• Dr.Isaraporn & Partners

The mist of insolvency and reorganisation: Difficulties of Thai Airways


It is undeniable that insolvency and restructuring matters are coming into the light of legal practices in a couple of years ahead resulting from the pandemic that took place in late 2019 to 2020 shaking the financial stability and performance of companies around the world. Thus, it is worth visiting those topics in this edition so as to be aware that to what extent the company can be adjudicated as bankrupt and if so how the procedures are going to be and is there any alternative resolution.


The current topic as can be seen in Thai media these days is the declaration of Thai prime minister stating the financial difficulties, insolvency and restructuring matters of Thai Airways, a state enterprise - 50 percent owned by the Ministry of Finance. This situation deems similar to the so-called “Tom Yum Kung” financial crisis and economic stagnant in 2540 BE. (1997 AD). At the time of such a crisis ended, the Bankruptcy Act (BA) was amended by having the regulations of the United States as the blueprint. Key difference among the previous and the current BA is the business rehabilitation section which allows the enterprise to file a petition so as to get an opportunity to continue an ordinary course of their business, obtain income and profit and gradually repay the debt within the time frame adjudicated and supervised by the court together with certain officers playing roles in planning the direction of the company.


It makes confusion on how these terms are differentiated and what procedures that Thai Airways have to confront in the following stage. Together with the private enterprise difficulties, our law firm decided to respectively clarify on how the actual terms, processes, adjudication, results and any so forth related matters will be. 


Central Bankruptcy Court is a specialised judicial body handling the matter of insolvency and restructuring as a court of first instance instead of Civil court previously. The adjudication of the Bankruptcy court as the first instance court will be proceeded as an appeal (if it has) to the supreme court, insolvency division.


The initiation of the bankruptcy case can be done by the creditor whose particular  juristic entity owes THB 2 million or in case of an individual is THB 1 million. Additionally, the debtor must be proved as insolvent prior to the initiation of the bankruptcy process which the debtor can be stipulated as such according to the following conditions. Insolvent roughly means the stage where the individual or juristic person has debt or liability over the asset.


  • (a)  the debtor transfers assets or rights in management of his assets to another person, for the benefit of all his creditors;

  • (b)  the debtor transfers his assets dishonestly or fraudulently;

  • (c)  the debtor transfers an asset or creates any right over it, which may be deemed a preferential transfer if the debtor were declared bankrupt;

  • (d)  the debtor, in order to avoid paying creditors, (i) leaves Thailand or remains outside Thailand; (ii) removes his assets from the jurisdiction of the Court; or (iii) consents to a judgment ordering payment of money which he does not pat;

  • (e)  the debtor's assets have been attached under a writ of execution, or there are no more assets for which attachment is possible;

  • (f)  the debtor declares to the Court in any action that he cannot pay his debts;

  • (g)  the debtor informs any of his creditors that he cannot pay his debts;

  • (h)  the debtor submits proposals for compromising on his debts, to any two or more of his creditors; or

  • (i)  the debtor receives demand letters from his creditors not less than twice, at intervals of not less than 30 days, and does not pay the debts.


Practically, creditors, debtors or any business entities might not be pleased to enter into legal procedures which are often complicated, time consuming and specifically money wasted. As can be seen in general civil and commercial cases, the composition is an alternative to all players so as to compromise, get the fair deal and shorten the procedure. In bankruptcy procedure, the BA allows the composition in two designated periods which are prior to the adjudication of debtor’s bankruptcy and after the aforementioned. 


The framework is having all players negotiating the settlement in relation to repayment of the debt which might be marginally adjusted to the financial performance of the debtor. The composition which is agreed upon the creditors shall be subsequently approved by the court so as to bind all the creditors in this regard. However, it is worth noting that the successful composition does not give the third party including the guarantor or the jointly liable debtors refraining from the liability. In case the debtor cannot fulfil the composition as agreed or there is a possibility that the debtor is not able to achieve so, the court, by virtue of the law, can terminate the composition and pursue the debtor to the bankruptcy position.

The composition after the court’s adjudication of bankruptcy can be done by the submission of the proposal. However, the submission is prohibited for 3 months starting from the date of the latest filing if there is a composition proposal in the previous stage and it was rejected. If the composition in this stage is approved by the court, the court shall terminate the bankruptcy that previously adjudicated so the debtor is returned with the full power operating its business.


Once the debtor is adjudicated as the bankrupt, they can be released from such status through the process called “discharge”. There are two kinds of discharge which are conducted through the decision of the court or the automatic one. The manual discharge can be done by the debtor through the application submission. The court then grant the discharge if certain conditions are fulfilled including being paid at least 50 percent of the asset and the debtor does not dishonestly conduct. To explain, in the insolvency procedure, the debtor might embezzle certain assets under to be out of the liquidation of its company. The embezzlement is accounted for dishonest conduct. Once the bankrupt is lifted, the debtor continuously has duty to facilitate the matters in relation to asset distribution together with the official receiver who is appointed by the court. If the debtor does not conform so, the court is empowered to adjudicate the bankruptcy of the debtor as it was done.

Another type of the termination of bankruptcy is the automatic discharge. However, this procedure is limited to be enforced with the individual debtor not the juristic person. The period will be calculated from the bankruptcy adjudication to three years and the individual debtor will be automatically discharged from bankruptcy. The period will be extended to five years and probably ten years if the debtor had previously adjudicated as bankrupt within five years or having dishonest bankruptcy respectively. The automatic discharge does not release the guarantor or the jointly liable person with the bankrupt from the liability. It is noted that the tax debt and debt related to the fraudulent and dishonest practice will not be excluded from liability even if the debtor is discharged from the bankruptcy. The adjudication of discharge will be publicized in the Government Gazette and at least one daily newspaper. 


It is mentioned in the previous section that the creditor is able to initiate the bankruptcy case against the debtor. However, in case of juristic person including Ordinary Partnership, a Limited Partnership, a Limited Company, the liquidator of the juristic person is able to file the petition in relation to the bankruptcy if it appears that the the shares of the company are successfully paid to the company and it is not sufficient to repay the debt. Subsequently, the court orders the absolute receivership to the juristic person while one of the creditors will be appointed as petitioning creditor. 


The business restructuring is another matter in relation to insolvency and it is accounted for the alternative to alleviate the overall situation the debtor and creditor might encounter in the light of insolvency process. The business reorganisation or so called restructuring is initiated by the debtor, the creditor who owes THB 10 million or above and the related government body. The application for the reorganization must contain as follows


  • (a)  the insolvency of the debtor;

  • (b)  list and address of all creditors to whom the debtor is indebted alone or altogether for an amount of at least Baht 10 million;

  • (c)  reasonable grounds and prospects to rehabilitate the business;

  • (d)  the name and qualifications of the plan preparer; and

  • (e)  a letter of consent of the plan preparer.


The reorganization will not take place in case 


  • (a)  the Court has ordered the debtor to be under absolute receivership; or

  • (b)  the Court or the registrar has ordered a dissolution or revocation of the registration ofjuristic person of the debtor, a registration of dissolution of such juristic person is made, or the juristic person must be dissolved for other reasons.


The reorganisation application is filed to the court and once it is approved the period called “automatic stay” commences. The automatic stay period (the stay) is described as the situation when the creditors are not able to conduct against the debtor so as to obtain repayment from the debtor’s asset. Additionally, the creditors are prohibited from filing lawsuits or bankruptcy cases against the debtor as well. The creditors are subsequently responsible for selecting the plan preparer to draft the rehabilitation plan for the juristic person and the preparer have to be approved by the court. After having the plan preparer, the creditors have to file their claim within one month and the preparer have to complete the rehabilitation plan and submit the the creditor for consideration within the period of three months. The operation of the plan is restricted not to exceed five years with the additional extensions for one year each two times. The special resolution of the creditors is required to approve the plan before submitting to the court to approve. The plan which is approved by the court binds all creditors in this regard. The juristic person is allowed to operate a normal course of business even in the reorganisation process as well as selling assets within the scope of normal course of business. In case the rehabilitation plan is not effective during the period, the court might lift the plan and pursue the bankruptcy through granting the absolute receivership to the juristic person.


In relation to Thai Airways case, the question might be raised in the aspect of being a state enterprise. In the insolvency process, BA of Thailand has no specific provisions dealing with the state enterprise. Thus, Thai Airways in this case, if it has to enter into insolvency process, the stages of consideration and adjudication will be similar to those of private enterprise. The issue of restructuring has been raised a few years ago when the financial stability of this state enterprise faced difficulties. It came up with financial support to maintain this enterprise and a great number of employment within. The financial report might show the development of financial capacity but it might not be enough and worth to support the enterprise by the continuation of mega investment there. It should be daily observed that how this enterprise will be subsequently managed as currently it is not finalized yet in relation to the major shareholder, Ministry of finance, whether it will decrease the holding proportion of this enterprise into below 50 percent which, pursuant to the law, makes Thai Airways not being a state enterprise and probably affect the direction in the insolvency or reorganisation process as the Ministry of Finance will not hold the majority of shares. Apart from the status of the enterprise, the employment matters are also subsequently raised as it has a labour union within the enterprise which now put a pressure to the Ministry of Finance to maintain the majority of the shares as they will not get certain better benefits arising from working within the state enterprise compared to those working for private enterprises.