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When a company experiences financial difficulties and is no longer able to meet its debts. A bankruptcy proceeding, also called a bankruptcy proceeding, can be initiated against the debtor company by summons of the unpaid creditor. In this case, the procedure becomes judicial. At this stage, two procedures can be considered: the judicial liquidation being dedicated to the dissolution of the company or the reorganization having for main mission the reorganization and restoration of the company to continue its activity. The insolvency of companies in Thailand is mainly governed by the Bankruptcy Act B.E. 2483 and the Thai Civil and Commercial Code. Bankruptcy proceedings can be difficult to manage. It is therefore crucial for those involved to seek advice.

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What is bankruptcy?

Any person can face bankruptcy whether it is a merchant, a professional or a company. To simply define bankruptcy, it is the situation in which a person can no longer pay his debts and keep his commitments. More precisely, bankruptcy represents the situation in which a company no longer has sufficient funds to meet its deadlines and debts. It can no longer pay its current liabilities with its available assets. That is, it is no longer able to meet its debts with its income.

Why can a company be bankrupt?

There are many reasons why a company may go bankrupt. Many companies find themselves in serious difficulty because of one of their customers. This is usually the case if your business relies on a few very important customers, you can quickly run into cash flow problems if one of your customers stops working with you or can no longer pay you. A company can also find itself in financial difficulty if it incurs too many debts in relation to the income it receives. This is usually the case for companies that incur too many costs for too little return on investment. Bankruptcy is therefore often based on internal causes within the company and its management. However, some external events can have negative consequences on a company such as natural disasters, fire or pandemic. Thus, several causes, both internal and external to the company, can lead to bankruptcy.

What to do if your company is in financial difficulty?

If your company has difficulties in paying its debts on time, it is advisable to discuss with your creditor to find an amicable solution. Indeed, it is important to negotiate the due date, the amount and a possible deferment of the debt. In this case, it is advisable to sign an amendment to your contract allowing you to gain a little time in order to have more cash and pay your debts. It is necessary to act as soon as possible and as soon as you have financial difficulties before avoiding bankruptcy.

Any company may encounter cash flow difficulties during its corporate life. However, in order to overcome this temporary period of crisis, and to avoid bankruptcy, it can consider restructuring its debts through individual or collective negotiations with its main creditors. The real difficulty of this negotiation is to obtain the written agreement of the creditors.

As soon as the defaults are known or foreseeable in the short term, it is advisable to proceed with the spreading of the debts with the concerned organizations. The purpose of this mechanism is to prevent and thus safeguard the activity of the company in difficulty. It is then advisable to negotiate the supplier debts but not only, the tax debts, the social debts and the financial debts. This staggering and spreading of the debt can allow the bankrupt company to reconstitute its cash flow little by little and avoid bankruptcy.

Who can initiate bankruptcy proceedings against you?

According to the Thai Bankruptcy Act, a person will be presumed to be insolvent if a creditor brings an action against him or her for debts exceeding THB 2 million for a debtor in corporate form or THB 1 million for an individual debtor. The law also stipulates other grounds for insolvency, including any attempt by the debtor to avoid paying its debt, to transfer the rights to manage its assets or simply to declare its insolvency to the court. If any of these conditions are met, the court authorizes bankruptcy proceedings, also called judicial liquidation in French law. So anyone who has a debt against you for an amount set by law can initiate bankruptcy proceedings against you.

Is it possible to negotiate debts before being declared bankrupt?

You should be aware that when one of your suppliers initiates bankruptcy proceedings against you, you are not directly declared bankrupt. Before the court decides on the bankruptcy, it is possible to undertake a procedure similar to the conciliation procedure of French law called “Composition” in English. This procedure takes place when a debtor expresses in writing his willingness to settle his debt, partially or in any other way, within seven days of the presentation of his explanations on the issues related to the bankruptcy. After the proposal is submitted, the administrator convenes a meeting of creditors to consider whether to accept the proposal. If the proposal is accepted, the court will approve “the conciliation” to legally enforce it; however, it will only do so if the proposal highlights debt repayment provisions. This is the first alternative option available to the debtor.

Is it possible to restructure the company's business to avoid bankruptcy?

The debtor may wish to reorganize its business. Indeed, it is also possible for a company to choose restructuring, but only if it chooses to do so before the court issues an order declaring bankruptcy. This choice may be voluntary or involuntary. The application is voluntary if it is filed by the debtor or involuntary if a creditor or group of creditors file a reorganization petition against the insolvent debtor, having a debt amount of more than 10 million baht. This is done under the supervision of a court-appointed administrator who will oversee the development of a restructuring plan to be approved by the creditors. The approval of the plan by the creditors must be confirmed by the court.

When is the company or individual declared bankrupt?

Debtors should note, however, that pursuant to section 60 of the Bankruptcy Act, if they fail to meet their obligations under a reorganization plan or amicable agreement, the court will automatically declare the person bankrupt. If the person does not comply with the terms of the settlement agreement with the creditors or the reorganization plan, the bankruptcy will be declared. Thus, the company experiencing financial difficulties must be very vigilant in settling its debts on time.

What are the consequences for the individual or company?

As soon as the judge pronounces the bankruptcy of the company or the individual, the liquidation period intervenes. This is the period that will lead to the transfer of the assets including all the movable and immovable property and stocks in order to settle the liabilities, i.e. all the debts due. We speak of liquidation of the company in the sense that it is the period necessary to transfer the assets that the company may hold to settle its debts in order to proceed with the dissolution of the company.

During this period, all creditors must declare their debts within 2 months from the pronouncement of the bankruptcy and within 4 months for foreign creditors. The declaration of all the creditors makes it possible to reconstitute the total amount of the debts and thus to draw up an order of payment of the latter. Creditors with guarantees will be paid in priority to other creditors who have not taken any guarantee.

For example, a banker who has granted a loan and taken out a mortgage on a property will be given priority in the payment order over a simple supplier who delivers goods. The order of payment is very important when a company is bankrupt since not all creditors will be paid. The payment of debts will depend on the amount and the valuation of the assets after the assignment. It is certain that not all debts can be paid, otherwise the company would not be in financial difficulties and would not be considered bankrupt. This is why it is essential that all creditors declare their claims to the procedure in order to be part of the creditors who can obtain payment. An order of payment will then be drawn up according to the debt of each creditor and the guarantees attached to it.

Another particularity of this period is the divestiture of the company’s manager. Indeed, a judicial administrator is appointed by the court to manage the entire bankruptcy procedure, i.e. the administrator’s main mission will be to reconstitute the assets, i.e. to obtain payment of all the claims that the company may have, to sell these assets in order to obtain financial resources, to then account for the amount of the creditors’ debts and to proceed to the payment of the creditors in the order provided for by the law according to the available assets.

Are the foreign judgments relating to the procedures of insolvency recognized in Thailand?

With respect to insolvency proceedings, Thailand follows the principle of territoriality so foreign judgments or orders relating to insolvency proceedings in other countries are not recognized under Thai law. Thailand is not a signatory to any treaty on cross-border insolvency or recognition of foreign judgments.

Which responsibilities are likely to be engaged against the director?

There is no liability incurred by directors for failure to institute proceedings because such proceedings are not required under Thai law. However, if the board of directors of a company fails to call an extraordinary general meeting of shareholders to assess the company’s losses, each director may be held criminally liable, with a penalty of up to 20,000 baht.

In which cases the bankruptcy procedure can it end?

A bankrupt debtor may be discharged from bankruptcy proceedings either by a court order or by an automatic discharge, including the passage of time. A court-ordered discharge can be pursued by filing an application with the court for an order of discharge which is generally granted if a minimum of 50% of the assets have been liquidated to pay off creditors. Discharge will not be granted if the debtor is considered dishonest, which is presumed if the debtor continues to conduct business knowing that he or she is unable to pay creditors, engages in embezzlement or gives preference to a particular creditor.

Individual debtors may also be automatically discharged from bankruptcy after three years following the court’s judgment, although this period may be extended to five years under certain conditions.

A discharge from bankruptcy, either by court order or by the passage of time, will be published in the Royal Thai Gazette and in a daily newspaper. It should be noted that the discharge does not relieve the debtor of tax obligations or debts arising from dishonest activities.

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