Bankruptcy Law Amendments Reflecting the Economy

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Background of Bankruptcy

From May 25, 2016 the procedure for business reorganization in the case of small or medium-sized companies (SMEs) as per Chapter 3/2 Bankruptcy Law BE 2483 (1940) (“Bankruptcy Law”) is currently in. It is in force. But, as Bankruptcy HQ reports issued by Judicial Enforcement Department Judicial Enforcement Department dated October 30 2021 there are some issues and shortcomings in the current business reorganization procedure for SMEs as there have been just seven bankruptcy cases filed in court. Each of them was unsuccessful because of various factors including the undefined scope of what constitutes an SME and the amount of debt that is eligible and the pre-established plan that was required when submitting the request for business restructuring.

As a result of the ineffective restructuring of SMEs and the COVID-19 disease has made many SMEs in a position of being unable to meet their obligations and overcome financial hardships. SME insolvent debtors need swift legal protection, i.e. automatic stay, which also includes the prohibition on creditors from taking legal actions for the repayment as well as enforcement SME assets. Insolvent debtors are able to arrange the restructuring of their contracted obligations and also their business. However because of the complex nature that is the SME Business Reorganization Law, which requires them to submit the pre-packaged plan along as part of the petition, debtors who are insolvent of SMEs must seek the assistance of creditors in preparing an action plan and convene meetings. Creditors must meet all legal requirements prior to making a business reorganization request. This led to a dramatic change to this SME business reorganization plan and the prepackaged plan.

What’s changed?

Below, we have highlighted some of the most important modifications below.

1. Modification to the amount of debt eligible for repayment.

In the proposed amendment that was proposed, the amount of debt required for the insolvent debtors to qualify for a large-scale business reorganization is lowered by THB 10, million, or greater up to THB 50 million and more. Thus, the difference between a large corporation as well as an SME corporate reorganization is that debtors who are insolvent of large enterprises must be liable for at least 50 million, whereas debtors who are insolvent of SMEs have to owe under 50 million. THB. Debtors who are insolvent of SMEs may be natural people or legal persons, as well as ordinary partnerships, registered partnership or limited partnerships, as well as other legal persons operating an enterprise. Registration as an SME that is required under the law of today is no longer necessary. This allows greater flexibility for insolvent debtors to participate in the process of reorganizing their corporate structure in the court.

2. Modified provisions in the prepackaged plan

Reorganization of business for SMEs under Chapter 3/2 under the Bankruptcy Law requires the applicant to file a pre-arranged proposal approved by the creditors who have signed the petition for business reorganization. Based on the findings from the Department of Legal Enforcement, the requirement for pre-arranged plans creates limitations to SMEs even when they are able to file a bankruptcy petition and, consequently they cannot be protected in a timely manner from an automatic stay. This proposal for Bankruptcy Law Amendment essentially removes the requirement for a pre-approved strategy for SME business reorganizations , and also creates the new chapter Chapter 3/3 in the Bankruptcy Law. The chapter is a choice for any insolvent debtor, including large corporations and small- and medium-sized enterprises.

In the proposed amending Chapter 3/3 of the Bankruptcy Law, only insolvent debtors are eligible to receive a prepackaged plans plan. The debtor who is insolvent has to file the pre-packaged plans along with evidence of the approval of the plan by creditors prior to filing the petition for business reorganization. A prepackaged plan should specify that the debtor will be the administrator of the plan in order to carry out the plan. If the plan that is prepackaged doesn’t meet the requirements of law, the debtor who is insolvent is able to file a new petition without waiting for another six months as required by law applicable. If the petition for business restructuring and the pre-approved plan meet the legal requirements for an enterprise of size or a small-sized business and the court issues an order for the reorganization of business and also approve the plan at the same time. The legal requirements for the acceptance of the plans includes an agreement at a creditors’ meeting. A corporate reorganization plan for large corporations plan usually is approved by at minimum one class of creditors with the majority of votes, that is at least two-thirds of the total amount claimed within that category and at minimum 50 percent of the total amount claimed. In each category, the restructuring plan that is approved of SME businesses as per the amendment draft needs at the very least one group of creditors with the majority vote and at least 50% of value of each claim .

When the court grants orders to organize the company and approves the plan the insolvent debtor is granted protection through the automatic stay and the plan that is pre-packaged is only binding for creditors who are in agreement with the plan or are informed of the meeting that will accept the plan. If the insolvent debtor is unable to disclose relevant details or if there are significant mistakes in the payment of the debts the corporate reorganization orders and plan’s approval could be cancelled.

What does bankruptcy mean for You

Should the planned bankruptcy law change is adopted it will encourage the business reorganization system that is a part of the court system in Thailand in order to make it more effective and advantageous for many businesses struggling financially, particularly given the current financial situation. The possibility of a pre-packaged plan could help increase cooperation between a business and its creditors to consolidate its debts and company quicker and efficiently.

It is worth noting that, under the present Bankruptcy Law, reorganizations of SME businesses require a wide collaboration from creditors. The approval for the SME plans for business rehabilitation is required to have at least two-thirds of total amount of the creditors’ claims prior to filing the petition for business recovery. In the draft modification, the proportion of votes needed for approval of the plan has been changed to be at minimum 50 percent of the total value of claim, without mention of the process for confirming the claims of creditors under the debt investigation procedure. The debtor who is insolvent SME must convene an creditors meeting by itself within three months after the publication in the corporate restructuring orders published in the Royal Gazette, with the possibility of an extension of one month. The remaining concerns are about how creditors will be involved in the restructuring of the SME business, and who will decide the vote of creditors on the basis of their claims in this proposed modification. Additionally the approved plan will be legally binding for participants in the creditors’ meeting, or are given an invitation to a meeting, regardless of the fact that creditors might have opposed the plan. The outstanding issues will result in real problems and possibly a conflict among creditors, and an debtor who is insolvent SME.

Steps to Take for Bankruptcy

In the meantime, business owners are able to keep their managers aware of any ongoing developments and be aware of any changes or developments when the changes take effect. Particularly, with the COVID-19 issue that has affected a variety of supply chains and may result in increased insolvencies for SMEs Business partners could be required to be lenders of the SMEs. This is why we will continue to keep you informed on any updates in the future. For now, do not hesitate to get in touch with us if require assistance or need more details about this.

The information is intended to provide information and education solely and is not intended to be and is not intended to be taken as legal advice. It could be referred to as an “lawyer advertisement” that requires notice in certain areas. Past results cannot guarantee the same outcomes. For more information, please visit: www.bakermckenzie.com/en/disclaimers.

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