The rehabilitation proceedings under Ch. 3/1 of the Thai Bankruptcy Act have generally been utilised by larger companies. Think TPI, NTS Steel and, more recently, Pace Development and Thai Airways.
Given costs and time frames involved, why would a smaller company choose this restructuring route?
First, an automatic stay applies.
Under S. 90/12, all existing court proceedings are stayed and no new proceedings may be commenced. Property essential to business operations cannot be recovered. This may be critical to survival of the business. For smaller companies, this means essential leased equipment or factories cannot be seized.
Second, formal proceedings offer a new investor a clean slate.
Under Ch. 3/1, all creditors must file claims for repayment which are dealt with under the plan. Any investor then has a clear understanding of the business's liabilities. This may favour a company acquisition rather than an asset acquisition where 7% VAT would apply.
Third, debt to equity conversions are permitted.
As a general rule, the Thai Civil and Commercial Code (for limited companies) and the Thai Public Limited Companies Act (for public limited companies) prohibit debt to equity conversions. The exceptions under S. 90/42 of the Bankruptcy Act allow for an easier clean up of the balance sheet, subject to sufficient creditor approval when voting on the plan.
Where existing management does most of the work, including acting as the planner, it may be possible to keep the rehabilitation costs as low as possible. Limited numbers of creditors and general consensus between debtor and creditors would also limited rehabilitation costs.
November 2020
© PELEN 2020
The content of this publication is intended to provide a general overview on matters which may be of interest. It is not intended to be comprehensive. It does not constitute advice in relation to particular circumstances nor does it constitute the provision of legal services, legal advice or financial product advice.