New Rehabilitation Regulations: Survival Tools for SMEs

November 11, 2016

New Rehabilitation Regulations: Survival Tools for SMEs

Bangkok Post, Corporate Counsellor Column

Small and medium-sized enterprises (SMEs) have grown rapidly in Thailand over the past ten years, creating millions of jobs and contributing to the Kingdom’s steady economic growth. According to the 2015 annual report of the Office of SMEs Promotion (OSMEP), there were approximately 2.7 million SMEs at the end of 2015, employing around 10 million people, particularly in the tourism, construction, and wholesale sectors.

This has prompted the government to issue numerous privileges that encourage entrepreneurs to start up their own businesses, such as special rates for loans and tax breaks. The latest privilege, issued under the Bankruptcy Act (No. 9) B.E. 2559 (2016) on May 24, 2016, offers SMEs the opportunity to rehabilitate and avoid bankruptcy in the face of short-term liquidity problems. This privilege is designed to protect popular SMEs which experience temporary liquidity problems and are unable to make repayments in the short-term.

Unlike previous rehabilitation regulations, which only allowed debtors of more than THB 10 million to file a request for reorganization to the court, the new Bankruptcy Act provides SMEs with the opportunity to enter rehabilitation if there are reasonable grounds and prospects for rehabilitating the business. This may prevent such SMEs from being declared bankrupt.

Requirements for Rehabilitation

The new Bankruptcy Act allows an SME to enter into the rehabilitation process regardless of whether it is a natural person, juristic body, partnership, or private limited company, provided that the SME is registered with OSMEP or another related government agency, in accordance with the SMEs Promotion Act B.E. 2543 (2000).

The new Bankruptcy Act lowers the minimum threshold of debt that an SME which is in no position to repay the debt must meet in order to be eligible to enter into the rehabilitation process. The thresholds vary, depending on the type of SME. Natural persons are required to have a definite amount of debt amounting to not less than THB 2 million. Juristic bodies, registered or unregistered ordinary partnerships, or limited liability partnerships must have a definite amount of debt of not less than THB 3 million. And private limited companies must have a definite amount of debt of not less than THB 3 million, but not more than THB 10 million.

Key Differences in the Rehabilitation Process for SMEs

Under the normal rehabilitation process, a plan preparer is appointed by the court to draft a rehabilitation plan. This plan must be approved by the creditor(s) and the court, and all of these processes will take place once the petition for rehabilitation has been accepted by the court. In contrast, for an SME to apply for rehabilitation, the SME or its creditor(s) must file a petition to rehabilitate to the Central Bankruptcy Court, together with a rehabilitation plan. This plan must be approved by the creditor(s) of at least two-thirds of the total amount of debt.

This presents some challenges to SMEs that want to enter into the rehabilitation process, as they need to organize the creditor meeting and persuade the majority of creditors to accept the plan, in order to complete the rehabilitation petition and submit the petition to the court. In contrast, under the normal rehabilitation process, the official receiver handles these processes by sending an official notice to every creditor, inviting them to attend the official creditor meeting.

For the rehabilitation of an SME, after the rehabilitation petition has been submitted to the court, a plan preparer is not appointed, and the plan cannot be amended, unlike the normal rehabilitation process. Thereafter, the court has sole discretion as to whether to accept the petition.

Automatic Stays

Much like the normal rehabilitation process, under the rehabilitation process for SMEs, an automatic stay would be applicable starting from the date the court accepts the SME rehabilitation petition until:

the expiration of the period of time stipulated under the rehabilitation plan;
the date the plan is successfully accomplished;
the date that the court dismissed the petition, disposed of the case, or repealed the order for the business rehabilitation; or
the business rehabilitation has been canceled.

As with automatic stays under the normal rehabilitation process, automatic stays under rehabilitation for SMEs prevent creditors from claiming or seizing the SME’s assets, and they also halt all ongoing seizures and auctioning of the SME’s assets.

Under the new Bankruptcy Act, the government is effectively offering entrepreneurs protection in the form of a safety net that allows them to survive temporary liquidity problems. Many business operators are expected to take advantage of this, and as a result, SMEs should continue to play an important part in Thailand’s economic growth.

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Theerapat Sombatsatapornkul

Attorney-at-Law

Thailand

+66 2056 5555

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November 11, 2016