Rehabilitation of businesses affected by the COVID-19 outbreak
The outbreak of COVID-19 has affected various aspects of the Thai economy, including the purchasing power of consumers, raw material and equipment shortages, and delayed transportation of goods and material. This has led to a significant drop in sales, which in turn has affected the financial liquidity of various businesses. In addition, financial institutions are very cautious about lending, for fear of having problems with bad debt. The Thai government has made issuing policies to prevent Thai financial institutions from facing the same problems that they did in 1997 during the so-called “Tom Yam Kung crisis” one of its top concerns.
Keywords: Mazars, Thailand, Litigation, Legal, COVID-19, Rehabilitation
4 August 2021
While the COVID-19 outbreak has not had a direct impact on financial institutions, it has had such an impact on various business sectors, especially tourism-related businesses. This is a major concern for Thailand, as it derives significant income from such businesses. Due to a lack of income and cash flow, such businesses have had significant liquidity problems.
We set below some ways that the business rehabilitation laws can be used for those businesses lacking liquidity:
- Business rehabilitation is suitable for businesses with temporary financial problems, but whose core businesses could survive and continue operating after the temporary impact of the COVID-19 outbreak. It is fairly certain that the market situation will return to normal after the pandemic.
- Business rehabilitation law allows businesses to submit an application to the court to suspend debt repayments. Such a suspension is called an “Automatic Stay”, and protects the debtor from litigation and demands for repayment by specific creditors, and debt repayments can be foregone during court proceedings. The court will reject any cases filed or claims made by creditors during business rehabilitation proceedings.
- Debtors can continue to operate their businesses operation during court proceedings, and companies can still use and benefit from their intangible assets (such as know-how, production formulas, and franchise management systems) to earn income. If they were to become bankrupt, all such intangible assets might be wasted.
- Those eligible for business rehabilitation are legal entities with debts of THB 10 million or more. If they are SMEs, including those run by individuals, partnerships, or companies, those run by individuals must have debts of THB 2 million or more, and legal entities must have debts of THB 3 million or more.
- The Central Bankruptcy Court has full authority to consider and approve business rehabilitation plans. The court will consider whether the rehabilitation plan is feasible or not. This plan should be created and presented by the plan maker, and creditors should receive repayments of debt at least equal to those they would have received if the debtor had been declared bankrupt.
- The length of the rehabilitation plan cannot be more than 5 years, although it is possible to extend it up to 2 more times, but for not more than 1 year each time.
Business rehabilitation laws and procedures in Thailand can be complicated and all parties should understand their rights and positions in order to determine the next steps to be taken.
Mazars has extensive experience and expertise in this field, and a team of dynamic lawyers to help creditors, debtors, and other stakeholders survive and thrive in this time of economic difficulty. We provide a full scope of legal services, and help clients reach and maximize commercial goals when dealing with issues such as corporate assets, favourable loan terms, equitable distribution of assets and company closures, and business reorganization or restructuring.
To receive a personal consultation on any legal issues you are dealing with, please contact us.
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