World Bank, ADB seek tougher Thai law on bankruptcy

Ulhas Joglekar ulhasj at
Sat Mar 11 03:03:05 PST 2000

11 March 2000

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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