and lawyers' fees as determined by the court or the receiver;
- taxes and duties due in the six months prior to the receivership order and money which employees were entitled to receive prior to the receivership order in return for services performed for the debtor;
- other claims; and
- claims of the debtor's spouse.
If the money is not sufficient for full payment of claims in any class, the creditors in that class must receive a share in the distribution pro rata.
In Thailand, there is no concept of equitable subordination.
4.9 What is the effect of insolvency proceedings on existing contracts? Is the counterparty free to terminate? Can they be disclaimed?
The general rule is that existing contracts remain enforceable upon bankruptcy. The receiver, on behalf of the debtor, can continue the debtor's business only for the purpose of winding up its outstanding business.
Section 122 of the Bankruptcy Act provides that if the receiver discovers that the debtor's property or contractual rights create unreasonably greater burdens than the benefits derived therefrom, he or she has three months in which to refuse to accept such property or contractual rights. Anyone that suffers loss in consequence of this decision has the right to submit an application for repayment of debt in compensation for such loss.
The receiver has the power to decide whether a contract should be accepted or rejected to maximise the value of the estate, which in turn will maximise the dividends for creditors in accordance with the purpose of the Bankruptcy Act. However, some issues remain ambiguous – for example, the types of contracts that may be accepted or rejected and the effects of such acceptance or rejection.
Generally, a contractual provision which allows the parties to terminate unilaterally in the event of a counterparty's bankruptcy will be upheld.
4.10 Can transactions entered into by the debtor prior to be insolvency be challenged and set aside? What are the relevant grounds / look-back periods / defences?
The receiver may request the court to revoke fraudulent transactions entered into by the debtor in the knowledge that it would prejudice a creditor. This will be presumed where:
- the ground of fraud arose in the year prior to the bankruptcy petition;
- the transaction was a gratuitous transaction; or
- the debtor received unreasonably low remuneration as part of the transaction.
In addition, in the event of the transfer of property or any transaction executed by the debtor or with its consent in the three months prior to the bankruptcy petition with the intent to give one creditor an advantage over others, the receiver may request the court to revoke such transfer or such transaction. However, if the creditor that was advantaged is an inside party of the debtor, the court can order revocation where the transfer or transaction took place within the year before the bankruptcy petition.
Defences include the following:
- The creditor that was advantaged by such transaction did not know at the time of the facts which made the transaction prejudicial to other creditors;
- The transaction was entered into and the rights of a third party were acquired in good faith; or
- Revocation was not requested within one year of the receiver learning of the fraudulent transaction or within 10 years of conclusion of the transaction.
4.11 How do the insolvency proceedings conclude? Can any liabilities survive the insolvency proceedings?
Bankruptcy proceedings are concluded in the following ways:
- The court will discharge the debtor from bankruptcy at the debtor's request where it considers that:
- at least 50% of the debtor's property has been distributed among the creditors that have filed applications for repayment of debt; and
- the debtor is not a dishonest bankrupt.
- In addition, a natural person adjudged bankrupt shall be automatically discharged from bankruptcy once three years have elapsed since the date of the adjudication of bankruptcy. An order discharging the debtor from bankruptcy will not relieve the debtor from claims:
- relating to tax or land tax;
- that have arisen through dishonesty or fraud; or
- for which creditors have not filed claims owing to dishonesty or fraud to which the debtor was a party.
- The court will terminate the bankruptcy proceedings where:
- the creditors fail to cooperate with the receiver;
- the debtor should not have been adjudged bankrupt;
- the debtor's debts have been repaid in full; or
- 10 years have elapsed since the final distribution of property or the point at which the property for distribution among creditors was exhausted.
- If the bankruptcy proceedings are terminated by the court on either of the first two grounds listed above, the debtor will not be adjudicated bankrupt and will not be relieved of its liabilities.
5 Cross-border / Groups
5.1 Can foreign debtors avail of the restructuring and insolvency regime in your jurisdiction?
This depends on the debtor's domicile. Section 7 of the Bankruptcy Act provides that an insolvent debtor may be adjudged bankrupt if it is domiciled in Thailand or operates a business within Thailand, whether personally or through representation, at the time the bankruptcy petition is filed against the debtor or in the year prior thereto.
5.2 Under what conditions will the courts in your jurisdiction recognise and/or give effect to foreign insolvency or restructuring proceedings or otherwise grant assistance in the context of such proceedings?
Foreign judgments or orders with respect to bankruptcy proceedings in foreign countries are not recognised under Thai law. Thailand is not a signatory to international treaties on bankruptcy or on the recognition of foreign judgments. Therefore, foreign insolvency or reorganisation proceedings have no effect on the debtor's assets in Thailand in accordance with Section 177 of the Bankruptcy Act.
The Thai courts will accept foreign judgments as evidence in a new trial. The only option for a creditor to enforce a foreign judgment is by commencing new proceedings in the Thai courts. Even if the foreign judgment is based on the merits of the case, the plaintiff must present all key witnesses and testimony in the new proceedings. In addition, the plaintiff must show that the foreign judgment is a final judgment in the relevant foreign jurisdiction, and that all avenues of appeal have been exhausted. The grounds of the foreign judgment must also be clear.
5.3 To what extent will the courts cooperate with their counterparts in other jurisdictions in the case of cross-border insolvency or restructuring proceedings?
Thailand has not adopted the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency. As Thailand is not a signatory to any treaties on international bankruptcy or on the recognition of foreign judgments, there is no legislation providing for cross-border cooperation in cross-border insolvency or restructuring proceedings.
5.4 How are corporate groups treated in the context of restructuring and insolvency proceedings? If there is no concept of a group proceeding (or consolidation), is there any regime through which insolvency officeholders must / may cooperate?
Under Thai law, the doctrine of separate legal identity is strictly upheld and each company in a corporate group is thus treated as a single entity. With respect to insolvency and restructuring proceedings, the Thai court will consider whether that entity was domiciled in Thailand or operated a business in Thailand, whether personally or through representation, at the time the bankruptcy petition was filed or in the year prior thereto, according to Section 7 of the Bankruptcy Act.
5.5 How is the debtor's centre of main interests determined in your jurisdiction?
The Thai courts do not recognise the concept of centre of main interests, but rather regard each debtor company as a separate entity from its group of companies. With respect to insolvency and restructuring proceedings, the Thai court will consider whether that entity was domiciled in Thailand or operated a business in Thailand, whether personally or through its representation, at the time the bankruptcy petition is filed or in the year prior thereto, according to Section 7 of the Bankruptcy Act.
5.6 How are foreign creditors treated in restructuring and insolvency proceedings in your jurisdiction?
Under Section 178 of the Bankruptcy Act, a foreign creditor that is domiciled outside Thailand can submit an application for the repayment of debt in Thai bankruptcy proceedings if it:
- can prove that Thai creditors are similarly entitled to apply for the repayment of debt in bankruptcy proceedings under the law and in the courts of its home country; and
- makes a declaration as to whether and to what extent it has received or is entitled to receive property or a share in the property of the same debtor outside Thailand, and agrees to deliver such property or share in such property to be added to the debtor's estate within Thailand.
6 Liability risk
6.1 What duties do the directors of the debtor have when the company is in the "zone of insolvency" (or actually insolvent)? Do they have an obligation to commence insolvency proceedings at any particular time?
There is no obligation for the directors of the debtor to commence insolvency proceedings at any particular time, as this is not required by law. However, the board of directors must convene an extraordinary shareholders' meeting if the company has lost half its capital, as required by Section 1172, paragraph 2 of the Thai Civil and Commercial Code.
6.2 Are there any circumstances in which the directors could incur personal liability in the context of a debtor's insolvency?
Under Thai law, there is no personal liability in the context of a debtor's insolvency. There are no specific provisions on the personal liability of the directors in the context of a debtor's insolvency or wrongful trading committed by the directors.
However, each director may be liable to a fine of up to THB 20,000 if he or she fails to convene an extraordinary shareholders' meeting when the company has lost half the amount of its capital.
6.3 Is there any scope for any other party to incur liability in the context of a debtor's insolvency (e.g. lender or shareholder liability)?
In Thailand, there are no specific provisions on the liability of individuals, including directors, shareholders and lenders. The doctrine of separate legal identity is strictly upheld under Thai law: each company in a corporate group, each director of a company and each shareholder of a company that is a legal person is treated as a single entity.
7.1 Is it possible to effect a "pre-pack" sale of assets, and is it possible to sell the assets free and clear of security, in restructuring and insolvency proceedings in your jurisdiction?
The concept of a pre-pack sale of assets is not recognised under Thai law. As a general rule, the assets will be sold through public auction by the receiver. However, there are no restrictions prohibiting the debtor from pre-negotiating sales transactions, including pre-negotiating with the major creditors, prior to or during the bankruptcy or reorganisation, and this tends to be convenient and beneficial for the creditors. Security cannot be released unless a creditor agrees otherwise by written consent. In addition, under the reorganisation proceedings, the methodology to release the security must be included in the reorganisation plan.
7.2 Is "credit bidding" permitted?
There are no provisions that specifically address credit bidding in Thai law.
8 Trends and predictions
8.1 How would you describe the current restructuring and insolvency landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
As a result of the COVID-19 pandemic, businesses around the world have been facing severe financial disruption, forcing an increasing number of companies to consider major business restructuring or even the closure of operations. Several major companies have already filed reorganisation petitions with the Central Bankruptcy Court, including a national airline, a low-cost local airline, a well-known beauty clinic and a high-end property developer. In addition, many companies are expected to submit petitions in the near future.
On 26 May 2020, the president of the Central Bankruptcy Court issued an announcement regarding the service of pleadings on and communications between related parties in bankruptcy and reorganisation proceedings. This allows the summons and petitions to be served quickly and efficiently, at minimal expense, through electronic devices, upon request by parties or where the court deems this appropriate, depending on the nature of the case, the number of parties involved and the number of documents.
9 Tips and traps
9.1 What are your top tips for a smooth restructuring and what potential sticking points would you highlight?
In order to achieve a smooth restructuring, the debtor should negotiate with the major creditors prior to and during the reorganisation proceedings, as these are primarily the parties that will participate in the proceedings from beginning to end (eg, the plan preparer must be appointed and the reorganisation plan must be approved by resolution of the creditors' meeting). The major creditors thus have almost complete control at the creditors' meeting to vote in favour or against the appointment of the plan preparer and approval of the plan.
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.