Comparing the differences between "bankruptcy" and "business rehabilitation," which can occur in any business and are crucial considerations for investing in various enterprises.

The global outbreak of "COVID-19" has impacted health, daily life, and the overall economy of every country. One clear consequence is the gradual "bankruptcy" of various businesses that can no longer bear their debts or continue operations.

For instance, the case of "Wuttisak Clinic" filing for bankruptcy in the Central Bankruptcy Court to seek business rehabilitation, similar to "Thai Airways" submitting a rehabilitation plan, or even international businesses like "MUJI" in the United States, which also filed for bankruptcy during this period.

Let’s explore the differences between "bankruptcy" and "business rehabilitation" along with the relevant conditions for various business operations as follows:

  • "What is Bankruptcy?"

"Bankruptcy" refers to a situation where a business or debtor is overwhelmed by debt (individual debts of no less than 1 million baht and corporate debts of no less than 2 million baht).

When a debtor is sued, the court will examine evidence to determine whether the debtor is indeed insolvent as claimed. If so, the court will issue a "final guardianship order" for the debtor.

The term "final guardianship order" means that the court appoints a custodian to manage the debtor's business and assets, meaning that the debtor has no rights to act regarding their assets and business unless following the court's orders or the custodian's approval.

 

Once the court issues a final guardianship order for the debtor, the bankruptcy case will proceed. However, the court will not immediately declare the debtor bankrupt but will notify the custodian to manage the debtor's assets and distribute the collected assets to the creditors.

If the debtor has debts that exceed their ability to repay, the custodian must seek other assets to sell at auction to settle the remaining debts.

  • "What is Business Rehabilitation?"

According to the Business Rehabilitation Act of 1998, those eligible to apply for business rehabilitation must meet the following conditions:

- The debtor is insolvent.
- The debtor is a legal entity such as a limited company, public company, or other entities specified by ministerial regulations.
- The total debt is no less than 10 million baht.
- The debtor has a viable plan for rehabilitation and reasonable grounds (must not be under final guardianship).
- The application must be made in good faith.

If the court accepts the rehabilitation application, the debtor will receive an automatic stay of debt payments. If the court approves the rehabilitation plan, the plan's administrator will execute it over a period of 5 years, which can be extended twice for up to 1 year each time.

If the court approves the rehabilitation plan, the plan's administrator will execute it over a period of 5 years, which can be extended twice for up to 1 year each time.

The key aspect of "business rehabilitation" is that once the court accepts the rehabilitation application, the automatic stay of debt payments takes effect immediately from the date the court accepts the application for consideration until the plan's execution period ends, or until the court dismisses the application or cancels the rehabilitation order.

This "automatic stay of debt payments" benefits the debtor and strengthens their position, allowing the business to continue operations and manage liquidity without worrying about being called to repay debts or facing lawsuits.

 

To visualize, the "automatic stay of debt payments" is like the business being under a large umbrella that protects it from lawsuits, forced collections, and interruptions in public utility services.

However, the aforementioned benefits must be exercised in good faith; the debtor cannot use the stay as a means to delay proceedings. As the legal saying goes, "He who comes to equity must come with clean hands."

As for the "debtor's obligations" during this period, the law clearly states that the debtor can only conduct necessary business operations to continue normal trading. Therefore, the debtor cannot sell, transfer, lease, repay debts, incur debts, or take any actions that would burden their assets unless ordered otherwise by the court.

However, if the creditors' meeting does not accept the plan and the court does not approve it, the court may revoke the rehabilitation order, or if the debtor is sued for bankruptcy, the bankruptcy case may proceed. If the plan administrator is removed and a new administrator cannot be appointed, the court may issue a final guardianship order or revoke the rehabilitation order. If the plan period ends but rehabilitation is unsuccessful, the court may issue a final guardianship order or cancel the rehabilitation.

  • Business Rehabilitation vs. Bankruptcy

In summary, "business rehabilitation" is about maintaining the business's ability to operate normally, or simply put, the applicant for rehabilitation seeks to preserve the ongoing business (going concern), allowing for debt restructuring negotiations among creditors, both domestic and foreign, and providing opportunities for organizational restructuring, work processes, and business plans to enhance efficiency, possibly involving professional management from outside the company.

In contrast, "bankruptcy or being placed under guardianship by the court" does not allow the business to continue operating but focuses on the process of identifying and collecting the debtor's assets to distribute to creditors through seizure or auction. During the guardianship, the custodian from the Enforcement Department will manage the debtor's assets.

SOURCE: www.bangkokbiznews.com