New rehabilitation options for small businesses in Thailand

One gauge of the level of business distress is the number of bankruptcy applications filed, which have risen sharply in 2021. Often seen as a last resort, this indicates that despite the continued support of the government and financial institutions, many businesses see filing bankruptcy as the best 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 THB 836.803 billion (compared to 5,415 cases in 2018 and 8,398 in 2019).

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

Uniquely the SME process can be done quickly and for far less cost, yet it still provides court protection against liquidation and civil litigation between the filing and the approval of the rehabilitation plan. However, as the official receiver is not involved as the middleman or negotiator, a skilled professional should assist an SME at this stage.

The government on August 10, 2021, recognised the potential for SMEs to need help and have proposed further easing of the regulations for SMEs to enter rehabilitation. Aranya Thongnamtako, director-general of the Legal Execution Department, stated in Thai Media that the goal of amending the bankruptcy law for SMEs and entrepreneurs was so that they can enter the rehabilitation process easier than ever. The recommendation also increases the debt ceiling for SME habitation to THB50 million as the courts were reportedly seeing more SME businesses with a debt of the THB30 million range and if they were forced to apply for business rehabilitation under the current large company rehabilitation law the need to set up a planner and administrator is a costly, time consuming and difficult process.

If the current proposals are implemented, then to qualify you simply need to be classified as an SME under the Ministerial Regulations on the Designation of the Characteristics of Small and Medium Enterprises Promotion Act B. E. 2562 (2019).

A petition for business rehabilitation may be filed by an SME (called “debtor in possession”) when they are:

1.   Insolvent; and

2.   Have a debt to one or more creditors of the following:

  • at least THB 2,000,000 but less than THB 50,000,000 if an individual creditor;
  • at least THB 3,000,000 but less than THB 50,000,000 if a limited partnership, registered partnership, nonregistered partnership, group of persons or another juristic person; or
  • at least THB 3,000,000 but less than THB 50,000,000 if a private limited company is a creditor.

Under this proposal the SME can submit a business rehabilitation petition to the court without having to prepare a business rehabilitation plan and the debtor can immediately apply for temporary protection from creditors and an automatic stay of court proceedings even before the court formally considers the business rehabilitation. The debtor has three months to submit their plan and gain creditor support. Even if rejected, the debtor can submit a request for business rehabilitation again without conditions from 6 months after the court dismissed the first petition.

To get approval for a reorganisation plan it must be supported by creditors. The preparation of the rehabilitation plan and the private creditors’ meetings before court submission is like the company voluntary arrangement (CVA) or deed of company arrangement (DOCA) process in other Western jurisdictions since this is a negotiated semi-private arrangement that deals with debt and means the debtor’s assets will not be liquidated and the business remains a going concern.

This former process had pitfalls as it presumed that if creditors didn’t turn up for a rehabilitation meeting, they objected to the plan.  This was an old negotiation tactic for savvy creditors seeking special treatment. The new amendments mean the 2/3rd approval need only be counted from those who turn up to a notified meeting.

The proposed plan must contain the reason for the insolvency, details of assets and liabilities including principles, procedures, and steps for rehabilitation of the business, withdrawal of security, solution for temporary liquidity during the rehabilitation process, and background of the plan administrator. The business reorganization ultimately must enable creditors to receive payment not less than if the debtor entered bankruptcy liquidation. Again, a trained professional should draft this plan, as the outcome must provide both the SME and creditors with a clear path forward.

There is now an opportunity to expedite the rehabilitation process. SMEs can submit a request for expedited business rehabilitation by presenting an agreed rehabilitation plan together with evidence showing that the creditors have approved this pre-packaged plan. The courts may quickly ratify this plan and allow the SME to continue business without drawn-out legal processes.

The amendment also means that the debt “bound by the rehabilitation plan” will not form part of future creditor claims if the rehabilitation fails. The creditors can only claim debt incurred after the rehabilitation plan commenced.

The adage of “toss the keys and run” means as a company director, you could eventually be held criminally liable for your actions under a variety of Thai laws which expressly provide for a director’s criminal liability for acts or omissions on behalf of the company. The proposed amendments give distressed companies some real options and mean that whilst rehabilitation is certainly not foolproof nor free, it gives entrepreneurs a way to turn around their businesses.

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

For more information regarding insolvencies, M&A, and rehabilitation, please contact us at