When an individual or company has significant debts, one of the most common questions is: “How much debt is required before a creditor can file for bankruptcy?” or “How much debt is required for a company to enter business rehabilitation?”
Thai law establishes different requirements for bankruptcy proceedings and business rehabilitation proceedings. The amount of debt is only one of the legal requirements. Having debts above the applicable threshold does not automatically mean that the debtor will be declared bankrupt or placed into rehabilitation.
1. How Much Debt Is Required to File a Bankruptcy Case?
Under Section 9 of the Bankruptcy Act B.E. 2483 (1940), as a general principle, a creditor may file a bankruptcy action when the statutory requirements are satisfied.
Individual Debtor
An individual debtor must owe one or more creditors a total amount of at least THB 1,000,000.
Corporate Debtor
A company or other legal entity must owe one or more creditors a total amount of at least THB 2,000,000.
In addition to the minimum debt amount, other legal requirements must be satisfied, including requirements relating to the debtor's insolvency and the nature of the debt.
Therefore:
- Individual debtor: generally at least THB 1 million
- Corporate debtor: generally at least THB 2 million
However, having debt of THB 1 million or THB 2 million does not automatically result in bankruptcy. The court must consider the other statutory requirements as well.
2. What Does “Insolvent” Mean?
Insolvency is an important issue in bankruptcy proceedings.
The assessment does not necessarily depend solely on whether the debtor's total liabilities exceed the value of its assets. The court may consider the debtor's financial circumstances, ability to pay debts, conduct, and statutory presumptions of insolvency.
For example, a company with THB 5 million in debt but sufficient assets and cash flow to meet its obligations may have a very different legal position from a company with THB 5 million in debt that is unable to pay its debts when due.
3. How Much Debt Is Required for Business Rehabilitation?
For general business rehabilitation proceedings under Chapter 3/1 of the Bankruptcy Act, an important requirement under Section 90/3 is that the debtor must be insolvent or unable to pay its debts as they become due, and must have debts owed to one or more creditors totaling at least THB 10 million.
There must also be:
- Reasonable grounds for rehabilitation; and
- A possibility or channel through which the debtor's business can be rehabilitated.
Therefore, for general business rehabilitation proceedings, the basic principle can be summarized as:
- Debt of at least THB 10 million + financial distress or insolvency as required by law + reasonable grounds and a possibility of rehabilitation.
However, different types of rehabilitation proceedings may have different requirements. The applicable legal provisions should therefore be reviewed based on the type of debtor and business.
4. Who Can File for Business Rehabilitation?
Depending on the type of debtor and the applicable law, a rehabilitation petition may generally be filed by:
1. A Creditor
One or more creditors may file a petition if the statutory debt threshold and other legal requirements are satisfied.
2. The Debtor
A company or other eligible debtor may file a petition for its own business rehabilitation if the statutory requirements are met.
3. Government or Regulatory Authorities
For businesses subject to specific regulatory regimes, certain government or regulatory authorities may have the power to file a rehabilitation petition when the statutory requirements are satisfied.
Therefore, the right to file depends on the type of debtor and the specific rehabilitation procedure involved.
5. What Types of Companies Can Enter Business Rehabilitation?
Under the general business rehabilitation framework, the debtor must fall within a category of entities eligible for rehabilitation under Thai law.
This generally includes certain:
- Limited companies;
- Public limited companies; and
- Other legal entities prescribed by law.
Therefore, having debt of THB 10 million does not mean that every individual or business automatically qualifies for general business rehabilitation.
The legal status and type of debtor must be examined before filing.
6. What Does the Court Consider?
Meeting the minimum debt threshold is only the beginning. The court will consider various legal and factual issues.
Important considerations in a business rehabilitation case include:
1. Is the Debtor Insolvent?
The court may consider whether the debtor is insolvent or unable to pay debts when due under the applicable legal standards.
2. Does the Debt Meet the Required Threshold?
For general rehabilitation proceedings, the court will consider whether the debtor has debts meeting the statutory threshold, generally at least THB 10 million.
3. Are There Reasonable Grounds for Rehabilitation?
The court must determine whether there are reasonable grounds to allow the debtor to enter rehabilitation.
4. Is There a Realistic Possibility of Rehabilitation?
A key issue is whether the business has a realistic possibility of continuing and resolving its financial difficulties.
For example, the court may consider the debtor's business operations, financial position, revenue-generating potential, assets, and proposed restructuring strategy.
5. Was the Petition Filed in Good Faith?
The circumstances surrounding the petition and the purpose of using the rehabilitation process may also be relevant.
7. What Should a Creditor Do When a Debtor Fails to Pay?
A creditor should take a systematic approach before deciding which legal remedy is appropriate.
Step 1: Review the Debt Documents
Important documents may include:
- Contracts;
- Invoices;
- Delivery documents;
- Payment records;
- Acknowledgments of debt;
- Cheques;
- Guarantee agreements; and
- Security documents.
Step 2: Calculate the Total Debt
The creditor should determine whether the debt satisfies the applicable threshold for bankruptcy or business rehabilitation proceedings.
Step 3: Investigate the Debtor's Financial Position
The creditor should consider whether the debtor owns assets, continues to operate its business, has other creditors, or appears to be insolvent.
Step 4: Consider the Appropriate Legal Remedy
Depending on the circumstances, a creditor may consider:
- Filing a civil lawsuit;
- Enforcing security;
- Negotiating debt restructuring;
- Filing a bankruptcy action;
- Filing a petition for business rehabilitation; or
- Filing a claim for repayment if the debtor has already entered bankruptcy or rehabilitation proceedings.
The appropriate option depends on the nature of the debt, available security, amount owed, and financial condition of the debtor.
8. Can a Debtor Apply for Rehabilitation After Being Sued for Bankruptcy?
In certain circumstances, yes.
Thai law provides mechanisms under which a debtor may seek business rehabilitation even after bankruptcy proceedings have been initiated, subject to the applicable legal requirements and the procedural status of the case.
Therefore, receiving a bankruptcy lawsuit does not necessarily mean that the debtor has no other legal options.
However, the debtor should obtain legal advice immediately because important deadlines and procedural requirements may apply.
9. Bankruptcy vs. Business Rehabilitation
| Issue | Bankruptcy | Business Rehabilitation |
|---|---|---|
| Individual debtor | May be subject to bankruptcy if statutory requirements are satisfied | General rehabilitation does not apply to every individual |
| Corporate debtor | May be subject to bankruptcy | May enter rehabilitation if statutory requirements are satisfied |
| General debt threshold | Individual: ≥ THB 1 million; Corporate: ≥ THB 2 million | Generally ≥ THB 10 million |
| Main purpose | Administration of assets and liabilities through bankruptcy proceedings | Preserving the business and restructuring debts |
| Who may initiate | Generally creditors | Creditors, debtors, and persons authorized by law |
| Possibility of rehabilitation required? | Not a primary requirement for bankruptcy | Yes, reasonable grounds and a possibility of rehabilitation are important requirements |
10. Practical Examples
Example 1: An Individual Owes THB 1.5 Million
If the other statutory requirements are satisfied, the creditor may potentially file a bankruptcy action because the debt exceeds the THB 1 million threshold.
However, the individual does not automatically become bankrupt simply because the debt exceeds THB 1 million.
Example 2: A Company Owes THB 3 Million
The amount may satisfy the debt threshold for a bankruptcy action against a corporate debtor.
However, the creditor must still establish the other legal requirements, including matters relating to insolvency and the enforceability of the debt.
Example 3: A Company Owes THB 15 Million
The amount exceeds the general THB 10 million debt threshold for business rehabilitation.
However, the company does not automatically qualify for rehabilitation simply because it owes THB 15 million.
The court must also consider whether the debtor satisfies the applicable financial requirements and whether there are reasonable grounds and a realistic possibility of rehabilitation.
11. What Should a Creditor Consider Before Filing?
A creditor should not look only at the amount of debt.
It is important to consider:
- What assets does the debtor own?
- Does the debtor have other creditors?
- Is the debt secured?
- Are there other lawsuits pending?
- Is the company still operating?
- Does the business have a realistic possibility of rehabilitation?
- How much is the creditor likely to recover through bankruptcy?
- Would business rehabilitation provide a better recovery than bankruptcy?
Choosing the appropriate legal procedure may therefore be more important than simply looking at the amount of debt.
Nathee Legal — Bankruptcy & Business Rehabilitation
Nathee Legal Firm provides legal services relating to bankruptcy and business rehabilitation for creditors, debtors, companies, and business owners.
Our legal team can assist in assessing whether it is appropriate to file for bankruptcy, seek business rehabilitation, negotiate debt restructuring, or pursue another legal remedy.
If your company is facing serious debt problems, or if you are a creditor considering legal action against a debtor, obtaining legal advice at an early stage can help you identify the most appropriate strategy and protect your legal rights.