Experts call for amendments to Bankruptcy Act

Concerning corporate debtors, Att Attanont, director of the Legal Execution Department's Business Reorganisation Office, said some articles of the Bankruptcy Act needed to be revised to fit the changing environment.

Under the law, when a rehabilitation effort fails, the debtor can file to begin another without submitting any new data or a new plan. Att said this delays the actual rehabilitation process and increases the burden on the state. He suggested a six-month time lapse before the rehabilitation proposal can be re-filed, in order to limit the number of "strategic debtors" - those who are just buying time, without making any serious attempt at rehabilitating their business.

Att said a clause of the act should be amended to ensure debtors are earnest about rehabilitation. At present, a debtor who has his or her rehabilitation plan approved but who fails to adhere to it is allowed to file a change-of-plan request. Some resort to this option merely as a way of buying time, hoping that conditions improve before the business goes under, he said, and do not have any intention of restructuring their business.

Att said the law should be amended to give courts the power to seize the assets of such debtors.

Under the law, if debtors and creditors cannot agree on a choice of rehabilitation planner, Business Reorganisation Office staff members are appointed as temporary planners. Att said the Central Bankruptcy Court should be empowered to appoint the temporary planners from a list of advisers prepared by the office.

"This would really help us deal with our understaffing problem: Our limited resources could be better allocated to focus entirely on the business-rehabilitation process," he said.

Meanwhile, Kittipong Urapeepatanapong, chairman of international law firm Baker & McKenzie, said the company would propose that the Finance Ministry amend the law to ease the personal-loan rehabilitation process for individual debtors. The current legal framework only allows for corporate rehabilitation - it does not provide for individuals who cannot finance their debts after losing their jobs or having their pay cut.

Kittipong said businesses are generally healthier now than during the financial crisis of 1997, thanks to the painful lessons learned then - most businesses operate with debt-to-equity ratios as low as 1:1. The victims this time, he said, are workers, particularly those employed by export-oriented factories. As exporters face falling orders, they reduce their workforces, and both white- and blue-collar workers are affected.

When these workers cannot honour their debts, their creditors handle the cases through the Civil Court or the Central Bankruptcy Court. Multiple cases will emerge in situations where the individual has more than one creditor, Kittipong said.

"If the law is amended to allow individual debt rehabilitation, this will help them," he said.

With a slimmer chance of rehabilitation, individuals have a hard time securing consumer loans from banks, which fear an increase in non-performing loans (NPLs). This is illustrated by the statistics on mortgage approvals. At present, the industry's rejection rate is between 30 and 40 per cent, meaning that only 60 to 70 per cent of home-buyers can obtain home loans.

 According to research by Bangkok Commercial Asset Management, due to concerns over NPLs, outstanding loans this year could fall from Bt7.5 trillion at end-2008 to Bt6.02 trillion. However, the value of NPLs will rise anyway, by between 18 and 36 per cent, from Bt217 billion at end-2008 to between Bt257 billion and Bt297 billion this year - or between 4.27 per cent and 4.94 per cent of outstanding loans.

Notably, more NPLs are likely to come from consumer loans and trading firms than from established companies, said Bangkok Commercial Asset Management president Bunyong Visatemongkolchai.

This marks another big difference from 1997, when most NPLs were generated by large debtors.

To deal with this, Bangkok Commercial Asset Management is setting up a system to handle more NPLs from consumer loans, particularly mortgages.

"If the government sets up a system to restructure personal NPLs, it would lessen the severity of the debt problem this country is dealing with as a result of the financial crisis," Bunyong said.

Amendments to the Bankruptcy Act are necessary in the light of the growing number of corporate bankruptcy and rehabilitation cases as well as the swooning individual debts, said legal experts.

Concerning corporate debtors, legal Execution Department's Business Reorganisation Office director Att Attanont said that amid this condition, some articles in the Bankruptcy Act have to be revised to fit the changing environment.

Under the law, when a rehabilitation effort fails, the debtor can file another without any new data or plan. This delays the actual rehabilitation and increase the state's burden. He suggested a 6-month time lapse, before they can refile the rehabilitation proposal, to limit the number of strategic debtors - who are just buying time, without any serious attempt for business rehabilitation.

Att noted that a clause must also be amended to ensure debtors' earnest in rehabilitation. At present, debtors which see their rehabilitation plan approved and could not follow the plan are allowed to file a request to have the plan changed. Some of them have resorted to this means to buy time.

Att said the law must be amended to give courts the power to seize the assets of such debtors.

In another issue, under the law, if the debtors and creditors cannot settle on the choice of rehabilitation planner, the Business Reorganisation Office staff is appointed the temporary planners. Att said the Central Bankruptcy Court should be empowered to appoint the temporary planners from the list of advisors prepared by the office.

"This would really help us deal with the understaff problem and our limited resources could be allocated to focus entirely on business rehabilitation process," he said.

Meanwhile, Kittipong Urapeepatanapong, chairman of international law firm Baker&McKenzie, said the company will soon propose the Finance Ministry to amend the law to pave way for individual debtors' personal loan rehabilitation. The legal framework now allows only corporate rehabilitation, but not individuals who cannot finance debts when salary is cut or when they lose jobs.

Kittipong viewed that businesses are more healthy than in 1997, thanks to the painful lessons a decade ago. Most of the businesses operate with the debt-to-equity ratio as low as 1:1. Victims are rather workers, particularly those who are working for export-oriented factories. As the exporters face falling orders, they reduce workforce and both white-collar and blue-collar workers are all affected.

He said that the creditors of these workers, when cannot honour their debts, handle the cases through the Civil Court or the Central Bankruptcy Court. More cases will emerge if the number of creditors is more than 1.

"If the law is amended to allow individual debt rehabilitation, this will help them," he said.

Due to slimmer chance of rehabilitation, individuals are now facing difficulties in tapping consumer loans from most banks who are fearful of an increase in non-performing loans. This is evident in the case of mortgage loan approvals. At present, the industry's rejection rate is between 30-40 per cent, meaning that only 60-70 per cent of homebuyers can obtain loans for house purchases.

 According to research by Bangkok Commercial Asset Management Co Ltd, due to concerns in NPL, outstanding loans this year may fall from Bt7.5 trillion at end-2008 to Bt6.02 trillion. However, NPLs will rise anyway between 18-36 per cent from Bt217 billion at end-2008 to be between Bt257 billion and Bt297 billion in this year or about 4.27 per cent and 4.94 per cent respectively of outstanding loans.

Notably, Bangkok Commercial Asset Management Co Ltd's president Bunyong Visatemongkolchai said that more NPLs are likely to come from consumer loans and trading firms, rather than established companies.

This marked a big difference from 1997 when most NPLs were generated by large-sized debtors.

To deal with this, Bangkok Commercial Asset Management is setting a system to handle with more NPLs from consumer loans, particularly mortgage ones.

 "If the government set up the system to restructure personal NPLs, this will reduce the country's debt problem from this crisis," he said.