Financial debt is the particular obligation of an individual or juristic person. If there are many creditors after to claim financial debts from such a person as the debtor, it would be difficult to receive the debts equally and fairly. Many countries, therefore, enact bankruptcy laws to decrease these problems and manage all debts of the debtor to be settled so that the debtor can further carry on their business efficiently.
Under the Thai Bankruptcy Act B.E. 2483 (1940) (the “Act”), it is declared that if a debtor becomes insolvent, a creditor shall have the right to file a bankruptcy case if any individual debtors owe a debt of not less than 1 million baht or a juristic person owes a debt not less than 2 million baht, and if it is deemed as the debt having specific amount whether it was or will be due in the future, he/she may be considered bankrupt under the Act.
There are three kinds of persons who have the right to file a bankruptcy case with the Bankruptcy Court;
1. A secured or non-secured creditor,
2. An auditor and;
3. Thai asset management companies.
At the legal trial of a bankruptcy action upon the creditor’s charge, the Court must be satisfied with the facts that the debtor becomes insolvent; together with other provisions of the law as specified under the Bankruptcy Act of Thailand, the Court shall issue an absolute receivership order (ARO) or the order specifying that all assets of the debtor will be controlled and managed by the government officer called “the receiver.” Otherwise, the Court has to dismiss the bankruptcy case.
When the Court issues an ARO, the debtor shall deliver all property, seals, account books, and documents related to his property and business which are in his/her possession to the receiver. In the light of this order, the debtor shall not perform any act with respect to his property or business. Additionally, all creditors must file a motion or an application to the receiver within two months after the order is announced to receive the repayment of a debt owed by such debtor.
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Only a creditor's petition filed with the Bankruptcy court can commence a personal bankruptcy filing. Thai law does not allow for voluntary filing. If the debtor's state of insolvency can be confirmed, but there are no clear reasons why they need to be declared bankrupt, then the court usually issues an ARO. This enables an Official Receiver to collect or cease control assets from the bankrupt party. Thailand does not have an official legal definition of "insolvent," but the court system usually defines it as an individual whose debts are more than their assets.
The entity owed needs to establish at least one presumption under the Bankruptcy Act before the bankrupt party can be declared insolvent. If the debtor does not agree, then the burden of proof will fall on them. Thai law does provide a special feature through which the creditor can temporarily freeze assets or garner security from the debtor. This prevents the debtor from liquidating all assets as a means to detriment creditors.
Once the petition is received, a first hearing date is set where objections will be heard. After the hearing and further examination of the petition, the receivership order is issued. Before the first meeting, the debtor has an opportunity to propose a composition of their debts, by which a proposition is made about said composition of arrears or how business and assets will be managed, including security details. There are some minimum requirements that need to be met, but if they are met, the creditors can accept the proposal (with a 75% majority vote). If the proposal is not approved, a declaration of bankruptcy is made, and the seizure and liquidation of assets commence. Once this has been done, a debtor can be released from a bankruptcy declaration following another composition under the Bankruptcy Act. In order for this to be granted, the following grounds must be met:
-The Official Receiver cannot receive assistance from a creditor when collecting assets;
-the debtor must not have been adjudged bankrupt;
-the aforementioned debts have been paid in full; and
-the following 10-year period after a bankruptcy action has been closed, the Official Receiver has continuously failed to collect further assets from the debtor.
Should a debtor have been adjudged bankrupt, they are automatically released three calendar years later, barring any special grounds related to dishonesty.
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Corporate debtors have three possible procedures available to file for bankruptcy:
1.A creditor has initiated bankruptcy. Insolvency must be verified and lead to a court case with the entire process under judicial supervision.
2.Voluntary liquidation is initiated by the debtor voluntarily through special resolution of corporate shareholders. The liquidation of a limited company, limited partnership, or registered partnership can only apply for bankruptcy if shares are fully paid up and assets are not enough to cover liabilities.
Issues stated for personal bankruptcy regarding insolvency definition also apply here. With a business Thai courts rely heavily on the company's balance sheet. In some cases, a debtor might try to create a positive balance dishonestly; in such a case, creditors need solid proof of insolvency. The automatic release from bankruptcy that can happen in the personal sphere is not applicable to the corporate sphere.
As can be seen in the personal bankruptcy sphere, once the petition has been filed, the court sets a first hearing date where objections are considered. When the court accepts the terms, the receivership order is issued, and assets can be seized by the Official Receiver.
This involves business reorganization. This can be initiated either by the debtor or the creditor and should be done with the intention of business rehabilitation.
Judicial oversight of such a process is given to a plan administrator or restructuring planner. A government authority, an entity owed, or a debtor can submit a business reorganization petition. When the petition has been submitted, and the court has accepted the petition, parties will not be allowed to take certain actions against the debtor;
- asking the court to wind up the debtor or commencing litigation;
-ordering the debtor to cease activities or revoke their licenses for these activities;
- starting a bankruptcy action against the debtor;
- starting arbitration or civil case against the debtor regarding debts that they incurred before the court issues the order approving the plan;
- enforcing security without prior approval from the court; or
- aside from normal trade activities, undertaking an action that burdens property.
As with other bankruptcy procedures the court sets up a hearing where any petition objections are heard. Should the court order reorganization of the business, the Planner and Administrator take over all powers to manage the company. In some cases, the debtor can be their own administrator and planner; in other cases, they must be registered. The administrator and planner need to provide a deposit so that there is security in how the assets are managed. When the appointment of the planner has been published, the creditors will need to make their claims within one month of the publication.
A special resolution is reached for the plan to be approved. In Thai law, debts under reorganization are not taxed. Should a plan be rejected, the court can revoke permission for reorganization and place the debtor back into normal business operation, or when a bankruptcy lawsuit is pending, then the lawsuit will continue. The creditors must approve the administrator who is named in the plan. Following approval of the plan, the administrator has five years in which to implement it. Two additional one-year terms can be added as extensions. Furthermore, the court has the power to extend the business reorganization period as it sees fit, providing that it looks like the reorganization strategy is close to being successfully completed. The Official Receiver will receive a periodical report from the administrator. If the administrator is deemed incompetent or there is evidence of wrongdoing, then a new administrator can be assigned.
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Acquainting yourself with international laws can be difficult, especially in intricate areas like corporate law. The last thing that you want to do is break the law because you misunderstood the language. If you are a managing partner or you need advice on company formation or even dispute resolution Juslaws & Consult is the law firm for you.
Many matters specified under the Act have to be considered and handled when a bankruptcy case is incurred, such as the ratio of repayment shall be remedied to a creditor at the respective level and management of the debtor's obligations by the receiver. With reference to our experiences in representing our clients at the Thai Bankruptcy Court, both creditors, and debtors, the written documents are one of the significant keys to reaching clients' goals. Therefore, it would be better in case we can assist a client since the pre-trial session of the court proceedings.
Juslaws and Consult specialize in international clients as an independent Thailand law firm. Several English-speaking lawyers make their home at Juslaws and Consult. While the law firm mainly handles business law and corporate law related matters, we also handle cases where criminal litigation is needed, property and land disputes, civil litigation, joint venture agreements, property law matters like conveyancing, bankruptcy court cases, tax planning, investment disputes, risk management, and many other legal matters. Juslaws and Consult have several offices in Southeast Asia, including a Bangkok office. If you need help with corporate matters, tax issues, company formation, or any other business affairs, or even criminal litigation matters, do not hesitate to contact us for a free consultation today. We can even help with applications for work permits.