Proposed Rehabilitation Processes for Small and Medium Enterprises (SMEs)

Proposed Rehabilitation Processes for Small and Medium Enterprises (SMEs)

In 2016, the regulation concerning small and medium enterprises (“SMEs”) was initially introduced to aid SME owners in managing their debts through rehabilitation processes that safeguard the interests of both debtors and creditors.

However, as of 2023, there are over 3 million SMEs in Thailand, playing a critical role in driving the country’s economy. Recognizing this, the Legal Execution Department has expressed a keen interest in ensuring the well-being of SMEs. To this end, they have conducted a public hearing on the draft amendment of the Bankruptcy Act B.E. 2483 (1940), specifically focusing on the business rehabilitation processes for SMEs. Consequently, active efforts are underway to formulate regulations.

In the past, debtors seeking to manage their debts through rehabilitation processes were required to adhere to the provisions outlined in the Bankruptcy Act B.E. 2483 (1940). These requirements included being insolvent and indebted to one or multiple creditors. However, the recent introduction of business rehabilitation proceedings for SMEs has brought about a new rule by eliminating the requirement of being an insolvent person. This means that anyone, regardless of their solvency status, can now initiate the rehabilitation processes.

The recent amendment to the Bankruptcy Act B.E. 2483 (1940) aims to simplify the business rehabilitation processes, making it more accessible for small debtors. This simplification is driven by the current economic and social conditions, and it offers several benefits for debtors. Notably, it introduces a new section that includes an accelerated business rehabilitation processes.

The key summary of the amendments is as follows:

1. Broadening the definition of debtors in Section 90/91: Previously, the term “debtor” was limited to those specifically prescribed by the Office of SMEs Promotion (OSMEP). The amendment expands the definition to include any juristic person, regardless of the legal classification of SMEs. This change provides SMEs business owners with the opportunity to participate in business rehabilitation, enabling them to restructure their debts and maintain the continuity of their businesses.

• Revision of the debt threshold in Section 90/92: When a debtor is unable to pay one or several creditors in aggregate, they may file a petition with the court for business reorganization. For individual debtors, the debt threshold has been lowered from 2 million baht to 1 million baht. For juristic persons, the threshold has been revised from not less than 3 million baht to not less than 2 million baht, with an upper limit of 50 million baht. These changes apply regardless of the debtor’s financial status or the number of creditors involved. However, both types of debtors must demonstrate a reasonable cause and prospects for the reorganization of their businesses.

• Extension of the Business Reorganization Plan (“Plan“) period in Section 90/96(9): Recognizing that a 3-year plan may be insufficient, the amendment extends the Plan period from 3 years to 5 years. This extension aims to enhance efficiency and provide debtors with more opportunities to effectively proceed with their reorganization efforts while ensuring that creditors receive full payment of their debts.

• Removal of certain rehabilitation processes in Section 90/95: Prior to the draft amendment, individuals seeking business reorganization has to wait for a court order granting absolute control over their property and approval of the Plan before filing a petition for reorganization. This process involved strict legal requirements, such as providing reasons for business reorganization, detailed asset information, and principles and methods, as per Section 90/96 of the Bankruptcy Act B.E. 2483 (1940). These requirements often proved time-consuming and costly. The draft amendment has eliminated some of these processes, allowing debtors or legally authorized individuals to initiate the plan. This change allows both debtors and one or several creditors of the debts arising from a business operation to take the necessary steps toward rehabilitation.

However, the recent amendment to the Bankruptcy Law B.E. 2483 (1940) is currently pending approval from the Council of Ministers. After this, the next stage will involve the draft amendment proceedings to the Members of the Parliament for consideration and approval before proceedings to the King’s endorsement and publish in the Royal Gazette.

Author: Panisa Suwanmatajarn, Managing Partner.

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