The financial crisis of late 1990s highlighted the need for the complete revamping of the insolvency legislation in Thailand. The World Bank has been supporting reforms in Thailand through a direct aid and through a number of development partnerships programs. In a 2006 report on the completion of the Country Development Partnership on Financial and Corporate Competitiveness in Thailand (CDP-FC) aimed at increasing the competitiveness and fiscal strength of Thai companies, the World Bank noted that some progress had been achieved in addressing problems of corporate debt and restructuring. Nevertheless, further actions are required because the insolvency legislation and its implementation are still tailored towards the interests of debtors, and the proceedings are time-consuming and uncertain. Prior to the amendment of the Bankruptcy Act in 1998 and 1999, the only option available for companies in distress was a liquidation procedure. The amendments introduced a reorganization procedure modeled after U.S. Chapter 11, which allows debtors and creditors to reorganize a distressed company instead of being forced into liquidation. The U.S. Department of Commerce reported in 2007 that additional amendments to the Bankruptcy Act were introduced in 2004.

General Overview

The financial crisis of late 1990s highlighted the need for the complete revamping of the insolvency legislation in Thailand. The World Bank has been supporting reforms in Thailand both, through direct aid, and through a number of development partnerships programs. In particular, in April 2003 the World Bank initiated the Country Development Partnership on Financial and Corporate Competitiveness in Thailand (CDP-FC) aimed at increasing the competitiveness and fiscal strength of Thai companies. Component 3 of the partnership program addresses the problems of corporate debt and restructuring. In 2006 the CDP-FC partnership program was concluded and, in the completion report published the same year, the World Bank pointed out that the execution of Component 3 was moderately satisfactory. The World Bank noted that "despite improvement, the bankruptcy law and its implementation by the judicial system appear to still be overly biased in favor of debtors, resulting in long delays and a high degree of uncertainty" (p. 45). The report added that perceptions of the foreclosure law is still debtor-friendly. The process by which creditors can receive a court judgment to recover their collateral in cases of default is time-consuming. Even after a judgment is handed down, the official execution department is slow in executing the sale of foreclosed assets.

Prior to the amendment of the Bankruptcy Act in 1998 and 1999, the only option available for companies in distress was liquidation. The 1999 amendments introduced a reorganization procedure modeled after U.S. Chapter 11, which allows debtors and creditors to reorganize the distressed company instead of inflicting liquidation procedures. Further amendments to the Bankruptcy Act were introduced in 2004. According to the 2007 U.S. Department of Commerce (DoC) report, these included "tightening the rules under which some debtors can emerge from bankruptcy status and streamlining the legal appeals process in bankruptcy and restructuring cases" (p. 70).

The International Association of Insolvency Regulators website discloses that there are now three procedures for corporate debtors in Thailand: (1) creditor initiated bankruptcy; (2) debtor-initiated bankruptcy; and (3) reorganization. Creditor-initiated bankruptcy involves the appointment of a receiver who administrates the debtor's business under the judicial supervision. In a debtor-initiated bankruptcy, a liquidator files a petition to the Court to order a bankruptcy, once the company's liabilities exceed the assets. Reorganization procedures can be initiated either by creditors or debtors, with a planner or the plan administrator operating the procedure. Both bankruptcy and the reorganization process are supervised by the Bankruptcy Court, which was established by the Bankruptcy Court Act in 1999. The Act empowers the Court and establishes its rules in Section 19. The judges in the Court serve according to a regular rotation schedule. Writing in 2002, Broude notes that "the rotation process minimizes the efficacy of training programs that have been designed to enhance the judges' ability to deal fairly and wisely with the matters that come before them" (p. 17). According to the 2007 DoC report, from 1999 to October 2005 the Court has considered 15,863 cases.

In a 2007 World Bank Group publication which summarizes the results of its "Doing Business" project for Thailand, the Thai business environment was investigated along several dimensions, including closing a business. The report then scored Thailand's performance in comparison with 178 other countries for which such studies are conducted. According to this report, Thailand ranked 15 out of 178 countries for overall ease of doing business, and 44 out of 178 with specific regard to closing a business. For "closing a business," these indicators are time, cost, and recovery rate. In Thailand, the average time for such procedures is 2.7 years, which is the same as a regional average. The average among member states of the Organization for Economic Cooperation and Development (OECD) is 1.3 years. The average cost (expressed as a percentage of the bankrupt's estate) is 36% in Thailand, whereas the regional average is 23.2% and the OECD average is 7.5%. The recovery rate (expressed as cents on the dollar) averages 41.8 cents in Thailand. For the region, the average recovery rate is 28.1 cents, and for the OECD member states the average is 74.1 cents.