Insolvency Resolutions And Debt Workouts: Thailands Experience

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Insolvency Resolutions And Debt
WorkoutsThailands Experience

• 29 November 1999
• Kanjana Chanyarungrojn
• Assistant Secretary-General
• Financial Sector Restructuring Authority (FRA)

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Different Status Of Firm In Financial Distress

• Technical insolvency
• Insolvency in bankruptcy
• Legal bankruptcy

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Insolvency Resolutions Liquidation versus
Rehabilitation
Insolvency law now incorporates both liquidation
procedures and rehabilitation procedures.
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Liquidation And Rehabilitation
Liquidation emphasizes an orderly wind-down of an
enterprise. Rehabilitation gives an enterprise
the opportunity to restructure and reorganize
itself.
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Insolvency Procedures

• Insolvency procedures need two elements
• Legal framework (Bankruptcy and Foreclosure
  Laws, Financial Sector Restructuring Law etc.)
• Institutional framework (Bankruptcy Court, Debt
  Workout Agency, FRA etc.)

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FRAs Mandate
Financial Sector Restructuring Authority (FRA) of
Thailand is mandated to liquidate 56 closed-down
finance companies.
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Insolvency Resolution Channels

• Formal in-court (through bankruptcy court)
• Formal out-of-court (through corporate debt
  restructuring agency/institution)
• Informal procedures (through private
  negotiations)

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Development Of Thai Bankruptcy Law
1. Bankruptcy Act enacted since 1940, which
emphasized liquidation. 2. Bankruptcy Act (No. 4)
amended in 1998, which adopts business
rehabilitation proceeding, and some protection
clauses e.g. the automatic stay.
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Development Of Thai Bankruptcy Law (Cont)
3. Bankruptcy Act (No.5) amended in 1999, which
protects creditors who extend further loans to
insolvent firm. 4. Bankruptcy Court and Procedure
Act, enacted in 1999, which establishes
bankruptcy court.
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Out-Of-Court Debt Workouts Institutions
Corporate Debt Restructuring Advisory Committee
(CDRAC) in Thailand, and similar
institutions/agencies in Indonesia, Malaysia, and
Korea, in which the concept of London Approach is
applied.
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General Methods Of Debt Workouts

• Reducing loan principal (haircut)
• Reducing interest rates
• Extending repayment period
• Debt-equity swap
• Combinations of above

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Out-Of-Court Debt Workout
Inter-Creditor Agreement (ICA) and
Debtor-Creditor Agreement (DCA) were signed to
expedite out-of-court debt workout by CDRAC,
Thailand.
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CDRAC versus In-Court Procedures

• CDRACs out-of-court proceedings are more
  flexible, having adequate guidance and less
  complicated procedures.
• In-court proceedings have more enforcement
  power, stricter procedures, and tend to attract
  large and complex cases.

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Additional Incentives For Debt Workouts
1. Beneficial accounting standard 2. Relaxation
on equity ownership regulation 3. Tax and fee
relaxation
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Debt Workouts And Restructurings
Debt workouts and restructurings for business
rehabilitation are among key answers to the
current financial sectors problems and the
resolutions for sustainable economic recovery.