The adverse situation of Covid-19 is pushing many businesses to temporarily or permanently cease operations because the unbalanced of monthly expenses versus accomplished transactions. From a legal point of view this affects all parties.
Since a debtor fails to perform his obligation, a debtor can be a natural person or juristic person. In order to extinct the obligations, Creditors have four options: refinance, make a demand to the Court for compulsory performance, application of repayment of debt in business reorganization and bankruptcy petition and issuance of a Receivership order.
Even if a Court eventually would consider Covid-19 as a force majeure, we still have to consider a bankruptcy petition and issuance of a Receivership order.
The Creditor can initiate a bankruptcy action against the debtor only if the debtor becomes insolvent. The amount of such debt is determinable, whether it becomes due forthwith or at a future date but not include the lapse of the period of prescription for claims and the debtor who is a natural person is indebted to Creditors for not less than one million Baht or the debtor who is a juristic person is indebted to Creditors in an amount of not less than two million pursuant in section 9 of Bankruptcy Act B.E. 2483.
After the plaintiff (Creditor) submits a complaint in a bankruptcy proceeding, the plaintiff may not withdraw such complaint unless upon permission by the Court because bankruptcy action is for the benefit of every Creditor pursuant by section 11.
If the Court is satisfied with the facts as abovementioned, the Court shall issue a Receivership order against the debtor and the bankruptcy of the debtor takes effect as from the date of the Court’s Receivership order pursuant by section 14 and section 62.
On contrary, if it is not so satisfied or it is proved that the debtor is in the position to make full payment or if there are other cause indicative of undesirability of making the debtor bankrupt, the Court shall dismiss the action.
Upon the Court’s Receivership order against the debtor, the debtor can not do any act binding the property or business by himself, the receiver alone has the power to manage it pursuant by section 22 and section 24. Therefore, every juristic act that the debtor made is void no matter the third person who signs acts in good faith.
A Creditor intending to have repayment of debt in a bankruptcy action must apply to the receiver within two months as from the date of the publication of the absolute Receivership order but if the Creditor is outside Thailand, the receiver may grant an extension of time for a period not exceeding two months.
If the Creditors can not apply on time, they will lose the right to receive repayment of the debt and when the order of discharge from bankruptcy has the effect of discharging the bankrupt from all debts of which applications for repayment are permissible.
In the case the Creditor can not apply on time because the Coronavirus Disease (COVID-19) for example the Creditor who lives outside the kingdom can not come to apply because his country is in lockdown it is a force majeure. Therefore the Creditor can submit to the Court an application, by motion, indicating his intention to apply for repayment of depth and indicating force majeure preventing his submission of an application for repayment of debt within the time limit.
If the Court agrees that the impediment constitutes force majeure and there is a reasonable justification for permitting the Creditor’s submission of an application for repayment of the debt, the Court can issue an order permitting such Creditor to apply for repayment of debt to the receiver within the fixed period of time by the Court.
But the Creditor will have the right to have repayment of debt out of the debtor’s estate only in respect of the property remaining after the distribution of property carried out prior to the Creditor’s submission of the application for repayment of the debt, without prejudice to any act previously done by the Court, the receiver or a meeting of Creditors.
Upon the Court’s absolute Receivership order against the debtor and the debtor propose a composition in satisfaction of debts, the receiver shall summons a meeting of Creditors as soon as possible 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. The Creditor can consider and accept the debt composition proposed by the debtor then request the Court to not adjudge the debtor bankrupt because the acceptance of a composition of debts by a resolution of a meeting of Creditors does not bind all Creditors until the Court issues an order approving it.
In the situation of COVID-19 in Thailand it may consider the resolution of a meeting of Creditors and consider the Court to decide of not adjudge the debtor bankrupt and let the debtor repayment follow the composition proposed. When the Court approves the composition in satisfaction of debts, the Court has the power to issue an order canceling the bankruptcy and restoring the debtor’s power to manage his property or may issue any other order as it deems appropriate.
The Court has the power to terminate the composition and adjudge the debtor bankrupt, without prejudice to any act previously done in pursuit of the terms of such composition. The debtor should negotiate with the receiver and the Creditor about this situation, extension of time for repayment.
In the case of the adjudication of bankruptcy, the debtor may propose a composition in satisfaction of debts too. If the Court approves the composition in satisfaction of debts, the Court has the power to issue an order canceling the bankruptcy and restoring the debtor’s power to manage his property or may issue any other order as it deems appropriate.
A natural person declared in bankruptcy will be discharged from bankruptcy upon the lapse of the three years. This order will affect all debts, therefore if the Creditor does not receive the full payment in within three years, then the Creditor has a risk of not being paid the debt and will not have the right to claim it. According to the Thai Civil and Commercial Code, if the company is declared in bankrupt, the company will be dissolved. The Creditor can receive only the remaining properties/assets of the company.
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