Composition in context of insolvency is significant where the project fails and there is no reasonable prospect it can be rescued, as it avoids the protracted proceedings involved in a bankruptcy case. That said, there must be mutual assent between the debtor and creditors before a composition is created, consideration must furnished, and approval gained from the Bankruptcy Court to render the composition enforceable.
Moreover, creditors rely on mutual concessions of their rights to full payment in order to further the common purpose of securing their claims. Generally a proposal contains details for the management of business, assets and security, and if an official receiver has been appointed they will call a meeting of creditors to consider a special resolution and adopt whether the proposal is accepted. A special resolution requires a majority of creditors whose debts equals three quarters of the total creditors present at the creditors meeting or by proxy representation. If a debtor fails to comply with the terms of a composition this will be grounds for a lawsuit for breach of contract.
The advantage of composition usually benefits a debtor more than bankruptcy because it accomplishes the same goal – discharge of all or most of a debtor’s debts without the stigma of bankruptcy.
Restructuring and Corporate Reorganization.
Composition and reorganization plans do serve the purpose of avoiding onerous and protracted bankruptcy proceedings for all parties. On the one hand creditors will at least get some of their money back and on the other; at best the project will continue on to completion
This is important where the interests of investors’ claims would normally, under bankruptcy proceedings, compete in order of their ranking, particularly where land is mortgaged to a bank and buyers have paid money off plan to finance the project.
In 1998 the Bankruptcy Act was amended to incorporate new procedures for restructuring an ailing company facing receivership and liquidation of its assets to trade out of its financial woes. Known as corporate reorganization, it is designed to restructure the legal, directorship, operational, financial and debt structure of a company for the purpose of making it more profitable, better organized and successfully meet its business objectives. In the case of a property development, it is achieved by virtue of bringing in outside management and can last up to a period of five years after which the former directors are then returned.
The idea is they take control and manage a new and revitalized company – a practice that is often deployed if debtors and creditor deems the future viability of the project as sound. Although often achieved by court petition, restructuring an insolvent property developer company can be achieved through a less formal process out of court. The legal basis for this arrangement is also contractual in nature and less onerous, time consuming and costly than court initiated restructuring procedures.
Filing of Petition for Business Reorganisation
The legal requirement to initiate a petition for reorganisation includes the debtor owing not less than THB10 million to their investors. In addition, a petition can be filed by a debtor or creditor or a relevant government authority, or a commercial bank or a finance company, irrespective of whether bankruptcy proceedings have been initiated against the debtor. However, it must be established that the debtor is insolvent and there are reasonable grounds and prospects to reorganise the business.
A petition to reorganize will not be allowed if the Court has ordered the debtor under absolute receivership, or the Court or the registrar has ordered dissolution or revoked the registration of the company of the debtor; or a registration of dissolution of such juristic person is made.
If approved, the application gives the debtor protection by limiting the ability of creditors to take action against the company to recover any sums owing. Furthermore it stops any form of legal proceedings being initiated against the debtor and prevents creditors from filing dissolution or bankruptcy petitions. Once the automatic stay commences, it imposes a strict limitation for both secured and unsecured creditors on the enforcement of their investment.
In addition, not only will a court approved reorganisation petition remove the powers of company’s directors, all legal rights of the shareholders are suspended except the right to receive share dividends. The stay will also prevent debtors from disposing or distribution of the company’s assets except in the normal course of carrying on business or by court order under the automatic stay provisions of the Bankruptcy Act.
Once a plan preparer is appointed and approved by the Court, they are entrusted to formulate the reorganisation plan within three months. At a minimum, a plan must contain the reasons for reorganising the business and include such matters as details of assets and liabilities and other binding obligations of the debtor at the time the court ordered the business reorganization.
When the official receiver obtains the draft plan, he or she will convene a creditors meeting to either accept or reject the plan by special resolution. Approval of the plan requires no less than 50 per cent of the total debt owing to creditors who attend the meeting or by proxy representation.
Payments of Claims
Legal requirements stipulate that all applications for repayment must be made within one month after the Court’s appointment of the plan preparer is gazetted. All creditors, including secured, unsecured, and judgment creditors, must then file according to the same procedures. If a creditor is entitled to repayment of their debt and does not apply within this time frame, they lose the right to receive payment unless the plan provides otherwise or the Court terminates the business reorganisation order.
If all this fails and the debtor is adjudged bankrupt, the official receiver will realise and distribute available assets to claimants and pay expenses in order of priority. This ranking includes expenses of the official receiver in managing the debtor’s assets. Taxes that have become due for payment six months before the order for receivership of the assets for work performed for the debtor as employer, then finally other debts such as secured and unsecured creditors claims.
In the event a debtor decides to run away, and provided they have an address, they can be processed served to appear in a Thai court and face civil proceedings. Generally most jurisdictions allow service of Thai court documents based on bilateral agreements.
What this means is that a party in Thailand intending to serve a party in, say, Australia with documents issued by the Thai Bankruptcy court can engage local process servers to serve the documents. Service does not breach Australian law and is not considered a breach of sovereignty. It is important to note that documents originating from a foreign jurisdiction which will be used as evidence in Thailand have to be notarised by a public notary who, in turn, is authorised by the local court. It must then be authenticated by the relevant foreign affairs department before accepted under Thai ministry regulations and a Thai court.
About the Author: Julian Male is an Australian Solicitor and Foreign Legal Adviser for Synercorp Intentional.
The author acknowledges additional research sources for this article including: Cynthia M. Pornavalai, Bankruptcy Law in the Kingdom of Thailand, November 17, 2008 Tilleke and Gibbins International; Eugene Clark, Suptee Supanit, Thai Insolvency Law: One Step Towards the Development of the Legal Infrastructure for a Revitalized Economy in Roman Tomasic Insolvency Law in East Asia, (2006), Chapter 9, 291.
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