Thai businesses navigate bankruptcy via national rehabilitation process
The Thai economy has weathered numerous challenges recently, including the Covid-19 pandemic, a worldwide economic downturn, repercussions from international conflicts, declining exports, and persistent domestic political upheaval. This has led to a surge in bankruptcies, and many other Thai businesses have sought to navigate the business rehabilitation process under Thailand’s Bankruptcy Act.
The Bankruptcy Act allows a creditor, debtor, or specific government agency to file a business rehabilitation petition, given certain conditions. These include the debtor being insolvent, meaning they have more debts than assets. The Bankruptcy Act provides criteria for insolvency, such as debtors declaring their inability to pay their debts or defaulting on payments despite receiving two demand letters from a creditor.
When a business rehabilitation petition is filed, the debtor is shielded under an automatic stay, preventing any creditor from prosecuting or compelling the debtor to pay a debt. Likewise, the debtor is not allowed to fulfil any debt unless specified as an exception under the Bankruptcy Act.
Subsequently, the court will schedule a hearing to assess the facts. If the conditions are met, an order to approve the debtor’s business rehabilitation will be issued. The court will also designate a planner who must devise a business rehabilitation plan per the Bankruptcy Act’s requirements. The planner then assumes the responsibility of managing the debtor’s business, assets, and all legal rights of the debtor’s shareholders, excluding the right to receive dividends.
In case the court approves the rehabilitation but does not appoint a planner, the debtor’s executives must surrender all company assets, seals, accounting ledgers, and documents related to the debtor’s assets and business to an appointed temporary administrator or official receiver.
Once the planner is appointed, all creditors are required to submit a debt repayment application within a month. They can seek repayment by submitting a debt repayment application to the official receiver if the debt obligation is met. Creditors have voting rights corresponding to the debt amount, provided no objections are raised by the debtor, planner or other creditors.
Business Rehabilitation
Disputes over the debt repayment application can be filed with the court within 14 days of the official receiver’s order acknowledgement date. Foreign currency debts are converted into Thai baht based on the Bankruptcy Act’s daily exchange rate.
In certain circumstances, creditors are also entitled to offset debt. This becomes possible when a creditor is entitled to submit a debt repayment application and the debtor is indebted to the creditor when the court issues the business rehabilitation order.
Given the recurrent crises experienced by Thai businesses recently, availing of the protection offered by Thailand’s business rehabilitation process may prove beneficial. However, complying with the legal requirements of the process is crucial to avoid civil and criminal liabilities, reported Bangkok Post.
Debtor Financing
Debtor finance, also known as accounts receivable finance, is a financial arrangement where a business sells its invoices or accounts receivable to a third party (a finance company or factoring company) at a discount. This provides the business with immediate cash flow, which can be crucial for maintaining operations, investing in growth, or covering short-term expenses without having to wait for customers to pay their invoices.
There are two main types: factoring, where the finance company takes on the responsibility of collecting the receivables, and invoice discounting, where the business retains control over the collection process. This can be a useful tool for companies looking to improve their liquidity or manage cash flow more effectively.
