New SME Bankruptcy Laws In The Thai Legal System
The amended Bankruptcy Act (No. 9) B.E. 2559 (2016) for SME rehabilitation took effect on May 25, 2016. Thailand is the third country in ASEAN to develop bankruptcy laws that help SMEs, after Japan and South Korea. The reasoning for the latest amendments as noted at the end of the amendment act is that there is an increasingly great number of SMEs in the current economic system, and such entities should be allowed the chance to rehabilitate themselves. This benefits both the debtor and the creditor, and in the long run, contributes to economic stability.
Under the former law, only limited companies and public limited companies were allowed to request rehabilitation. This meant that small family-owned businesses or owner-operator entities could not rehabilitate their businesses when they became bogged down with financial hardships and debt. Under the new Act, SMEs have entitlement to request rehabilitation process and possibly avoid bankruptcy.
The main clause broadening the definition of “debtor” is Article 90/91, which stipulates to add Chapter 3/2, under which the definition of “debtor” now includes a natural person, a group of persons, and an unregistered partnership that engages in SME businesses. Therefore, owner-operated SMEs with debt of no less than 2 million THB and juristic entities or partnership SMEs with debt of no less than 3 million THB (but not exceeding 10 million THB) now qualify for rehabilitation.
In practice, the debtor must submit a petition for rehabilitation to the Central Bankruptcy Court along with a rehabilitation plan and evidence that the creditor/s holding no less than two-thirds of the total debt has approved the plan. After the court has granted an order to rehabilitate, and the plan has been approved, the creditor may not file a lawsuit or apply for execution on the debtor, and it is forbidden to auction off the debtor’s assets or possessions. The debtor is able to apply for loans and conduct business as usual, and it is forbidden to cut off the debtor’s utilities and telephone services.
This new process should save time because some steps are skipped, such as the appointment of the plan preparer and the meeting of the creditors to approve the plan. Previously, these steps would be after the court’s approval of the application for rehabilitation. Hopefully, the whole business reorganization process will be made quicker and incur less costs through this new amendment.