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Relevant aspects of the corporate rehabilitation in Thailand H&P Corporate and Bankrutpcy law firm in Thailand

Under Thai Law when a company is at risk of bankruptcy, a legal proceeding known as the ‘Rehabilitation’ takes place. The primary objective of the rehabilitation is to allow the debtor’s (the company) business to continue operating while ensuring creditors receive repayment, which is different from bankruptcy proceedings, where the debtor’s operations continue only to facilitate the winding-up process. H&P Corporate Lawyers in Thailand have prepared a summary of the key aspects of corporate rehabilitation.

The individuals or entities eligible to file a petition for rehabilitation are as follows:

∙ Creditors: whether a creditor or multiple creditors, whose claims are definite and amount to no less than ten million baht as of the filing date.

∙ Debtors ‘the company’: which must be a juristic person such as limited companies, public limited companies, etc. The debtor must either be insolvent or unable to meet their obligations as scheduled and must be definite and amount to no less than ten million baht as of the petition filing date, regardless of whether the debt is due or will due in the future.

∙ Government agencies as written in Section 90/4 of the Bankruptcy Act B.E. 2483 (1940).

The parties must demonstrate compliance with the conditions which must meet three key criteria outlined in Section 90/3 of the Bankruptcy Act B.E. 2483 (1940). If the debtor ‘the company’ could demonstrate such criteria, they will then be entitled to proceed the rehabilitation process, as follows:

1. The debtor must be insolvent or unable to meet their debt obligations as scheduled. Specifically;

– Insolvency means the debtor’s liabilities exceed their assets. This can be demonstrated through circumstances presumed under Section 8 of the Bankruptcy Act or through any factual evidence showing that the debtor’s liabilities exceed their assets.

– Inability to meet obligations may involve financial distress, such as a lack of liquidity, insufficient cash flow, or other financial difficulties preventing the company from fulfilling their debt obligations when it becomes due.

2. The debtor ‘the company’ must owe a creditor, or multiple creditors combined, a total debt of no less than ten million baht. This amount must be definite at the time of filing the rehabilitation petition, regardless of whether the debt is immediately due or set to become due in the future.

3. There must be reasonable grounds and viable methods for the rehabilitation. These grounds serve as the basis for filing the rehabilitation petition, along with the expected outcomes, and each case must be considered individually.

For example, the debtor may be impacted by a slowdown in the real estate business or an economic crisis, with the purpose of rehabilitation being to enable the debtor’s business to continue operations despite such challenges. (Supreme court judgment 6858/2556)

Once the court has accepted the petition for the rehabilitation, the debtor will be in an ‘automatic stay’ state. The purpose of this moratorium state is to preserve the debtor’s (the company) assets for the benefit of gathering and distributing them to creditors fairly and in accordance with the rehabilitation.
This process also reduces financial pressure on the debtor by preventing creditors from seizing assets or collateral. All types of claims that creditors may seek to collect must be brought into the rehabilitation process. This ensures that the debtor’s existing debts are resolved under the rehabilitation proceedings. The automatic stay applies to creditor actions only after the court has accepted the petition for consideration. (Supreme Court Judgment No. 3735/2558)

The list of protections and conditions under the Bankruptcy Act, Section 90/12, includes 11 principal provisions. Examples include:

• Prohibiting the filing of lawsuits to liquidation or revoke its business license.
• Prohibiting the initiation or continuation of civil lawsuits against the debtor involving the debtor’s assets.
• Prohibiting the filing of bankruptcy petitions against the debtor.
• Prohibiting the debtor from disposing of, transferring, leasing, repaying debts, incurring new debts, or taking any actions that create encumbrances on assets unless such actions are necessary to ensure the debtor’s normal business operations can continue. Exceptions may apply if the court orders otherwise.

However, individuals who are jointly liable with the debtor—such as co-debtors, guarantors, or those liable as guarantors—are not protected under the automatic stay in any way.

Therefore, the debtor under an automatic stay as a result of the court’s approval of the rehabilitation petition must comply with the law. However, if the debtor or the creditors disobey or fails to adhere to legal requirements, any actions in breach of the provisions outlined in aforementioned section, it will not obligate any debt to the debtor.

The automatic stay will cease when the rehabilitation proceedings are concluded.

This includes the following scenarios: the expiration of the timeline established in the rehabilitation plan, successful completion of the plan, the court’s dismissal of the petition, the court’s order to dismiss the case, the court’s order to revoke the rehabilitation order, the court’s order to terminate the rehabilitation process, or the court’s final order for the protection of the debtor’s assets from bankruptcy proceedings.

The aforementioned process is just the beginning of the rehabilitation proceedings. After completing these steps, it is essential to appoint a plan preparer and find an executor to carry out the drafted plan. This is a highly complex and delicate matter that requires the expertise of a specialized attorney to navigate the complexities involved in the process.

If you need to discuss a rehabilitation or bankruptcy scenario in Thailand, please contact our corporate lawyers in Thailand at [email protected]

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