In 2022, the number of insolvency cases filed with the Central Bankruptcy Court (the “Bankruptcy Court”), the Thai competent authority with jurisdiction over insolvency issues, remained stable. There were 8,223 bankruptcy filings in 2022, compared to 9,235 cases in 2021. There were 25 business rehabilitation proceedings initiated in 2022, marking a slight increase, compared to 18 cases in 2021.

The trend for 2023 remained unclear. Many industries appear to be struggling with financial distress due to political and economic factors. However, a surge in the number of businesses choosing business rehabilitation proceedings to address their specific financial issues has not yet been observed.

In recent years, there have been attempts by the government to overhaul the insolvency legislation to boost the popularity of business rehabilitation proceedings by relaxing the restrictions and limitations under the current framework. Efforts also include an attempt to establish a clear mechanism for the expedited process (pre-package scheme) under the Thai legal framework, aiming to merge the out-of-court workout and reduce the risks and uncertainties. Despite no concrete outcome being observed, it can be anticipated that the reform will be actively pushed to equip businesses with essential tools to counteract the potential wave of insolvencies under the current market conditions.

Insolvency matters in Thailand are principally governed by the Bankruptcy Act. The competent body exercising judicial power is the Bankruptcy Court. The main insolvency proceedings available under the Bankruptcy Act are:

• bankruptcy proceedings (including composition); and
• business rehabilitation proceedings.

As mentioned in 2.1 Overview of Laws and Statutory Regimes, two types of proceedings are available under the Bankruptcy Act.

Bankruptcy and Business Rehabilitation Proceedings

Bankruptcy proceedings are court-supervised proceedings designed to realise the assets of the debtor and to distribute the proceeds among its creditors. In such proceedings, if, after taking evidence, the court is of the opinion that a debtor is insolvent, an absolute receivership order will be issued against the debtor, as a result of which all business operations of the debtor will cease. Following the issuance of an absolute receivership order, the court will appoint an official receiver (who is the government official from the Legal Execution Department, Ministry of Justice) to oversee and manage the debtor’s assets, including collecting and gathering the debtor’s assets or money from the debtor and possessors, as well as managing and liquidating those assets.

Business rehabilitation proceedings are court-supervised formal attempts to restructure distressed enterprises, where a moratorium (automatic stay) will be applied to protect the debtor from its creditors. The automatic stay is a broad form of defence that gives debtors “breathing room” from pressure from creditors, and prevents creditors from filing separate legal claims. A fundamental principle of an automatic stay is to prevent the debtor from:

• selling, distributing or transferring its assets;
• paying or incurring debts; or
• taking any other actions that encumber its assets without approval from the court or outside the ordinary course of business.

Under the Bankruptcy Act, business rehabilitation proceedings can be initiated either by the debtor itself or by the creditor. Bankruptcy proceedings, on the other hand, may only be initiated by creditors. Thai law does not allow a debtor to commence voluntary bankruptcy proceedings.

In order to commence bankruptcy/business rehabilitation proceedings, a bankruptcy petition/rehabilitation petition must be filed with the Bankruptcy Court. The debtor must be proved to be insolvent. As there are certain levels of involvement by the courts, the official receiver and other competent authority or authorities, bankruptcy/business rehabilitation proceedings tend to be complicated and time-consuming.

Solvent Liquidation

A solvent liquidation process (winding-up) may be undertaken by a dissolved company per se out of court, in accordance with Thai company law; while an insolvent liquidation may only be done through court proceedings – ie, bankruptcy proceedings.

Only the following situation will oblige a company to enter into an insolvent liquidation process (bankruptcy proceedings). If the liquidators of a dissolved company (wound-up company) discover that the entire contribution of shares has been paid up, but the assets are insufficient to cover liabilities upon liquidation, in this case only the liquidators must initiate bankruptcy proceedings for the company. If the liquidators fail to do so, they may be held criminally liable with penalties of up to THB50,000 in fines under the Act on Offences Concerning Registered Partnerships, Limited Partnerships, Limited Companies, Associations and Foundations BE 2499, AD 1956 (the “Corporate Offences Act”). The Corporate Offences Act does not provide a specific timeline for initiating mandatory insolvency proceedings, but merely states that the proceedings should be commenced without delay.

Likewise, there are no mandatory timelines for business rehabilitation proceedings or for a creditor to commence bankruptcy proceedings against a debtor.

Only creditor(s) of a corporate debtor, or an individual debtor, may seek to initiate bankruptcy proceedings to realise the debtor’s assets and distribute the proceeds among its creditors if such corporate debtor or individual debtor is indebted to the creditor(s) for a total amount of not less than THB2 million or not less than THB1 million, respectively. See 7.1 Types of Voluntary/Involuntary Proceedings.

Business rehabilitation proceedings, on the other hand, may be initiated either by the debtor itself or by the creditor(s) if it appears that a debtor is insolvent or unable to pay debts as agreed upon, and is indebted to one or more creditors for a specific sum of not less than THB10 million, regardless of whether such debt is due immediately or not, and if there are reasonable grounds and the potential to rehabilitate the debtor’s business.

To successfully pursue insolvency proceedings, a debtor must satisfactorily be proved insolvent. See 2.5 Requirement for Insolvency.

The Bankruptcy Act does not provide mandatory insolvency proceedings for bankruptcy and business rehabilitation proceedings to be commenced by the debtor. There is only one provision for mandatory bankruptcy proceedings to be filed by the liquidator. See 2.3 Obligation to Commence Formal Insolvency Proceedings.

An insolvency test is required to commence both types of insolvency proceedings. For bankruptcy proceedings, it is necessary to prove that the debtor is insolvent; whereas, in business rehabilitation proceedings, an insolvency test and a liquidity test are both available. Only one of these tests needs to be triggered in order to initiate the proceedings.

The Insolvency Test

For the insolvency test, it must be proved that the debtor has insufficient assets to cover its liabilities. There is also a list of presumptions under which the debtor will be presumed “insolvent” – for example, where the debtor has transferred or delivered its assets with dishonesty or with fraudulent intent.

The Liquidity Test

For the liquidity test, it must be proved that the debtor is unable to pay its debts as scheduled. This test can easily be triggered when the debtor faces financial distress, despite having more assets than liabilities.

The Bankruptcy Act also provides presumptions of “no ability to pay” for business rehabilitation proceedings for small and medium-sized enterprises (SMEs). One of the presumptions is that the debtor has defaulted on a payment to a certain creditor, and that circumstances indicate that the debtor defaults or is likely to default on payment to another creditor or creditors.

Under the Bankruptcy Act, there are no specific restructuring or insolvency regimes with respect to financial institutions, securities companies or insurance companies. The Bankruptcy Court applies general corporate insolvency procedures for such entities. However, permission from a relevant government agency must be obtained before submitting a petition for business rehabilitation proceedings if the debtor’s business concern is under the supervision of the government agency, such as:

• the Bank of Thailand (BOT) for financial institutions;
• the Office of the Securities and Exchange Commission (SEC) for securities companies; or
• the Office of Insurance Commission (OIC) for insurance companies.

Under the Thai legal framework, there is no specific law or regulation governing consensual and other out-of-court restructurings. There is merely a debt restructuring guideline issued by the BOT, with which financial institutions need to comply. Consensual and out-of-court restructurings can be done by mutual agreement between debtor, creditors and other relevant stakeholders, subject to the application of general laws.

Consensual Restructuring or Statutory Proceedings

Consensual restructuring is sometimes preferable for a business that does not have many creditors. In such a case, banks or other creditors are generally supportive in negotiating the terms and conditions of the debt restructuring (such as repayment terms, interest rate, etc) in order to mitigate the losses of all the parties concerned, including the creditors, the debtor and stakeholders. If there are many creditors, whose interests are not all aligned, statutory bankruptcy proceedings and business rehabilitation proceedings may be necessary.

Out-of-Court Restructuring

Out-of-court restructuring does not have any specific formalities or any formal process, as it depends solely on a commercial discussion between the creditors and the debtor. Unlike an in-court restructuring, parties are able to formulate their own restructuring plan that allows some flexibility in terms of conditions and the timeline for the restructuring. Therefore, parties may prefer to commence an out-of-court restructuring rather than in-court proceedings.

Thai law does not require a debtor and creditors to attempt to enter into a consensual restructuring prior to the statutory proceeding.

There is no law governing consensual restructuring and workout processes in Thailand. Consensual restructuring would normally be initiated by and carried out through negotiations between creditors and a debtor. Initially, it may take the form of bilateral waivers and consents under each agreement between the debtor and each creditor. If the restructuring process cannot be concluded by bilateral negotiations, it is necessary that all creditors and the debtor reach an agreement on restructuring terms which aim to secure repayment opportunities for each creditor and to ensure the ongoing operation of the debtor’s business. Once the terms and conditions are agreed upon, a debt restructuring agreement would be executed by the parties and have a binding effect on them.

Apart from establishing repayment terms for creditors which may be classified into different groups, debt restructuring agreements normally include the debtor’s undertaking to provide specific information – especially financial information, information on litigation or bankruptcy claims, and information on default events – as well as an undertaking to not incur any further debt outside its ordinary course of business or create any encumbrance over any of its assets without prior approval from creditors.

New money may be injected by a bank for use in the ordinary course of business, which should entitle such bank to a certain priority/ranking over other creditors. However, according to the BOT’s debt restructuring guidelines, such new money must not be used to repay the existing debts of the debtor.

There is no specific law or legal doctrine concerning informal restructuring, nor duties of the creditors in an informal restructuring process. Nevertheless, general laws under the Thai Civil and Commercial Code – such as tort, fraudulent act, good faith doctrine, etc – will apply. As such, each relevant party involved in the process is required to act in good faith and to not wilfully or negligently act in a way that could cause others (including the debtor and other creditors) loss or damage.

Normally, any change to a credit agreement would require the consent and agreement of all the parties. However, provisions can be made such that only majority lenders or super-majority lenders are required for some alterations, waivers or consent in certain matters. In this case, if such majority lenders or super-majority lenders approve alterations, waivers or consents, such alterations, waivers or consents will also become binding on the dissenting lenders. There are also cases where the change to the credit agreement relates to matters that do not affect some creditors, and the change to the agreement would not require such creditors’ consent and agreement.

In general, debt restructuring affects all creditors’ rights in receiving debt repayments and, thus, such processes should require the consent of all the creditors. If there is a dissenting creditor to the consensual restructuring process, such consensual restructuring will not be binding for such dissenting creditor. By contrast, a formal rehabilitation process binds all the creditors, regardless of their disagreement.

Under Thai law, there are three major types of security to be granted over assets – ie, mortgage, pledge and business security.

Mortgage

A mortgage is a non-possessory security, in that a mortgage places immovable assets (eg, land, buildings, etc) or certain types of movable asset (eg, registered machinery, vessels, floating houses) as a security in favour of a creditor to secure performance of an obligation by the mortgagor itself or another third party, without having to deliver the secured asset to the mortgagee. A mortgage agreement must be made in writing and registered with the competent authority.

Pledge

A pledge is a possessory security where a pledgor places a movable asset as security in favour of a creditor to secure the performance of an obligation. A pledge can also be created over rights represented by instruments such as shares, bills of exchange, promissory notes and cheques. The perfection requirement of a pledge is that the pledged property must be delivered to the pledgee. For pledge over rights represented by instruments, the instrument must be delivered to the pledgee with notice being sent to the debtor of rights.

Business Security

A business security is a non-possessory security under the Business Security Act 2018. Claims, movable property used in the ordinary course of business (machinery, inventory, raw materials, etc), immovable property (in the case of a real estate business operator), intellectual property and accounts can be placed as business security under the act. A business security agreement must be made in writing and registered with the competent authority. Subject to limited exceptions, only Thai financial institutions and foreign financial institutions that syndicate financing with Thai financial institutions are entitled to be security receivers under a business security agreement.

Out-of-Court Restructuring

Secured creditors are entitled to enforce security in accordance with the terms and conditions as prescribed in a security document – for example, when a secured obligation is in default. However, they will not be inclined to do so if the secured assets can be used in the normal operation of the debtor, which may be of importance for all parties concerned with achieving the goal of the debt restructuring agreement. An intercreditor agreement can be agreed among creditors to set out terms and conditions regarding enforcement of security, and to set out how the proceeds from enforcement will be distributed among the creditors.

Secured creditors may not agree on the debt restructuring process, but such disagreement should not affect or disrupt the process to be agreed on by other creditors.

There is no automatic stay in the case of voluntary restructuring where the rights of secured creditors would be limited, unless a standstill agreement is entered into among the parties, prohibiting the secured creditors from enforcing their security.

Statutory Bankruptcy and Business Rehabilitation Proceedings

Secured creditors are entitled to enforce their security without having to file a claim for debt repayment. It is important to note that an official receiver is entitled to inspect the secured assets, and if the official receiver is of the view that such secured assets have a higher value than the secured debts, the official receiver is entitled to seize and sell the secured assets through a public auction, settle the debts, and return the remaining proceeds to the asset pool of the debtor.

However, in order for secured creditors to be entitled to vote in the creditors’ meeting under the bankruptcy proceedings, a secured creditor is required to file a claim for debt repayment.

Secured creditors may not block or disrupt the bankruptcy proceedings. It is only possible for the bankruptcy proceedings to be dismissed by a court judgment, or by a withdrawal petition by the creditor that submitted the petition for bankruptcy proceedings, and the court approves such petition.

Once the court accepts the rehabilitation petition, the automatic stay period commences and, as such, secured creditors are not entitled to enforce their security unless the court orders otherwise, or unless one year has passed since the court accepted the rehabilitation petition.

There are no special procedural protections and rights in statutory insolvency and restructuring proceedings for secured creditors. However, as mentioned in 4.2 Rights and Remedies, secured creditors are entitled to enforce their security without having to file a claim for debt repayment under bankruptcy proceedings.

As a general rule of thumb, creditors within the same class will receive equal treatment. However, in business rehabilitation proceedings specifically, it is possible for disadvantaged creditors to otherwise agree, in writing, to subordinate treatment.

Please see 5.5 Priority Claims in Restructuring and Insolvency Proceedings for the distribution waterfall.

In bankruptcy proceedings, if the assets of the debtor are insufficient to repay all the creditors in full (which is likely in most cases), the debtor’s assets will be distributed among the creditors in accordance with the order of priority following the realisation of assets (see 5.5 Priority Claims in Restructuring and Insolvency Proceedings). The unsecured trade creditors will be repaid after the creditors who have higher priority than them, such as secured creditors and the official receiver, etc. The factors in deciding how much the unsecured trade creditors will be repaid generally depend on:

• the number and types of creditors;
• the size of the pool of assets; and
• the nature of the debts or obligations themselves.

For business rehabilitation proceedings, on the other hand, the planner will also have to decide how each creditor should receive the repayment, taking into consideration equal treatment among the same class of creditors.

For an ongoing contract with trade creditors, under certain circumstances, if the assets or rights of the debtor under the contract are more onerous than the benefit to the debtor, it is possible that the official receiver in bankruptcy proceedings, or the plan administrator in business rehabilitation proceedings, may refuse to accept such assets or rights.

In addition, any transaction or transfer of assets by the debtor to certain creditors that gives undue preference, and is therefore found to be fraudulent, may also be subject to claw-back within a certain period. Please see 11.1 Historical Transactions.

In the context of Thai insolvency proceedings (both bankruptcy and business rehabilitation), unsecured creditors and other parties-in-interest may attend the court hearings and oppose the petition for bankruptcy or business rehabilitation proceedings, and may ask the court to dismiss a petition due to the debtor’s disqualification as per the Bankruptcy Act or where the petition was filed in “bad faith”.

Unsecured creditors shall have the right to assert their claims after such proceedings have been properly initiated by filing a debt repayment application with the official receiver within the deadline set forth by the Bankruptcy Act. They are also entitled to inspect debt repayment applications submitted by other creditors in order to question the legitimacy of such applications, preserving the sharing of the assets pool.

Non-insolvency Rights

Following the issuing of an absolute receivership order against the debtor in bankruptcy proceedings by the court, an unsecured creditor may only attempt to recover the debts using the procedures outlined in the Bankruptcy Act (eg, filing an application for debt repayment).

In business rehabilitation proceedings, when the court officially issues its order admitting the petition for business rehabilitation for consideration, a moratorium (automatic stay) will commence. Any active actions or litigation against the debtor are suspended, no new actions or civil lawsuits can be initiated against the debtor, and secured creditors cannot exercise their security outside the business rehabilitation proceedings.

An interim injunction is available to prevent the debtor’s transfer of assets. The criteria and requirements under the Civil Procedure Code (CPC) are applied mutatis mutandis. Interim injunctions under the CPC include:

• seizure;
• attachment or restraining orders; and
• physical arrest or detention.

The court will generally grant an interim injunction based on the ability of the petitioner to prove satisfactorily that damages will continue if an interim injunction is not granted. The applicable criteria and requirements depend on the requested interim injunction.

Assets in bankruptcy proceedings will be distributed to the creditors in the following order of priority.

• Secured creditors.
• Unsecured creditors of the following costs and debts:
1. estate administration fees;
2. official receiver’s costs and expenses for administration of debtor’s assets;
3. funeral expenses;
4. fees for collecting and gathering the debtor’s assets;
5. fees of the petitioning creditor and counsel’s fees as the court or the official receiver may prescribe;
6. taxes due within six months prior to the court order for receivership and the wages of the debtor’s employees; and
7. any other debts.
• Creditors who, under the law or contract, are entitled to receive repayment only after other creditors have received repayment in full.
• A creditor who is the spouse of the debtor. 

In business rehabilitation proceedings, unsecured creditors will receive repayment in accordance with the rehabilitation plan, and secured creditors will not be able to enforce their security without court approval or until one year has passed since the court accepted the rehabilitation petition (this period can be extended by the court no more than twice, with each extension period being six months).

Consent for Commencing the Proceedings

Business rehabilitation proceedings, under Thai bankruptcy law, do not require any consent from creditors to commence the proceedings. However, consent or support by creditor(s) can be used to convince the court to grant a rehabilitation order if one majority creditor or more gives written consent/supporting letters.

Limitations

The Bankruptcy Act provides that such debt must be a definite amount. The debt must be debt stemming from a juristic act (ie, a contract under which debt can be calculated until the filing date of such business rehabilitation petition, regardless of whether it is due or conditional). However, a debt that cannot be specified or calculated definitively must be converted to a definite amount by a court judgment or a compromise agreement. In addition, such debt must not be contrary to the law or public order and good morals, such as a gambling debt or lending without documentary evidence of a loan.

Basis for Commencing the Proceedings

Business rehabilitation proceedings can be commenced if it appears that a debtor is indebted to one or more creditors for a definite amount of not less than THB10 million, regardless of whether such debt is due immediately or not, and if there are reasonable grounds and the possibility of rehabilitating the business of the debtor. The objectives and purpose of business rehabilitation proceedings are to keep the debtor’s business going, and to allow creditors to be repaid an amount not less than they would receive if the debtor underwent bankruptcy proceedings.

Overview of the Proceedings

Formal business rehabilitation proceedings are driven by the official receiver, the planner and the plan administrator. The proceedings are supervised by the courts. Once the creditor(s) or debtor lodges a petition with the Bankruptcy Court, the court will schedule a hearing to consider the petition. If the court finds that the debtor is insolvent and indebted for not less than THB10 million, and that there are reasonable grounds and prospects for achieving the business rehabilitation of the debtor, the court will grant such a petition allowing the debtor to rehabilitate its business. The planner, who formulates and prepares the rehabilitation plan for the debtor, is then appointed, and the plan has to be approved by the creditors’ meeting and the court before implementation. The plan will be implemented by the plan administrator.

An expedited process is currently available only for business rehabilitation proceedings for small and medium-sized enterprises (SMEs).

Creditors’ Claims for Repayment

Creditors must submit applications for repayment of debt along with any supporting evidence to the official receiver within one month from the publication date of the court order for the planner’s appointment. Other creditors, debtors and the planner are entitled to object to an application for repayment of debt filed by the creditor(s). If there are any objections, the official receiver will examine and issue an order on the application to allow partial, full or no repayment to such creditor. The creditor would be entitled to further appeal the official receiver with the court within 14 days after learning of such order.

Once the court has approved the rehabilitation plan, the proceedings under the plan will bind all creditors, whether voting for or against the plan, or abstaining. If unknown creditors, or creditors of contingent claims, have not filed an application for the repayment of debt, such creditors will lose their rights to repayment unless the rehabilitation plan states otherwise, or unless the court cancels the order for business rehabilitation.

Confidentiality

Business rehabilitation procedures are confidential in principle. However, in practice, it is possible that the court may allow third-party persons to attend and observe the proceedings. Key commercial and economic terms are not required to be publicly disclosed at the court hearing.

Challenges

A procedure may be challenged. For example, if the official receiver did not notify a creditor of the order of appointment of the planner but all other procedural requirements were fulfilled, such omission may be challenged.

The Procedure for Plan Approval

Within three months (which is extendable, twice, by one month) or five months in total after the order of appointment of a planner is published in the Government Gazette, the planner must submit a rehabilitation plan to the official receiver, who will then schedule a creditors’ meeting to consider granting approval for such plan. The official receiver will send copies of the plan along with notification of the date, time and venue of the meeting, including the agenda for the meeting, to:

• creditors who are entitled to vote;
• the debtor; and
• the planner.

Such information will also be published in a daily newspaper not less than ten days in advance of the meeting. If the creditors’ meeting adopts a resolution approving the plan, the official receiver will then report such resolution to the court for endorsement. If the court issues an order to endorse the plan as approved by the creditors’ meeting, the power and duties to control the business of the debtor will be transferred from the planner to a plan administrator at the time of acknowledgement of such order.

An automatic stay will commence when the petition for business rehabilitation is accepted by the court. The company can continue to operate its business, but it will be prohibited from:

• disposing of or transferring its assets;
• paying or creating debts; or
• performing any act that creates unnecessary encumbrances over its assets without court approval or in the ordinary course of business.

Once the court has made an order for business rehabilitation, the powers and duties of managing the business and assets of the debtor will be transferred to the interim executive, official receiver or planner, as the case may be.

After the petition for business rehabilitation is granted, the company may borrow new money to operate the business. The creditor who lends money to the company for such purpose will be entitled to request repayment of that debt without filing an application for repayment to the receiver.

Creditors who file an application for debt repayment within the prescribed period will be put into separate classes – generally secured and unsecured creditors. However, each class of creditor can be divided into several sub-groups of creditors. For example, there could be secured banking creditors and secured commercial creditors.

A creditors’ meeting may adopt a resolution to appoint a creditors’ committee empowered to monitor the implementation of the rehabilitation plan. Members of the creditors’ committee are selected from the creditors or representatives of the creditors. The number of members of the creditors’ committee may not be less than three persons or more than seven persons.

The reporting process will generally be published in the Government Gazette and local newspaper, in the same way that the order of appointment of the planner was published or submitted to the court depending on the type of information. In addition, the official receiver may send the information to the creditors by post.

The claims of creditors may be crammed down (given a haircut) without consent, by either:

• the official receiver when they verify the merit of the application for debt repayment; or
• the proposed rehabilitation plan prepared by the planner.

The dissenting creditor may file a petition to appeal the decision of the official receiver/planner to the court. The court will then consider whether amendments are needed.

Under the Bankruptcy Act, the rehabilitation plan must include the details of trading of claims or assignment of rights. Therefore, the assignment of rights must be in accordance with the rehabilitation plan.

Business rehabilitation proceedings do not extend to the restructuring of a corporate group. Under Thai law, the debtor and other parties in a corporate group are treated as separate entities and must commence separate business rehabilitation proceedings.

The Bankruptcy Act prohibits the debtor’s assets from being disposed of, distributed or transferred, unless:

• otherwise specified in the rehabilitation plan;
• the debtor obtains approval from the court; or
• these acts are in the ordinary course of business.

The planner, the plan administrator or the official receiver is entitled to challenge any transaction in court that is done fraudulently or with the intention of giving specific creditors an undue preference. This may include special treatment for debt repayment outside the scope of the rehabilitation plan. Please see 11.1 Historical Transactions.

As mentioned in 6.7 Restrictions on a Company’s Use of Its Assets, the disposition of assets or the business by the debtor is prohibited under the Bankruptcy Act due to the automatic stay, unless:

• otherwise specified in the rehabilitation plan;
• approval is obtained from the court; or
• such disposition is in the ordinary course of business.

The debtor is also required to apply for approval from the court to create encumbrances over the assets, except in the ordinary course of business. Any transaction or deal is void and unenforceable without court approval or if it is outside the scope of the ordinary course of business.

A secured creditor may release a lien/security for the benefit of all creditors under the business rehabilitation proceedings.

New money may be injected for the purpose of use in the ordinary course of business, which should also entitle such creditors to a certain priority/ranking over other creditors. A debtor may not take any action that causes encumbrances to be created over its assets in response to obtaining priority new money, except where such action is essential for the debtor to carry on business as normal, or as otherwise ordered by the court.

During business rehabilitation proceedings, creditors must prove the grounds for their application for debt repayment and present evidence to the official receiver to determine and qualify the value of claims, but they will be subject to objections by the debtor, the planner or other creditors. If a dispute arises, the official receiver or the Bankruptcy Court, as the case may be, will decide the value of claims that the creditor would be entitled to receive under the business rehabilitation proceedings. 

Rehabilitation Plan

A rehabilitation plan will be prepared by the planner and proposed to the creditors’ meeting for approval, and then the Bankruptcy Court will determine whether the proposed plan is in line with the Bankruptcy Act. Amongst the satisfaction of other requirements under the Bankruptcy Act, equal treatment among the creditors in each class and the demonstration that the creditors would receive more repayment than the case where the debtor were adjudicated as bankrupt, as well as overall fairness, would be the factors the court considers in endorsing the rehabilitation plan.

Disclaiming Contracts

It is possible that the plan administrator, within two months from the date of acknowledgment of the court’s approval order for the rehabilitation plan, may disclaim the debtor’s assets or contractual rights (ie, termination of contracts) in cases where the debtor’s burden exceeds the benefits to be derived, or in cases of “onerous” contracts as outlined in the rehabilitation plan.

The fact that the debtor has entered into business rehabilitation proceedings will not affect the liabilities of non-debtor parties – eg, guarantor or security provider.

A creditor can exercise the right to set-off at any time, as long as it is before the approval of the rehabilitation plan by the court, and provided that both debts arose before the time of issuance of the rehabilitation order.

If the terms of the approved rehabilitation plan cannot be complied with, the Bankruptcy Court may issue an order for cancellation of the rehabilitation order, or issue an absolute receivership order against the debtor. This does not affect any action that was previously conducted honestly and in accordance with the rehabilitation plan. In addition, the rights and duties of the creditors remain unchanged, as they existed prior to the issuance of the rehabilitation order.

If the terms of the approved rehabilitation plan cannot be complied with, the Bankruptcy Court may issue an order for cancellation of the rehabilitation order, or issue an absolute receivership order against the debtor. This does not affect any action that was previously conducted honestly and in accordance with the rehabilitation plan. In addition, the rights and duties of the creditors remain unchanged, as they existed prior to the issuance of the rehabilitation order.

Overview

Only bankruptcy proceedings commenced by the creditor or statutory bankruptcy proceedings commenced by the liquidator (during the voluntary winding-up) are available under the Thai legal framework. The Bankruptcy Act does not allow the debtor to submit a petition for voluntary bankruptcy proceedings.

Under the Bankruptcy Act, if a creditor is owed more than THB2 million by a debtor company, the creditor may commence bankruptcy proceedings against the insolvent debtor by filing a petition or claim with the Bankruptcy Court. The Bankruptcy Court will schedule a hearing to examine witnesses, and if, by the end of the hearing, the Bankruptcy Court issues an absolute receivership order, it will be published in the Government Gazette.

The main objective of bankruptcy proceedings is to place the debtor into receivership, and to appoint an official receiver to liquidate the debtor company and distribute the proceeds to the creditors. As a consequence, the debtor will be prohibited from handling its assets except by order of the Bankruptcy Court, or with the approval of the official receiver or the creditors’ meeting.

Creditors’ Claims for Repayment

All creditors must file an application for debt repayment within two months from the date of publication of the order of absolute receivership, except where an event of force majeure has occurred and/or is still occurring. In such case, a creditor may file an application for debt repayment after the two-month period by providing satisfactory evidence that they could not file the claim within two months due to an event of force majeure. However, such creditor may only receive repayment from a residual fund after the allocation of the debtor’s assets to the other creditors.

Secured creditors would also be entitled to file an application for debt repayment if they agree to waive the security for the benefit of all creditors.

Non-resident creditors (foreign creditors) may be granted an additional two-month extension; however, they must prove that Thai creditors would generally enjoy reciprocal rights to participate in similar proceedings in their respective countries, and they must agree to relinquish any of the debtor’s property outside Thailand for the benefit of all creditors.

A creditor cannot file an application for debt repayment if the creditor knew, in fact, that the debtor was insolvent at the time the debt was incurred, unless the debt was incurred in order for the debtor’s business to be able to continue its operations.

Under bankruptcy proceedings, the sale of assets will generally be conducted through public auction by the official receiver. Other sale methods, including pre-negotiated sales transactions, which prove to be more convenient and efficient and of more benefit to the creditors, can also be implemented. This is provided that approval is obtained from the creditors’ committee. There is no restriction preventing the creditor from bidding or participating in a public auction. No special rules shall apply to such stalking horse creditor.

According to the Bankruptcy Act, the creditors’ committee can be formed by a resolution of the creditors’ meeting in order to manage and oversee the realisation and distribution of the debtor’s assets.

A creditors’ committee must have not less than three but not more than seven members, and each member must be qualified and approved by the official receiver to receive repayment of debts. Reimbursement of expenses shall, from time to time, be approved by the creditors’ meeting.

Thai bankruptcy law does not recognise any insolvency proceedings (either bankruptcy or business rehabilitation proceedings) in another country, and any insolvency proceedings or court orders regarding absolute receivership or a moratorium under the laws of other countries have no effect on a debtor’s assets in Thailand.

Thai bankruptcy law has also not equipped the Bankruptcy Court with any specific means to enforce its orders abroad. Protocols or arrangements for enforcement of its orders abroad are based on reciprocal arrangements between Thailand and the relevant countries.

The Bankruptcy Act and the Act on the Establishment of the Bankruptcy Court and the Procedures for Bankruptcy Case BE 2542 (1999) are the key pieces of legislation that set out the relevant provisions in respect of court jurisdiction and the insolvency proceedings procedural rules.

Under the Bankruptcy Act, foreign creditors are defined as being “foreign creditors who are domiciled outside Thailand”. Both foreign and Thai creditors would enter into bankruptcy proceedings in a similar way, but foreign creditors would be required to comply with certain additional requirements, whereby a foreign creditor shall be entitled to file a claim for repayment of the debt within two months from the date of publication of the order of absolute receivership, providing that:

• such foreign creditor can prove that any creditor in Thailand is similarly entitled to claim for repayment of debts in bankruptcy proceedings in a bankruptcy court under the laws of the country of which the foreign creditor is a national; and
• such foreign creditor reports the amount of the asset or distribution they have received, or are entitled to receive, from the same debtor’s estate located outside Thailand, if any (should such asset or distribution exist, the foreign creditor must agree to deliver the asset or distribution from the debtor’s said estate outside Thailand to be added to the debtor’s estate in Thailand).

In addition, a foreign debtor can also be subject to bankruptcy proceedings under the Thai Bankruptcy Court, provided that:

• the insolvent debtor is domiciled in Thailand, or operates a business there, whether by themselves or through a representative, while they are filing a petition for bankruptcy proceedings, or within a year before filing for bankruptcy proceedings; and
• such debtor is a natural person and is indebted to one or more creditors in an amount not less than THB1 million, or the debtor is a juristic person who is indebted to one or more creditors in an amount not less than THB2 million.

The Bankruptcy Act does not recognise any foreign judgment in respect of insolvency proceedings, orders regarding absolute receivership, or moratoria under the laws of another country (see 8.1 Recognition or Relief in Connection With Overseas Proceedings). The parties must bring a de novo trial before the competent courts in Thailand, where such foreign judgments or orders may serve as supportive evidence in Thai proceedings.

In bankruptcy proceedings, an official receiver is appointed under the Bankruptcy Act to supervise the realisation and distribution of the debtor’s assets.

In business rehabilitation proceedings, a planner is appointed by the Bankruptcy Court to prepare the rehabilitation plan and to take over the powers and duties of the debtor’s executive management. An official receiver is also appointed to supervise the proceedings. Once the creditors’ meeting has adopted a resolution approving the proposed rehabilitation plan, it is up to the court to confirm the plan, and to then issue an order to approve the plan. At that point, the powers and duties of controlling the debtor’s business will be transferred (from the planner) to a plan administrator to execute the approved plan.

The concept of trustee is not provided for under Thai bankruptcy law.

Official Receiver

In bankruptcy proceedings, the official receiver has full power to manage any assets and enforce any rights relating to the assets of the debtor, such as:

• disposing of assets; and
• collecting and receiving money and assets that belong to the debtor, or that the debtor is entitled to receive from others.

The official receiver is also responsible for:

• compromises;
• filing or defending actions relating to the debtor’s assets; and
• reviewing the merit of claims for debt repayment filed by creditors.

In business rehabilitation proceedings, the official receiver will be appointed to supervise the proceedings and to review the merit of the application for debt repayment filed by creditors.

Planner

The planner is appointed by the Bankruptcy Court – as per the proposal of the debtor or the creditors’ meeting, as the case may be – in rehabilitation proceedings, and is responsible for preparing the rehabilitation plan and has the power and duty to control the business of the debtor once appointed.

Plan Administrator

The plan administrator is appointed under the rehabilitation plan to execute the approved plan once the rehabilitation plan has been approved by the Bankruptcy Court.

Only the Legal Execution Department of the Ministry of Justice can be selected as an official receiver. An official receiver is a government officer who is assigned to monitor bankruptcy and business rehabilitation proceedings. The rights and duties of the official receiver are provided under the Bankruptcy Act.

A planner and a plan administrator are appointed by the creditors’ meeting and the Bankruptcy Court. The planner and the plan administrator appointed under the rehabilitation plan must be registered and qualified under the Ministerial Regulations Regarding Registration and Qualifications of the Plan Preparer and Plan Administrator BE 2545 (2002) and its amendments BE 2558 (2015). The planner will commence duties upon appointment by the Bankruptcy Court, while the plan administrator will commence duties upon acknowledgement of the court’s approval order of the rehabilitation plan.

The general rule of the fiduciary duty of directors is applicable. There are no specific duties for the directors of dissenting or insolvent companies. As a general rule, a director has a duty to conduct the business of the company with the diligence of a careful businessman. If a director causes loss to a company through non-compliance with this duty, the company or its shareholders can claim against the director for the loss suffered. Directors must also act in good faith and with care to preserve the interests of the company. If a director fails to discharge these duties, the company or its shareholders can bring a claim against the director under the Thai Penal Code, in relation to fraud, or under the Corporate Offences Act. 

Creditors can assert their claims directly against the directors of a company. Where a claim is asserted for the purpose of the debtor company in insolvency proceedings, it must be made through the official receiver.

Bankruptcy Proceedings

The official receiver may file a petition to the Bankruptcy Court to cancel or revoke:

• the transfer of the debtor’s assets during the three-month period before the petition for bankruptcy proceedings was filed, if it has been proved that the debtor intended to give undue preference to a certain creditor or creditors; or
• any fraudulent acts that were committed by the debtor within a one-year period from the date that such fraudulent acts became known to the official receiver.

The Bankruptcy Act also provides the presumption that where the debtor received compensation in an amount that was less than reasonable, this was done so as to prejudice the rights of the creditors to be repaid.

Business Rehabilitation Proceedings

The plan preparer, the plan administrator and the official receiver may file a petition to the court to cancel or revoke:

• the transfer of the debtor’s assets during the three-month period before the rehabilitation proceedings petition was filed, where it has been proved that the debtor intended to give undue preference to a certain creditor or creditors; or
• any fraudulent act committed by the debtor, where the intention of the debtor, who received less than a reasonable amount in a transaction within a one-year period before the business rehabilitation petition or after it was filed, is presumed to prejudice the rights of the creditors to be repaid. 

The Bankruptcy Act also provides that the cancellation or revocation of certain transactions in accordance with the above will not affect the rights of the third parties who acquired the assets in good faith and for valuable consideration before the proceedings started.

See 11.1 Historical Transactions.

The Bankruptcy Act does not provide direct means for creditors to set aside or annul transactions on their own (see 11.1 Historical Transactions).