05 Sep Thailand’s New Bankruptcy Law- 2016Download PDF
The New Bankruptcy Law of Thailand
Bankruptcy law was introduced in Thailand in 1940 and there have been continuous amendments to the law since then. In the past year, there have been improvements to the Bankruptcy Act B.E. 2483 (1940) codified in two separate acts, namely, the Bankruptcy Act (No.8) B.E. 2558 (2015) and the Bankruptcy Act (No.9) B.E. 2559 (2016). The changes concern both bankruptcy and reorganization.
I. The Bankruptcy Act (No.8) B.E. 2558 (2015): Bankruptcy Section
This act mainly deals with three matters that occur after the Court has ordered an absolute receivership over an insolvent debtor and the creditor is thereafter required to submit an application for repayment of debt.
1. Enhanced authority of the Official Receiver
According to the amended sections 105 and 106, the receiver is now empowered to examine the application for repayment of debt, summon the relevant parties to the debts, and render the order to approve or dismiss such application. Before the amendment, only the Court had this authority and took a long period of time to deliver such orders. Under the new Act; however, this order can still be appealed to the Court for consideration if the interested party disagrees with the decision of the receiver, so the timeframe of the process may not actually be any shorter in some cases.
2. Extended timeframe for filing a debt repayment claim
Prior to the amendment of Section 91, a Creditor who failed to file a claim with the Official Receiver within the prescribed period of two months or longer after the order on absolute receivership was announced in the Royal Gazette, but not exceeding two months if the creditor is outside the Kingdom, was not entitled to receive debt repayment from the debtor.
Under the newly added Section 91/1, even if the said time period has lapsed, the Creditor still has a chance to claim for the repayment of debt by requesting the Court to allow the Creditor to file a claim within a new prescribed time. Should the Court find that such failure was due to a force majeure event with a reasonable cause; a new timeframe will be granted.
However, the Creditor who enjoys this extension will be entitled to be repaid only from the remaining assets after the distribution which occurs prior to the submission of the claim. The actions already taken by the Court, the Official Receiver, or the meeting of creditors shall not be affected in this regard. Filing a claim for debt repayment is the most crucial stage for the Creditor who can easily lose its claim over the debt by merely being unaware of the order’s publication. This provision will create more opportunity and fairness for the Creditor to claim its rights without affecting the other party.
3. Heavier penalties
The fine penalties for violating the provisions of this Act have reasonably increased in many provisions, namely, sections 161, 162, 163, 164, 165, 166, 167, 168, 169, 170, 171 and 174. One goal of this amendment was to properly match the current economic and social situation as the previous fines were too low. For instance, under the old law, a debtor who removed, concealed, destroyed, caused damage to or altered seals, accounting ledgers, or documents relating to their business or assets, was only liable for a fine not exceeding THB 1000. Now, the fine amount can be as high as THB 200,000. Notably, the imprisonment penalties for all sections remain unchanged.
II. The Bankruptcy Act (No.9) B.E. 2559 (2016): Reorganization Section
This latest amendment to the Bankruptcy Act helps provide an opportunity for debtors facing financial difficulties as small and medium-sized enterprises (SMEs) to enter the rehabilitation process and, if successful, not become bankrupt.
New provisions particularly stipulated for new types of debtor have been added as Chapter 3/2 which contains the procedures for the reorganization of a debtor categorized as an SME. In this new Chapter, Section 90/91 broadens the definition of Debtor to include not only a juristic person, but also a natural person, a group of people, and an unregistered partnership that engage in SME businesses.
Before this current amendment, only a juristic person with an amount of debt of not less than THB10 million was eligible to apply for reorganization. Under the new Act, now even an individual is entitled to resolve its debt through reorganization provided that the business is categorized as an SME. The minimum amount of debt for the SME varies depending on the type of debtor. According to Section 90/92, the minimum amount must be at least THB2 million for a natural persons, not less than THB3 million for juristic bodies and registered or unregistered partnerships, and between THB3-10 million for a private limited companies.
What should be noted is that the definition of an SME is not provided in this Act and is referred to the Act on the Promotion on Medium and Small-sized Enterprises which lays down the characteristics of SMEs based on the number of employees and fixed assets. Unfortunately, there is only a minimum requirement for a medium enterprise, but not for a small one. The law only states the maximum number of employees and fixed assets for a small enterprise applicant. As such, any tiny business operator, e.g., street vendor, restaurant owner, or even an online merchant, may absurdly apply for reorganization. This could be a possible loophole if there is no further change to such requirement.
Another interesting change involves the debtor’s second requirement. Apart from being a SME, the debtor must be in the position of not having the ability to repay the debt. The new provision provides a wider scope of applicable events including becoming insolvent, failure to repay the debt within 30 days upon the receipt of notice of demand, or default in payment where the present circumstances indicate that the debtor will be in further default. Previously, the old provision in Chapter 3/1 limits the status of the debtor to only insolvency. Notwithstanding, the new requirements are only a presumption provision which can ultimately be challenged with the actual facts.
Lastly, pursuant to Section 90/95, the application to enter into SME reorganization must be submitted together with an evidenced business reorganization plan to be approved by the creditor claiming at least two-thirds of all debts. Consequently, certain steps after the approval of the application by the Court are skipped, e.g., the appointment of the plan preparer and the meeting of the creditors to approve the plan and plan administrator, that were required processes existing in the previous Act. The reasoning behind this change is that the amount of debt an SME accumulates should be considerably less than that of a general business operator; therefore, it should be easier and less complicated for the debtor to negotiate with its creditors. This will certainly save time and limit costs incurred in the whole reorganization process.