World Bank, ADB seek tougher Thai law on bankruptcy
By Thomas Fox
BANGKOK: The World Bank and Asian Development Bank have jointly urged
Thailand to quickly further reform bankruptcy laws, which are being closely
watched as the country's largest corporate debtor battles creditors over
restructuring.
In a document obtained Friday by Dow Jones Newswires, the two banks make
several recommendations, including defining insolvency along international
lines as the general ability to pay debts as they fall due.
In previous Thai court cases, insolvency has been defined as occurring when
liabilities exceed assets. Thai Petrochemical Industries, or TPI, has been
using it to defend against restructuring sought by creditors in dealing with
its $3.5 billion debt.
The case will be brought before a new bankruptcy court March 15, created in
the wake of the Asian economic crisis that struck in mid-1997 to speed up
resolution of bad debts.
The case is being closely watched by international investors, who judge it
as a test of Thailand's seriousness in holding accountable the corporations
whose speculative over-borrowing is seen as one cause of the crisis.
The World Bank and Asian Development Bank said in their report, dated Jan.
24, that bankruptcy judges could expand the criteria for insolvency in their
rulings, but this was considered unlikely. It urged the government to pursue
legislation as part of an urgent, comprehensive reform of the bankruptcy act
and related laws.
The mission by legal counsel of the ADB, World Bank and International
Finance Corp. had informed the International Monetary Fund of its work, and
the IMF concurred with its approach, the report said. It said the legal
reform process has clearly progressed over the past two years, but the slow
pace of corporate and debt restructuring underlines the need for a stronger
legal framework.
Debtors must be encouraged to pursue reorganization by both bigger sticks
and sweeter carrots, according to the recommendations. "There is little
advantage or incentive for debtors to seek protection under bankruptcy
laws - through for example, reorganization - because they do not face an
effective and immediate threat of loss of assets from creditor recovery
actions outside bankruptcy law," the report said.
While creditors' rights need to be toughened, current laws also contain
sanctions which should be softened or limited, the report said. Currently,
personal insolvency, corporate bankruptcy and reorganization are dealt with
in the same law. The same test of insolvency applies to all cases.
"Under Thai law and culture, personal insolvency carries a severe social and
moral stigma with punitive consequences," the report said. Debtors are
therefore reluctant to enter the process and courts are reluctant to adjudge
them insolvent.
Another sticking point which has the tendency to turn debtors and creditors
into adversaries is the probability debtors will lose control of their
company even if they enter restructuring voluntarily.
Officials from the Asian Development Bank and the World Bank refused to
comment on any of the issues in the report.(AP)
For reprint rights: Times Syndication Service
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