BANKRUPTCY, LIQUIDATION AND CORPORATE RESTRUCTURING
Thailand experienced the worst economic crisis in its history in 1997. As part of the conditions attached to the IMF bailout loan from the IMF, Thailand was required to amend its Bankruptcy Act to allow companies to reorganise similar to Chapter 11 of US federal law or administration under the U.K. Insolvency Act. But note that an individual still has no right to petition for his own bankruptcy, or petition for reoganisation.
In this chapter, we consider below the law regarding bankruptcy, liquidation of companies, and restructuring of companies.
The Bankruptcy Act (1940) as amended, contains the essential law applicable to bankruptcy of individuals and juristic persons.
Grounds for filing a bankruptcy petition – unsecured creditor A unsecured creditor who wishes to present a bankruptcy petition may do so, provided:
Petition by a secured creditor A secured creditor can present a petition if:
Presumption of insolvency A debtor is presumed to be insolvent if any of the following grounds exists:
(a) The debtor leaves Thailand, or having previously left, remains outside Thailand.
(b) The debtor leaves the property in which he has resided, or hides himself in any premises, or absconds or leaves by other means or closes his place of business.
(c) The debtor transfers assets outside the jurisdiction of the court.
(d) The debtor does any of the following:
· Leaves Thailand, or having left Thailand, remains outside the country
· Leaves the place where he used to live, or hides himself in the premises, or escapes by other means, or closes his place of business;
· Removes his property from the Court’s jurisdiction
· Submits to a court judgment which requires him to pay money that he should not pay
5. The debtor’s are seized under a writ of execution or where there are no assets capable of being seized to pay the judgment debt.
6. The debtor makes a declaration to the court in any proceedings that he is unable to pay his debts.
7. The debtor notifies any creditor that he cannot pay his debts.
8. The debtor submits a proposal for composition of his debts to any two or more of his creditors.
9. The debtor receives not less than two written demands for payment of debt at intervals of not less than 30 days, and the debtor does not pay such debts.
Who is liable? A registered ordinary partnership, a limited partnership a private or public company may be made bankrupt and the entity liquidated on the following grounds:
2. the assets are insufficient to meet liabilities
Who may apply? In addition to the persons listed above, the liquidator of a juristic person may petition for bankruptcy.
Procedure after bankruptcy petition filed After the petition is filed with the court, a date for hearing is fixed. A summons is served on the debtor, together with a copy of the petition. At the hearing the court will, if it is satisfied that the grounds for bankruptcy are proved, it will issue an order for absolute receivership. A temporary receivership order may also be issued, on the application of the petitioning creditor until the full hearing of the bankruptcy petition, if the court is satisfied that the petition establishes a prima facie case for receivership.
The case will then proceed. The petitioner must prove the grounds for bankruptcy, in particular that the debtor is insolvent. The debtor may defend the case on the grounds that the requirements are not met, or that he has or will have the ability to discharge his debts, or on other grounds.
Official receiver After an order for temporary or absolute receivership has been made, the official receiver will assume responsibility for the management of the debtor's affairs, to collect and receive money or property on behalf of the debtor, to compromise any claims and to issue or defend any legal proceedings.
Filing proof of debt When an order for control of the debtor’s property has been made, such order must be published in the Government Gazette and one daily newspaper. Creditors have two months from the date of publication of the order, to file proof of debt with the Official Receiver’s office. Where a creditor is outside Thailand, this may be extended for a further period of two months.
In 2015, the Act was changed so that;
(a) a creditor who has not filed a claim within the prescribed time limit may file a claim at a later time, if he can prove that the failure to file in time was due to an event of force majeure. The creditor must file proof of debt together with proof of the force majeure event. If the court rules in favor of the creditor, it will allow the creditor to file the claim within a specified period,
(b) a late filing creditor may be paid out of the assets that remain after distribution has been made to those who filed a petition with the time allowed.
(c) any acts previously taken by the court, the Official Receiver, and any creditors’ meetings will not be affected.
Enhanced powers of the Official Receiver In 2015, the Act was changed so that the Official Receiver, not the court:
(a) has power to examine claims for repayment of debts, and
(b) may decide cases where debt payment is disputed
Position of secured creditors A secured creditor need not file proof of debt, but must permit the inspection of any secured property. He may file proof of debt, provided:
In general, a secured creditor will not be unaffected by the issue of bankruptcy proceedings, except that after a receivership order has been made, the receiver will assume all the rights of creditors in relation to their dealings with the creditor.
Meeting of creditors After an order for absolute receivership has been made, the Official Receiver will issue notices to convene a meeting of creditors. At the meeting, negotiations may take place to ascertain whether it is possible for a composition to be made with the debtor, whether the court will be asked to adjudge the debtor bankrupt, and to consider proposals for the future management of the debtor’s property. Creditors may vote on any proposal for composition, provided they have filed proof of debt. Creditors who have not yet claimed their debts, may with the approval of creditors who have already claimed their debts, be permitted to vote. The meeting may resolve to appoint a creditors committee consisting of not less than three and not more than seven persons. Resolutions of a creditors committee are passed by a majority vote of the committee.
Public examination After the first meeting of creditors, the public examination of the debtor will commence. The debtor is required to answer questions on oath from the Official Receiver and creditors concerning his business and property, reasons for insolvency, any thing that he done or failed to do, or any conduct that may entitle the court to refuse to discharge him from bankruptcy in the future. At the end of the enquiry, the court will complete a report and submit it to the Official Receiver.
Property which is subject to realisation The following property is subject to realisation:
Composition The debtor may submit a proposal for the composition of his debts to the Official Receiver within seven days after the debtor has submitted the explanation of his affairs, referred to above. A proposal for composition may be accepted by creditors holding 75% in value of the total debts, and with the approval of the court. A composition may be rejected by the court where:
Where the court accepts the composition, then it will bind all creditors who have claimed payment but does not bind a debtor in respect of a debt that under the Act, survives discharge.
Where the debtor fails to comply with the composition and on certain other grounds, the court can issue a bankruptcy order.
Bankruptcy order Where an order for absolute receivership has been made, and the creditors have resolved to have the debtor declared bankrupt, or no resolution is passed at the creditors meeting or the composition has not been approved by the creditors and on certain other grounds, then the court will adjudge the debtor bankrupt. Bankruptcy takes effect from the date that such an order is made.
The debtor may still submit a proposal for composition after being adjudged bankrupt, in certain circumstances.
Procedure after adjudication of bankruptcy After being adjudged bankrupt, the debtor must cooperate with the Official Receiver and the creditors committee. Steps will then be taken to realise his assets and distribute the proceeds amongst creditors.
Order for distribution The order for distribution of monies realised in the proceedings is as follows:
If the monies realised are insufficient to pay the debts in a class, the debts abate rateably inter se.
Discharge The debtor, an interested party, or the Official Receiver may apply to the court for discharge from bankruptcy. Application can be made on the following grounds:
Procedure for discharge Notice of the hearing for discharge must be given to creditors. At the hearing, the Official Receiver will submit a report on the debtor’s conduct during the bankruptcy. The court will take into account the report, the evidence of the debtor, and the creditors.
Grounds for discharge The court shall order discharge if it finds that:
Effect of discharge Discharge means that the bankrupt is discharged from all liability in respect of which payment can be claimed except for tax or duties, debts incurred through his dishonesty or debts not claimed due to his dishonesty.
Automatic discharge A person is automatically discharged from bankruptcy after three years from the date of the bankruptcy order provided that:
The Official Receiver can apply to the Court before the end of the three year period above, for an order to suspend the counting of time.
Fraudulent acts The Official Receiver may apply to the court to cancel any fraudulent acts, as defined in the Civil and Commercial Code:
If the act was committed within one year before the bankruptcy petition or after its issue, or the act was without consideration, or was an act where the debtor received unreasonably less than that which would be received, it shall be presumed to be a fraudulent act.
Any action to set aside a fraudulent act must be brought within one year from the date that the creditor knew of grounds to apply to set aside, or not later than 10 years after the act was committed.
Transfers without consideration and preferential acts Transfers of property, or any act affecting property, made during a period of three months prior to the bankruptcy petition with the intention of preferring one creditor over another may be set aside
If the referred creditor is associated (as defined) with the debtor, the period of three months referred to above is extended to one year before or ant any time after the petition is filed. This provision does not affect the rights of a party who acquired assets in good faith fro consideration prior to the petition being lodged.
Debts that survive discharge The following taxes and debts survive discharge and are still payable:
Discharge does not affect the liability of the debtor’s partner for a debt, or a joint debtor or any guarantor of the debt.
Liquidation of a private company
Liquidation of a private company can be divided into voluntary liquidation, i.e., by shareholders’ resolution and involuntary liquidation, i.e., upon the application by an interested party or pursuant to a court order.
Voluntary liquidation Voluntary liquidation may be initiated by a resolution of shareholders passed by those holding at least 75% of the shares, and confirmed by the vote of at least two-thirds of all shareholders attending a second shareholders’ meeting, held not less than 14 days nor more than six weeks after the first meeting.
Procedure In voluntary dissolution, the directors become the liquidators, unless the articles provide otherwise. A liquidation manager can be appointed by the directors. Within 14 days of the date of dissolution (i.e. the date of the second shareholders’ meeting) the liquidator must:
If any creditor does not apply for payment, the liquidators must deposit the amount due to him into a bank account or with the court for the benefit of the creditor.
The dissolution of the company and the name of the liquidator must also be registered at the Ministry of Commerce, within fourteen days of the dissolution.
Balance sheet and shareholders’ meeting As soon as possible, the liquidators must prepare a balance sheet for the company. The balance sheet must be certified by the company's auditors and then presented to a general meeting of shareholders. At such meeting, the following business must be transacted:
The meeting may direct the liquidators to prepare an account or to do whatever the meeting may deem advisable for the settlement of the affairs of the company.
Liquidator’s powers The liquidators have power to:
Call for unpaid capital The liquidators may also require the shareholders to pay immediately any unpaid part of their shares. Once the shares are fully paid, if the assets of the company are insufficient to meet the liabilities, the liquidators must immediately apply to the court to have the company declared bankrupt.
Further procedure If the company is not put into bankruptcy, the liquidators must file a report every three months with the Ministry of Commerce stating the current account of the liquidation. If the liquidation lasts more than one year, the liquidators must summon a general meeting of shareholders and make a detailed report on the status of the liquidation.
When the business of the company has been liquidated, the liquidators must prepare an account of the liquidation, showing how the liquidation has been conducted and the property of the company disposed of. The liquidators must then summon a general meeting of shareholders for the purpose of presenting the report on the liquidation. When the shareholders' meeting approves the account, a copy of the minutes of the meeting must be registered at the Ministry of Commerce within 14 days from its date. This brings the liquidation to an end.
Grounds for liquidation A private company can be involuntarily liquidated on the following grounds:
In the case of default in filing the statutory report or in holding the statutory meeting, the Court may, instead of dissolving the Company, direct that the statutory report be filed or the statutory meeting be held.
Appointment of liquidator Similar to voluntary liquidation, the directors or a liquidation manager become the liquidators of the Company. Where no liquidator is appointed, the attorney general or an interested party may apply to the court to appoint a liquidator.
Further procedure In general, the process of involuntary liquidation is the same as that in the case of voluntary liquidation outlined above.
Liquidation of public companies
The liquidation of a public company may take place in the following ways:
Special resolution required A public company may be dissolved by a resolution passed at a meeting of shareholders passed by those holding not less than 75% of the shares carrying voting rights.
A public company can be involuntarily liquidated on any of the following grounds:
· the promoters have contravened or failed to comply with the provisions relating to the statutory meeting or preparation of the report on the establishment of the company, or the board of directors has contravened or failed to comply with the provisions relating to payment on shares, the transfer of ownership of property to the company, or the making of documentation available to the company for its use of the various rights for payment for shares, the preparation of the list of shareholders, or the registration of the company;
· the number of shareholders is reduced to less than 15;
· the business of the company may only be continued at a loss.
Procedure for liquidation Except in the case of bankruptcy, the procedure for liquidation is as follows:
Action by liquidator The liquidator must take the following steps within seven days of the date of his appointment:
Date of dissolution Dissolution takes effect on the date when the Registrar registers the dissolution. The company will continue to exist until completion of the liquidation.
Preparation of accounts The liquidator must arrange for the preparation of the balance sheet and profit and loss account for the period from the commencement date of the fiscal year until the registration of the dissolution. The accounts must be examined by the auditor within four months of the date of being appointed. The accounts must be submitted to a shareholders meeting for approval, within one month of their being received from the auditor. The approved accounts must be delivered to the Registrar, together with a copy of the minutes of the shareholders meeting, within 14 days of the date of the approval at the shareholders meeting;
Realisation of assets The liquidator may then proceed to collect and realise assets and to pay debts. After having paid or set aside monies for payment of all debts, if there is any property remaining, the liquidator will divide it between the shareholders pro rata in proportion to shares owned, unless the articles of association provide otherwise regarding preferred shares.
Liquidation report The liquidator must prepare a report on the liquidation and deliver it to the Registrar together with accounts every three months, until the liquidation is completed. Usually, the liquidation must be completed within one year of the dissolution being accepted by the Registrar.
If the liquidation cannot be completed within that time, the liquidator must summon a shareholders meeting every year, within four months from the end of the year, in order to present to the shareholders a report on the status of the liquidation.
If the liquidation cannot be completed within five years, the liquidator shall submit a report with reasons to the Registrar every three months, and the Registrar may order the liquidator to do any act to expedite the liquidation.
The law relating to reorganisation of a company is to be found in Chapter 3/1 of the Bankruptcy Act, which was inserted into the Act in 1998.
Court with jurisdiction All reorganisation proceedings are issued in the Central Bankruptcy Court, where the registered office of the debtor is in Bangkok, or in a provincial Bankruptcy Court.
Definitions This part of the Act contains the following definitions:
A creditor includes secured and unsecured creditors.
A debtor means a debtor that is a private or public company or other juristic person, as prescribed by regulations. In 2016, this was extended to include a natural person, a group of people, and an unregistered partnership that engage in SME business (as defined in the Act on the Promotion of Medium and Small-sized Enterprises).
Petition means a petition requesting the Court to order reorganisation of the business.
Petitioner, means a person who submits a petition to the Court.
Plan means the plan to reorganise the debtor's business.
Planner means the person who prepares the plan.
Plan administrator means the person who manages the business and assets of the debtor, pursuant to the plan.
Debtor's management means the directors, managers or persons with authority to conduct the debtor's business, on the date the Court orders reorganisation.
Interim administrator means the debtor's management who are temporarily authorised to manage the debtor's business and assets, pending appointment of the planner.
Right to issue reorganisation proceedings Reorganisation proceedings may be issued by:
· The Bank of Thailand, where the debtor is a bank, finance company, finance and securities company or credit foncier company;
· The Securities and Exchange Commission, where the debtor is a securities company,
· The Insurance Department, where the debtor is a life or casualty insurance company
· Any government agency that has authority over the debtor.
provided that the debtor must owe one or more creditors at least 10 million Baht, whether or not the debts are currently due.
2016 amendments Under amendments that came into force in 2016 enabling SME businesses to enter reorganisation proceedings, the minimum amount of debt owed must be:
Consent to issue proceedings The prior consent of the relevant regulatory authority for the issue of reorganization proceedings is required, where the debtor is a:
Approval or refusal of consent must be given within 15 days of a request, and there is a right of appeal against refusal to the Minister concerned. The Minister's decision is final.
No right to issue reorganisation proceedings There is no right to issue reorganisation proceedings where:
Contents of the petition The petition must contain the following information:
Where the debtor presents its own petition, it must include a list of all assets and liabilities and details of all creditors. Where a creditor petitions, it must include a list of all other known creditors.
Procedure after the petition has been filed After issuing the petition, the case will proceed as follows:
6. Where the debtor's assets are already under interim receivership, then a copy of the petition must also be sent to the Official Receiver.
2016 changes regarding SME debtors Where the debtor applicant is an SME:
· The petition must be accompanied by a business reorganization plan to be approved by creditors claiming at least two thirds of all debts.
· Certain steps after Court approval of the application are excluded, e.g., the appointment of a plan preparer, the creditors’ meeting to approve the plan, and appointment of a plan administrator.
General approach of the court The Court will permit reorganisation if:
Otherwise, it will dismiss the petition.
If there are no objections, and the Court determines that it is reasonable, it may permit reorganisation without conducting an enquiry.
Hearing and evidence The hearing must be conducted in accordance with the following rules:
A person who is not present at a hearing (with or without the Court's consent) is deemed to have knowledge of what occurred at that hearing.
Protections and immunities granted to the debtor Certain very substantial protections and immunities are granted to the debtor, which apply from the Court's acceptance of the petition until one of the following events occurs:
Nature of the protections and immunities
Protection for creditors A creditor or any person adversely affected as a result of restrictions imposed on his rights to take action, may apply to the Court to vary or revoke any restriction imposed, on the grounds that it is:
Adequate protection is deemed to have been given if:
There is also provision to extend prescription periods for bringing claims, if such are due to expire.
Interim administration powers Before the planner is appointed:
If reorganisation is permitted, the Official Receiver will arrange for public announcement of the Court order permitting reorganisation in newspapers, and will also notify the Companies Registry, and any regulatory agency responsible for supervision of the debtor.
Appointing the planner The planner may be nominated:
If the debtor does propose a planner, that person shall be appointed, unless he is opposed by creditors holding a majority of at least two thirds of the debts owed. Secured creditors are entitled to vote, based on the amount of the debt secured.
The candidate selected by the meeting and acceptable to the Court, shall be appointed as planner. If no planner is appointed at the meeting, the Official Receiver must convene another meeting to consider such appointment. If such meeting still cannot appoint a planner, the order for reorganisation will be revoked.
Requirements are also imposed for the public advertisement and notification to all creditors, of the convening of a creditors' meeting to appoint a planner.
Under ministerial regulations issued in 2000, a planner must have certain qualifications to enable him to be appointed and act as a planner.
Notification of the Planner’s appointment The appointment of the planner must be:
Suspension of shareholders’ and directors’ rights Until the appointment of the planner, and on the making of an order for reorganisation:
Contents of the plan The plan must contain certain information, namely: the grounds for reorganisation, details of assets and liabilities, the principles for reorganisation and proposals for paying debts and other matters, and the timeframe for implementing the plan, which must not exceed five years.
Preparation and consideration of the plan The plan must be sent by the planner to the Official Receiver and all others concerned within three months of the planner's appointment. After receiving the plan, the official receiver must call a creditors' meeting to consider the plan. A creditor, the debtor or the planner may propose changes to the plan, at least three days before the meeting.
Groups of creditors Creditors are divided into the following groups for the purpose of approving the plan:
Approval of the plan To approve the plan, there must be passed a resolution by 75% of those attending:
Certain creditors excluded from the second paragraph above are presumed to approve the plan, as follows:
1. Creditors who have received a proposal for full payment of their debt that is in default with interest within 15 days of Court approval of the plan
2. Creditors who have received a proposal for repayment under a previous agreement
3. Deferred creditors
Court approval of the plan The Official Receiver must report to the Court the resolutions passed at the creditors' meeting. The Court must then convene a hearing to approve the plan.
At that hearing, the Court will approve the plan provided that:
If the Court fails to approve the plan, it will then decide whether to issue a bankruptcy order against the debtor.
Consequences of approval of the plan
Once the plan is approved:
Plan approval does not affect the liabilities of those who hold any liability jointly with the debtor, or those who are guarantors of the debtor's liabilities.
Creditors who fail to file their claims in time forfeit their right to claim payment, unless (1) it is otherwise stated in the plan; or (2) where the Court sets aside the order for reorganisation.
Amendment of the plan The planner must consent to any changes to the plan. If there is no request to change the plan, but the creditors fail to pass a resolution to accept the plan, then the Court must convene a hearing, which the debtor must attend. If the Court holds that there has been no request to change the plan and no resolution passed to approve the plan, it will revoke the order for reorganisation.
Where at least 10% in value of the creditors request a material alteration to the plan, then the meeting can be adjourned. If the planner refuses to change the plan, the creditors will be asked whether they wish to appoint a new planner, who should then be appointed promptly.
Amending the plan after approval If revisions to the plan are necessary after approval, the plan administrator may apply to the Court for approval of necessary amendments, and must also obtain the approval of the creditors' meeting. Neither the debtor nor the creditors may amend the plan, without the plan administrator's approval.
The plan administrator may request the Court's approval of any changes to the articles or memorandum of association of the debtor.
Duties of the debtor and other parties to cooperate The debtor has a duty to:
Creditors’ rights and voting at meetings The creditors who have the right to attend and vote for the planner at creditors' meetings, must comply with the following:
At the meeting, creditors and the debtor can challenge the right of a creditor to vote. Any disputes arising will be decided by the Official Receiver.
Rights of creditors to claim debts The rights of creditors to claim their debts are subject to the following rules:
Creditors’ right of set off Where a creditor owes a debt to the debtor, he may set off his debt against that of the debtor owed to him, except where the right to set off arises after the date of the order for reorganization.
No proof of debt required No proof of debt need be filed in relation to:
Disclosure of information concerning the debtor Duties to supply information are imposed on the debtor's management:
Setting aside acts done The planner, the plan administrator or the Official Receiver can ask the Court to set aside fraudulent acts (as defined in the Civil and Commercial Code, and see section on Bankruptcy above).
Plan administrator's right to disclaim The plan administrator has a right to disclaim the debtor's property or contractual obligations that exceed the benefits under the Plan, within two months of the Court approving the Plan. This is subject to the right of a creditor or a person suffering loss to apply to set aside such disclaimer, within 14 days of its knowledge of the same, or to claim compensation in the reorganisation.
Monitoring of the reorganisation The plan administrator is obliged to submit quarterly reports to the Official Receiver on the progress of reorganisation.
Conclusion of reorganisation The debtor's manager, the plan administrator, the interim administrator or the Official Receiver may request the Court to set aside the order for reorganisation if the reorganisation has been successfully completed. The Court on hearing such application may set aside the order, or extend the reorganisation period.
Extension of time for reorganisation If the time for reorganisation has expired but the reorganisation has not been completed, then the Court must be notified and a hearing convened to consider the matter. At the hearing, the Court has power to make a bankruptcy order, or to terminate the reorganisation.
Appeals The Act sets out certain rights of appeal in relation to decisions made.
Revised 1 September 2016