New rehabilitation options for small businesses in Thailand

One way to measure business distress is the number of bankruptcy claims filed, which rose sharply in 2021. Often viewed as a last resort, this indicates that despite continued support from government and financial institutions, many businesses are considering the filing for bankruptcy as the best solution. option for their businesses to survive.

According to the central bankruptcy court (bankruptcy court), 9,171 bankruptcy proceedings were filed in 2020 for a total value of 836.803 billion baht (compared to 5,415 cases in 2018 and 8,398 in 2019).

Although only a small portion of these deposits were for rehabilitation, unlike liquidation (known as “free-fall bankruptcy”), the rehabilitation process gives the company time to reassess its long-term strategy and develop a viable survival plan, which creditors can approve or reject.

It is important to note that the PME process can be carried out quickly and inexpensively, while providing judicial protection against liquidation and lawsuits between the filing and approval of the rehabilitation plan. Although this process is simpler, a qualified professional should assist an SME at this point in the process.

On August 10, 2021, the government recognized that SMEs needed additional help and proposed changes to current bankruptcy laws. Aranya Thongnamtako, director general of the Department of Legal Enforcement, told Thai media that the aim of amending the bankruptcy law for SMEs and entrepreneurs is to make it easier than ever for them to enter the process. rehabilitation.

The recommendation also increases the debt ceiling for SME rehabilitation to 50 million baht, as the courts have reportedly seen more SMEs with debt in the order of 30 million baht. If businesses were forced to apply for business rehabilitation under the current Large Business Rehabilitation Act, they would have to set up a planner and appoint an administrator, which is an expensive, time-consuming and difficult process.

If the current proposals are implemented, then in order to be eligible you only need to be classified as an SME under the Ministerial Regulation on the designation of the characteristics of the promotion of small and medium-sized enterprises, Law BE 2562 (2019) , as shown in the table above.

A business recovery request can be filed by an SME (called a “debtor in possession”) if it meets two conditions: 1) be insolvent and 2) reach a debt threshold that depends on the type of creditor involved (for example , an individual, limited partnership, limited liability company, etc.) ranging from 2 million baht to 50 million baht.

Under this proposal, the SME can file a business reorganization application with the court, without having to prepare a business reorganization plan. The debtor can then immediately apply for temporary protection against creditors and stop the legal proceedings even before the court formally considers the rehabilitation of the company. The debtor has three months to submit their plan and gain support from creditors. Even in the event of rejection, the debtor can submit a second unconditional claim from six months after the court has rejected the first claim.

To obtain approval for a reorganization plan, it must be supported by creditors. Preparation of the rehabilitation plan and meetings of private creditors before submission to court is akin to the voluntary arrangement process in Western jurisdictions, which is a negotiated semi-private arrangement that deals with debt and means that the assets of the debtor will not be liquidated.

This ancient process had its pitfalls because it assumed that if creditors did not show up for a pardon meeting, they would oppose the plan. This was an old negotiating tactic for savvy creditors looking for special treatment. The new amendments mean that two-thirds (⅔) approval should only be counted among those who show up at a notified meeting.

The proposed plan should contain the reason for the insolvency, details of assets and liabilities, including the principles, procedures and stages of rehabilitating the business, withdrawal of collateral, temporary liquidity solution during the rehabilitation process and background of the plan administrator. The reorganization of the company must allow creditors to receive payment at least if the debtor had gone into compulsory liquidation. Again, a trained professional should write this plan, as the outcome should provide both the SME and the creditors with a clear path forward.

It is now possible to speed up the rehabilitation process. SMEs can submit a request to speed up the process by presenting an agreed rehabilitation plan along with evidence showing that creditors have approved this pre-established plan. The courts can quickly ratify this plan and allow the SME to continue its activities without lengthy legal proceedings.

The amendment also means that debt “bound by the rehabilitation plan” will not be part of future claims by creditors if the rehabilitation fails. Creditors can only claim debts contracted after the start of the rehabilitation plan.

The adage ‘throw the keys and run’ means that as a business administrator, you could potentially be held criminally responsible for your actions under various Thai laws, which expressly provide for the criminal liability of an administrator for acts or omissions on behalf of the company. The proposed changes provide options for struggling businesses and a way for entrepreneurs to turn around their businesses.

Engaging professionals at an early stage to help you through this process is important and gives you the opportunity to preserve your hard work, investments, and reputation. Knowing your rights and the benefits of these new regulations for SMEs means you get relief from creditors and time to rebuild your business.

By Dr Paul Crosio
Partner / Silk Advisory


Paul Crosio is a founding partner of Silk Advisory (SilkAdvisory.com) and a practicing Australian lawyer with over two decades of corporate experience in handling reorganization as well as distressed international and Thai assets and other special situations. Paul has postgraduate degrees in finance (including Sharia finance) as well as graduate degrees in business and law.

Silk Advisory is an international insolvency, mergers and acquisitions and management advisory practice affiliated with Silk Legal and based in Bangkok and the East Coast. Our managers have years of experience in Thailand and internationally in providing solutions that meet the different requirements of your business lifecycle. The impact of COVID-19 has driven many organizations into financial stress, but our experienced team and unique approach can provide valuable understanding and assistance to help you stabilize, preserve value, and build a platform to come out. successfully from the current pandemic. For a non-binding call or meeting to discuss your situation, you can contact us at [email protected]

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