Yet in comparison to the Asian financial crisis of 1997, the current downturn has not impacted Thailand to the extent seen elsewhere. Having learned many lessons from the past the Thai government reformed the banking sector, adopted conservative lending practices, developed a cash driven property sector and a local bond market. An increase in domestic savings also made the country less dependent on foreign funds.
The kingdom also revamped its bankruptcy laws to establish a new Bankruptcy Court, and introduced reorganisation provisions for juristic persons, similar to those of Chapter 11 of the U.S. Bankruptcy Code. These amendments enable an insolvent corporation to restructure its debts and trade out of its financial problems.
Heralded as a success by legal scholars, the number or reorganisation cases reaching the new Bankruptcy Court peak in 2000 at 100, and the amount of debt being restructured grew to around THB4 billion in the same year.
In general, insolvency and bankruptcy laws are an important development in modern day capitalism – a stabilising economic force on the one hand and the essential link between trade and investment, a key mechanism for averting a future crisis, on the other.
In the context of buying property, they seek to instill confidence that the market is a safe investment, and balance the interests and rights of creditors and debtors with an equitable outcomes if something goes wrong. It also ensures that liability will fall on those responsible for a company’s demise, or allows for a project to be resurrected if deemed financially viable.
However, many foreign investors are not familiar with the Thai property sector. They need to consider where they stand if a developer gets into trouble or goes broke, the project stalls or faces failure. The is particularly important if the land which the structure is built on has been mortgaged by a bank, and where construction has also been financed upfront by the buyer’s money.
Adding to the buyer’s anxiety is the bottom line question – “Will I get their money back?” What if they live outside Thailand? Will they be liable in the event of a default? What are the legal options available for a buyer besides litigation, consumer protection or even dispute resolution measures? What happens if the developer runs away to another jurisdiction? Can they be served process to appear in a Thai Court? Can a creditor buyer file a bankruptcy petition against the debtor developer?
Under section 1100 of the Commercial and Civil Code, the liabilities of a Company Director may be unlimited and terminate after the expiration of two years. They have a positive duty to conduct the affairs of the company with the diligence of a ‘careful businessman’ and must vacate office if they become personally bankrupt or incapacitated. Based on the English Bankruptcy Act of 1914, bankruptcy procedures in Thailand for corporate and personal insolvency are governed by the amended 1940 Bankruptcy Act, The Act for the Establishment and Procedure for Bankruptcy Court, as amended; the Rules on Bankruptcy Cases; and the Civil Procedure Code-namely sections 1247 – 1273.
Although bankruptcy is an involuntary act in Thailand, the creditor buyer has an onus to prove the developer company is insolvent and the debts are greater than assets. Under Thai law any creditor owed more than THB2 million by a corporate debtor or more than THB1 million by an individual debtor may file a bankruptcy action. In hearing the petition by a creditor, the court must determine factual matters to find the debtor insolvent. If so, the court will order the debtor under absolute receivership. If not proved and the debtor furnishes evidence of their ability to pay in full, or if there are any other grounds to adjudicate the debtor as solvent, the court will dismiss the petition.
However, the Bankruptcy Act provides a presumption of insolvency where the debtor has committed the following acts;
1) The debtor transfers assets or rights in management of his assets to others, for the benefit of all the debtor creditors within or outside Thailand.
(2) The debtor transfers his assets dishonestly or with fraudulent intent within or outside Thailand.
(3) The debtor transfers an asset or creates any right over such asset, which may be deemed a preferential transfer if the debtor were declared bankrupt within or outside Thailand.
4) The debtor delays payment in order to prevent a creditor from receiving payment by, (a) leaving Thailand and or remains outside Thailand; (b) removes his assets from the jurisdiction of the Court; or (c) consents to a judgement ordering payment of money which he does not pay; leaves the premises in which they have resided or hides him or herself in any premise, or absconds or leaves and closes the place of business. (5) The debtor’s assets have been attached under a writ of execution, or there are no more assets for which attachment is possible.
(6) The debtor declares to the Court in any action that they cannot pay his debts.
(7) The debtor informs any of his creditors that he cannot pay his debts.
(8) The debtor receives demand letters from his creditors not less than twice, at intervals of not less than 30 days, and does not pay the debts.
In addition is not required that the debtor commit the above acts in a certain period of time as a condition to file an action. Once the creditor discovers that the debtor has committed any one of the aforementioned acts, the creditor is eligible to file a bankruptcy petition against the developer.
If debtor wants to avoid being adjudged bankrupt or discharged from bankruptcy, they can make what is known as composition with creditors. Enshrined in the law, it enables debtors to come to a settlement for the satisfaction of his debts by repayment of all or part of the debts thereof.
In practice they may submit a proposed composition in writing to the receiver within seven days after the date of submitting an explanation of matters relating to their business affairs, or within such period the receiver prescribes. The receiver then convenes a meeting of creditors to consider whether such proposal will be accepted. However, the acceptance is not binding on all creditors until the Court approves the composition. The Court can also approve a composition if the debtor offers security for repayment of an amount of at least one quarter of the total unsecured debt for which creditors can claim repayment.
In my next column I will discuss out-of-court company restructuring and elaborate on reorganisation plans. I will also look at how to serve documents compelling a debtor company director who leaves Thailand to appear in a Thai court.
About the Author:
Julian Male is an Australian Solicitor and Foreign Legal Adviser for Synercorp International Thailand. He may be contacted at: Julian.firstname.lastname@example.org
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