Thai Law Insights

Struggling Businesses Rejoice! Chapter 11 Style Reorganization Comes to Thailand!

Panorn Wangtrakul

Businesses are an essential part of the economy of any nation. If businesses face cash flow problems and are unable to pay their debts, then bankruptcy proceedings may be initiated. Bankruptcy proceedings may create additional problems for the business, which might eventually fold, thus damaging the economic well-being of a nation. There is however a process that can be used to allow businesses to continue operations while restructuring their debt so that they may be repaid. This process is called reorganization.

Reorganization is done either by restructuring the debts of the business or the organization of the business. Some examples of how debt can be restructured include moving the due date of debt repayment or reducing the amount of debt. This is done with the ultimate goal of allowing the business to continue operations, generate revenue, and repay the debt. The creditors of such business will thus receive the debt owed in an amount not less than what they would have received from a bankruptcy adjudication.

Previously, a party had to be insolvent (more liabilities than assets) before they could file a petition for reorganization. Parties that had assets in excess of their liabilities could not reorganize and would have to wait until they were insolvent. By that time, it would often be too late to reorganize and save the business.

Recently however, the Bankruptcy Act No.10 as amended in 2018 effective 3 March 2018 was amended to allow cash flow insolvent businesses unable to repay debt to reorganize and continue conducting business operations in order to generate cash flow. This amendment is very similar to the type of reorganization set out in Chapter 11 of the United States Code (commonly referred to as "Chapter 11 Bankruptcy"). In effect, parties who have assets but are unable to pay debts (due to assets being illiquid or of the incorrect type) will be allowed to file for reorganization without having to wait until they are insolvent.

This change is extremely beneficial as businesses can now reorganize and attempt to fix the issues plaguing their business earlier than they would have been allowed to before; it is another step forward to modernizing Thai bankruptcy law. The most important aspect of this amendment is that it allows businesses to continue operations, thus impacting the economy to a lesser extent than bankruptcy.