| |
| SECTION H - WORK OUTS |
|
The concept of the informal ‘work out’ might be said to be based
on a combination of the following elements:
- the fact that
there is a significant size of debt owed to a number of different
creditors (mostly these would be bank or other financial institution
creditors) and the present inability of the corporate debtor
to service that debt;
- the attitude that it may be preferable to negotiate
an arrangement for the financial difficulties of the debtor
both between the debtor itself and the financiers (and perhaps
other lesser creditors) and also between the financiers themselves;
- the availability of relatively sophisticated
refinancing, security and other commercial techniques that
might be employed to alter, re-arrange or re-structure the
debts of the corporate debtor or the corporate debtor itself;
- the sanction that if the negotiation process
cannot be started or breaks down there can be relatively swift
and effective resort to the application of an insolvency law;
and
- the prospect that there may be a greater benefit
for all through the negotiation process than by direct and
immediate resort to the insolvency law.
In relation to these elements:
|
(a) identify which of these elements are appropriate and relevant
to this economy;
|
The fact that there is a significant size of debt owed to a number
of different creditors and an inability to service that debt is
certainly a reality in Thailand at present.
Availability of relatively sophisticated refinancing, security
and other commercial techniques is also arguably applicable.
The sanction that if the negotiation process cannot be started
or breaks down there can be relatively swift and effective resort
to the application of an insolvency law is applicable in the sense
that because standard bankruptcy proceedings will in effect result
in prejudicial treatment of creditors who inject capital into
a corporate debtor knowing that it is insolvent, and that following
a receivership order, no business can be conducted without approval
of the court. Bankruptcy has been generally been perceived as
a last resort option that may be unfavourable for both debtor
and creditors; hence the small number of bankruptcies. This situation
has changed somewhat since the introduction of the reorganization
provisions of the Bankruptcy Act (Article 90), but the requirements
under this legislation are cumbersome. It is noteworthy that since
its introduction in April 1998, only one case has reached the
stage where a Plan has been accepted bt the requisite 75% of creditors.
Its implementation has yet to be achieved.
|
|
(b) which of these elements might be considered absent, ineffectual
or of little consequence in this economy?
|
In part because of the legislative constraints, the prospect
that there may be a greater benefit for all through the negotiation
process than by direct and immediate resort to the insolvency
law, is probably of the least consequence of the cited elements.
Few corporate debtors can recover without some form of additional
funding. As creditors who allow a debtor to incur debt, knowing
that the debtor is insolvent, are not entitled to receive payment
of debt in a bankruptcy case, almost no funds have been made available
to corporate debtors facing what may be only temporary liquidity
problems. However, Article 90 has changed this predicament by
allowing for 'protection' of such creditors as part of the sanctioned
plan. Therefore, there is something of an incentive not to negotiate
if it is clear that additional funding will be required for the
revival of the corporate debtor, and instead to proceed with an
Artical 90 petition for reorganization.
|
|
(c) which of these elements would be viewed as the least persuasive
if a work out was contemplated?
|
The prospect that there may be a greater benefit for all
through the negotiation process than by direct and immediate resort
to the insolvency law.
|
|
(d) are there any other elements that are relevant to this
issue in this economy?
|
No.
|
| |
| |
