THAILAND Law and Practice Contributed by: Jessada Sawatdipong, Sarunporn Chaianant, Supawich Nimmansomboon and Supawin Pongthananikorn, Chandler Mori Hamada
A secured creditor may opt to enforce its security out- side of bankruptcy proceedings. However, if the pro- ceeds from enforcement of secured property do not cover the whole amount of debt, the secured creditor will not be able to apply for the repayment of debt in respect of the outstanding amount. A secured creditor may also choose to file an application for repayment. In such case, the secured creditor will be entitled to any debt shortfall after enforcement of the secured property. Rehabilitation Proceedings When the bankruptcy court accepts the petition for rehabilitation proceedings, an automatic stay or mora- torium is levied to protect the debtor against actions by creditors such as litigation, enforcement of security and bankruptcy proceedings. As such, secured credi- tors would be unable to enforce their security out- side the rehabilitation proceedings, unless otherwise approved by the bankruptcy court. Creditors whose rights are restricted by the morato- rium may submit a request to the bankruptcy court for an order to amend, modify or annul the limitations on their rights on the grounds that the restrictions are not necessary for the rehabilitation proceedings or that they do not sufficiently protect secured credi- tors’ rights. 7.2 Waterfall of Payments In the context of a corporate debtor’s bankruptcy, Section 130 of the Bankruptcy Act outlines a specific hierarchy for the payment of debts, as follows: • expenses incurred by the official receiver in the management of the debtor’s property; • fees for the collection of property; • fees incurred by the plaintiff creditor as well as lawyers’ fees, as determined by the court or the receiver; • taxes and duties due within six months prior to the receivership order and money that employees are entitled to receive prior to the receivership order in return for the service performed for the employer debtor; • other debts; and • subordinated debts.
In instances where there is insufficient money to fully satisfy the debts within a given tier, a pro rata distri- bution will be made among the creditors in that tier. The secured creditors will have preferential rights over their secured assets, as mentioned in 7.1 Impact of Insolvency Processes . Any debt shortfall after enforcement of the secured assets will be classified as “other debts”. 7.3 Length of Insolvency Process and Recoveries The period of insolvency proceedings in Thailand typi- cally depends on many factors. If the bankrupt entity has no assets, when such entity is declared bankrupt the bankruptcy process would take approximately one year from the initiation of the bankruptcy proceed- ings until the bankruptcy court orders the case to be closed. On the other hand, if the bankrupt entity holds assets, when such entity is declared bankrupt creditors may notify and request the official receiver to confiscate the debtor’s assets and proceed to sell those assets at public auction. The period of insolvency, where the debtor has assets, depends on the number of assets held by the debtor and whether each of the assets is successfully sold at auction. If the assets were not sold at auction, the auction process will be re-initiated, with the assets being discounted each time until they are sold. The period when the auction takes place also depends on the number of auction cases. Typically, the auction occurs once every three to four months. As a result, an insolvency process where the debtor has assets may take three years or more after bank - ruptcy proceedings have been initiated. The recovery rates for unsecured creditors in Thai insolvency proceedings are varied. Given that secured creditors typically have the right to enforce their secu- rity over the debtor’s assets first, what remains for distribution among unsecured creditors is often lim- ited. Consequently, the recovery rates for unsecured creditors are generally minimal.
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