CYNTHIA
M PORNAVALAI
CONTRIBUTING
WRITER
Although
brought about with so much heated debate in the media and the
Parliament, the passing of the Amendments to the Bankruptcy
Act in 1998 and in March this year, has not really sparked a
spate of corporate reorganizations in the courts.
To date, there have only been
26 filings in the courts, 12 of which have either been
dismissed, withdrawn or are in the process of appeal. That
leaves only 14 court-supervised business reorganization cases
with a combined required repayment of approximately 65.658 billion
baht.
Although
too early to draw conclusions about the popularity of court-driven corporate
restructuring in Thailand, in an environment of high
financial institution non-performing loans (NPLs), crumbling
banks and a multitude of companies struggling to meet their
obligations, one would have expected a better turnout at
the gates of the restructuring office.
Definitely, the absence of such
dramatic court filings does not mean that Thailand is not putting
enough effort in the restructuring process. On the
contrary, the private sector led by local and foreign
financial institutions, the Board of Trade and the Federation
of Thai Industries, took the initiative of formulating the so-called
Bangkok Approach. It is a framework for an out-of-court
corporate debt restructuring based on the London Approach and
the HKMA Guidelines.
In March, the Bank of
Thailand (BOT), together with local and foreign financial
institutions, took further initiative in encouraging
corporate debt restructuring by formulating a binding framework
in the form of Debtor-Creditor and Inter-Creditor Agreements.
To date, the total number
of financial institutions signatory to the Agreements
is 84. These consist of commercial banks, finance and finance
& securities companies, foreign banks and BIBF offices,
11 foreign bank representative offices and two specialized
institutions.
On the debtor's side, there are presently
two groups of debtors under these agreements consisting
of 351 and 316 companies with combined total
credits outstanding of 1,482,363 million baht. Debtors as well
as other financial institutions which were not among the original
signatories can become part of these agreements by signing
the Accession Agreements.
Clearly, there appears to be more ease
from both the creditors' and the debtors' view, to
go through out-of-court debt restructuring rather
than instituting one in court.
There are, nevertheless, opponents
to theses out-of-court restructuring agreements. Most
of them argue that these agreements are not effective enough.
Notwithstanding their binding effect, participating creditors
may opt out of the agreement in cases where the total debt
of the borrower is more than 1,000,000 million baht.
Furthermore, some restructuring experts
comment that each corporate restructuring is unique
and putting a stiff framework for all may not be desirable.
Present statistics, however, show that the out-of-court reorganization
alternatives are more favored. |
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There
are several reasons why a court-driven corporate restructuring
may not appeal to both debtors and creditors alike.
Most of the arguments put
forward against a court-supervised reorganization are that
they are relatively expensive and time-consuming.
The use of out-of-court agreements is
advantageous because they permit the continuation
of the business without incurring the time and expense
of a legal proceedings.
They can also be directed to
apply to specific issues rather than calling all business
transactions, relationships and the overall viability of the business
into question.
Out-of-court restructuring work-outs are
generally simpler to consummate than court-driven
restructuring cases since they typically involve the
execution of a negotiated agreement.
Court supervised restructuring
work-out involves numerous forms, schedules and procedures
which require substantial time, effort and money to remain
focused when stabilizing the business.
Out-of-court restructuring will also
often involve less adverse publicity than bankruptcy.
Bad publicity, needless to say, can adversely
affect the business.
In a service or consumer products
business, consumer confidence can be diminished.
On businesses like retail outlets
which rely on trade credits, such credit can become more
difficult to get or more expensive.
Contractually, confidentiality undertakings
are strictly imposed on all parties to
a restructuring. Such provision, in fact, exists in the Debtor-Creditor
Agreement.
Creditors' preference for non-court oriented
alternatives may also be primarily because
they may receive larger distributions in a shorter
period of time.
Finally, the creditors can control
isolated creditors whose interests may be adverse to all other
creditors by purchasing their claims.
Yet, while the court-driven
corporate restructuring may not be viewed as an initial
option to most restructuring work-outs presently undertaken
in Thailand, its strengths as a system should
not be discounted.
Court supervised restructuring
possesses many advantages, including the court's ability
to void preferential and fraudulent transfers, and to
discharge the debtor from its debts.
In cases involving alleged fraud or
cases involving extensive investigation, the out-of-court
approaches may not be appropriate.
The automatic stay provisions under the
Bankruptcy Act to prevent commencement, continuation or
enforcement of actions against the debtors may also be favored
by debtors.
In addition, the court-supervised
restructuring provides a single forum for negotiating,
litigating and resolving creditor disputes.
Finally, if creditor or inter-creditor disputes
were resolved in court only, then non-judicial
reorganization attempts may turn out to be a
waste of time and money.
In the end, the question is really
moot. It is interesting to note that even in
mature jurisdictions like the US, the debate still rages on.
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