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Thailand's business rehabilitation regime under the Bankruptcy Act B.E. 2483 (1940) continues to serve as a vital legal mechanism for companies facing financial distress. At the heart of this process lies the court's assessment of whether a debtor has a credible justification for rehabilitation — a determination that blends legal criteria with practical feasibility.
Under Section 90/3 of the Bankruptcy Act, four conditions must be met for a company to enter rehabilitation. Among these, the court pays particular attention to two interrelated elements:
- the cause of insolvency or inability to pay debts, and
- the justification for rehabilitation and the feasibility of the proposed recovery plan.
These elements are not just procedural requirements — they reflect the court's role in safeguarding both debtor viability and creditor interests.
The justification for rehabilitation must show that the debtor has a realistic opportunity to recover and continue operations. This requires more than a declaration of financial distress; it demands a substantiated plan that outlines how the business can be restored to viability. Courts assess whether the debtor retains operational capacity, whether restructuring is feasible, and whether the proposed plan is likely to succeed.
Recent legal developments have further refined this framework. The 2025 draft amendments to the Bankruptcy Act propose transformative changes aimed at making rehabilitation more accessible, convenient, and affordable, particularly for individuals and small and medium-sized enterprises (SMEs). These include raising the debt threshold for ordinary rehabilitation from THB 10 million to THB 50 million, expanding SME eligibility to include public limited companies, removing the mandatory prepackaged plan requirement for SME rehabilitation, introducing expedited rehabilitation procedures, and establishing clearer creditor classifications and voting thresholds for plan approval.
These reforms aim to streamline proceedings, reduce costs, and encourage earlier intervention, especially for businesses facing short-term cash flow problems. They also reflect a shift toward a more proactive and debtor-friendly approach, allowing companies to seek rehabilitation before reaching full insolvency.
From the court's perspective, these amendments will likely result in a broader range of rehabilitation petitions, particularly from SMEs. The removal of the prepackaged plan requirement means courts must now evaluate feasibility through creditor meetings and inquiries, placing greater emphasis on judicial discretion and fact-based review. The introduction of expedited procedures will also reduce administrative burdens, allowing courts to focus on substantive evaluation of recovery potential.
Judicial discretion remains central. The Bankruptcy Act does not define specific time frames for inability to pay debts, nor does it prescribe a fixed formula for feasibility. Instead, the court considers the totality of circumstances, including external economic factors, industry conditions, and the debtor's historical performance.
Ultimately, the Thai court's approach to rehabilitation balances legal precision with economic pragmatism. The justification must be credible, the plan must be feasible, and the process must protect both debtor recovery and creditor rights. As Thailand continues to refine its rehabilitation laws, businesses and legal practitioners must stay informed and prepared to navigate this evolving landscape.
This article first appeared on https://thelegalindustry.com/thailand/
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