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The Finance Lawyer
WIROT POONSUWAN
The Bankruptcy Act B.E. 2483 (1940) has been in force since World War II and was greatly overhauled by a major amendment incorporating the business reorganisation procedure, modelled on the US Chapter 11 style, in 1998 in the wake of the Asian financial crisis. One year later in 1999, another breakthrough amendment was introduced, allowing for a three-year automatic discharge from bankruptcy, an English law concept. Before 1999, bankrupts, individual or corporate, would be discharged only by the order of the court and, sadly to say, most remained bankrupt and never came out of it.
The 1999 amendment: Among other things, the 1999 amendment brought hope for a new future for individual debtors. The individual debtor who became bankrupt from 1999 onwards remains bankrupt only for three years from the date of the bankruptcy judgment. The intent of the amendment was that the business reorganisation benefit would be granted only to corporate debtors and not to individual debtors. The automatic discharge exclusive to the individual debtor is therefore a good trade-off.
The effect of the three-year bankruptcy: The three-year bankruptcy period, upon the elapse of which the individual debtor is discharged, is an automatic discharge by operation of law that requires no order of the court or waiting period before the announcement in the Royal Gazette. As a result of the discharge, individual bankrupts are automatically released of all debt. It is safe to say most bankrupts in Thailand have been discharged by the concept initiated by this 1999 amendment.
This relatively short bankruptcy period has relieved numerous bankrupts, mainly small debtors, from financial distress, contributing to the economic recovery of the nation during the past 10 years.
No benefit for guarantors: To the disappointment of guarantors, the automatic discharge did not cover them. Although the 1999 amendment helped Thailand move out of the economic doldrums, it did not allow guarantors to go free. The individual guarantor who had become bankrupt after the 1999 amendment continued to be bankrupt. The mere word "debtor" in section 35 of the amendment kept the bankrupt "guarantor" from being discharged. The discharge was meant only for the "debtor" and not the "guarantor".
Guarantors are mostly business owners required by banks to guarantee the debts of their companies. It was felt the revival of bankrupt guarantors would improve the economy even further. Likewise, the benefit of the three-year automatic discharge didn't extend to the individual debtor who had become bankrupt before the 1999 amendment.
The 2004 amendment: To address the above concerns, an amendment was passed in 2004 with the sole purpose to discharge individual guarantors. The individual guarantor can now be free of bankruptcy and all debt within three years after the court finds him bankrupt. Technically, this landmark change was done by deleting the word "debtor" from Section 35 of the 1999 amendment. The result was that any "individual person", the guarantor included, would be able to enjoy the generous debt clearance.
On top of this, the sweeping discharge carried a retroactive effect to release all individuals - debtors and guarantors alike - who had been bankrupt for three years before the new amendment came into force on July 16, 2004.
In reality, the change in law has had a major impact by releasing from bankruptcy a great number of individual debtors and individual guarantors who became bankrupt between 1982 and 2001 and had not been discharged by the 1999 amendment. One can safely say no bankrupts in Thailand are left over from the twentieth century. The slate was clean in 2004.
As the Thai bankruptcy law stands, new individual debtors and individual guarantors who have been adjudicated bankrupt after the 2004 amendment will also be discharged automatically after three years from the date of adjudication.
As a matter of fact, many were actually freed from the chain of bankruptcy and debt in 2007. Everything else in the previous 1999 amendment is pretty much intact. Corporate debtors as well as corporate guarantors still cannot be discharged automatically within three years and have to apply to the court to be discharged.
Wirot Poonsuwan is a former chairman and managing partner of Clifford Chance Wirot as well as a former partner of Baker & McKenzie in Bangkok. He now has his own firm, Poon & Poon, Attorneys at Law. He can be reached at wirotp@poonandpoon.com
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