Bankruptcy Law and Practice in the Kingdom of Thailand

1. Bankruptcy Law andPractice in the Kingdom of Thailand Presentation for the 78th Annual Meeting National Conference of Bankruptcy Judges Nashville, Tennessee October 10-13, 2004 Presented by: George M. Kelakos, Heller Ehrman New York City

2. OUTLINE • Background • Out-of-Court Restructurings – The “Bangkok Approach” and CDRAC • Bankruptcy Reform in Thailand – the 1998 and 1999 Amendments to Thailand’s Bankruptcy Act • Bankruptcy Reform in Thailand– The 2004 Amendments to Thailand's Bankruptcy Act • The Role of the Central Bankruptcy Court and the Business Reorganization Office • Thai Asset Management Corporation • Impact of TPI and other cases • Conclusions and Q&A

3. Background • July 1997: Thai Baht crashes after Bank of Thailand abandons peg to the USD. • October 1997: Thai Financial Sector Authority (FRA) established to oversee rehabilitation/liquidation of 58 finance companies closed/suspended as a result of the crash. • June 1998-1999: Bank of Thailand adopts the "Bangkok Approach" (variant of the London Approach)-Corporate Dept Restructuring Advisory Committee (CDRAC) is created to mediate/administer formal out-of-court workouts of NPLs.

4. Background - (Cont.) • April 1998 and April 1999: Thai Bankruptcy Act (Bankruptcy Act, B.E. 2483 (1940) is amended in ’98 and ’99-the Central Bankruptcy Court (CBC) and the Business Reorganization Office are established. Other economic laws are adopted and Thailand gets a new Constitution.

5. I. Out-of-Court Restructurings – The “Bangkok Approach” and CDRAC • Background of “Bangkok Approach” (variant of the “London Approach”) • June 1998 – Bank of Thailand issued set of nineteen guidelines on corporate debt restructuring • Objective of “Bangkok Approach” – non-binding and non-statutory guidelines for efficient restructuring of corporate debt of viable entities for benefit of creditors, debtors, employees, shareholders and the Thai economy

6. II. Out -of-Court Restructurings – The “Bangkok Approach” and CDRAC – Cont. • Highlights of the “Bangkok Approach” • Restructuring of business as well as debt – to ensure long-term viability of enterprise • Transparency/disclosure by Debtor of accurate information • Moratorium/creditor standstill (60 days) • Restructuring (professional) costs to be borne by Debtor’s estate • Preservation of creditors’ existing rights; orderly distribution scheme • Priority status for new credit • Corporate Debt Restructuring Advisory Committee (“CDRAC”) – to serve as mediator (or assist in appointment of mediator)

7. II. Out -of-Court Restructurings – The “Bangkok Approach” and CDRAC – Cont. • Application of the “Bangkok Approach” • Debtor-Creditor Agreement on debt restructuring process and the Inter-Creditor Agreement • Executed by major foreign and domestic commercial banks, finance companies and finance and securities companies as well as major debtors, agreements provided a framework for application of the “Bangkok Approach” (administered by CDRAC) • Simplified Debtor-Creditor Agreement • Debt restructuring for SME’s • 60 day time-frame for debt restructuring (can extend by 15 days in case of mediation) • Successful restructuring – tax free privileges

8. II. Out -of-Court Restructurings – The “Bangkok Approach” and CDRAC – Cont. • Role of CDRAC • CDRAC was formed in June 1998. Chairman is Governor of Bank of Thailand; members are chairpersons of Thai Bankers’ Association, the Foreign Banks’ Association, the Association of Finance Companies, the Federation of Thai Industries and the Board of Trade of Thailand • CDRAC oversees out-of-court restructurings in large corporate cases and for small to medium sized enterprises. • Unsuccessful cases ended up in the Thai bankruptcy (Business Reorganization) process or were transferred to the TAMC (see below).

9. III. Bankruptcy Reform in Thailand – the 1998 and 1999 Amendments to Thailand’s Bankruptcy Act • Background • International domestic pressure for economic and legal reform resulted in passage of economic legislation in Thailand • Foreclosure process was shortened (8-10 year process shortened to 18 months) • Bankruptcy Act was amended in April 1998 and April 1999 (review process actually began in 1988) • Tax regulations were issued in 1998 and 1999 to support and facilitate corporate and debt restructuring (tax relief afforded to all parties involved in the process)

10. III. Bankruptcy Reform in Thailand – the 1998 and 1999 Amendments to Thailand’s Bankruptcy Act – Cont. • Highlights of 1998/1999 Amendments: • Incorporated new provisions for reorganizing private and public enterprises • Established an independent Central Bankruptcy Court (“CBC”) with jurisdiction over the entire nation • Establishment of the business reorganization office (“BRO”) to oversee and administer business reorganization cases.

11. III. Bankruptcy Reform in Thailand – the 1998 and 1999 Amendments to Thailand’s Bankruptcy Act – Cont. • Highlights of 1998/1999 Amendments (cont.): • Hybrid of Chapter 11 (U.S.) and Judicial Management (Singapore) (professional “planner” vs. debtor-in-possession) • Automatic stay/adequate protection/cash collateral • Classification of creditors • Rejection of “onerous contracts” • Avoidance of preferential transfers/fraudulent transfers (one year “lookback” for insiders) • Objective standards for confirmation of reorganization plans

12. III. Bankruptcy Reform in Thailand – the 1998 and 1999 Amendments to Thailand’s Bankruptcy Act – Cont. • U.S. Principles Adopted into Thai Law • Automatic stay/adequate protection/cash collateral • Rejection of “onerous contracts” • Avoidance actions (preferential transfers and fraudulent conveyances) – insiders (one year “lookback”) • Classification of creditors • Objective standards for confirmation of reorganization plans

13. III. Bankruptcy Reform in Thailand – the 1998 and 1999 Amendments to Thailand’s Bankruptcy Act – Cont. • Principal Differences Between U.S. Law and Thai Law • Planner (Creditor-in-Possession) vs. Debtor-in-Possession • Automatic Stay • In U.S., effective on filing of petition; in Thailand, only upon entry of reorganization order (requires a finding of insolvency [“balance sheet”] test) • Claims Process • Thai process places more burdens on creditors • Committee Formation U.S. system encourages formation of Creditors’ Committee and other committees at outset of case; Thai system promotes committee formation at time of consideration of plan (end of the case) • Time Limitations • Thai process is statutorily limited (5 months to submit plan to Official Receiver from date of appointment of Planner)

14. IV. Bankruptcy Reform in Thailand – The 2004 Amendments to Thailand’s Bankruptcy Act * • In June 2004, Thailand exacted amendments to the Bankruptcy Act which came into effect on July 16, 2004. • Since the '98 and '99 amendments, a number of proposals for amending the Bankruptcy Act were proposed and considered in order to address perceived loop holes and gaps in the law. • The 2004 amendment principally focus on individual bankruptcies by streamlining and clarifying when and under what circumstances an individual may obtain a discharge in bankruptcy cases. *A summary of the amendments and an English Translation of the 2004 Act are posted at http://www.globalinsolvency.com

15. IV. Bankruptcy Reform in Thailand – The 2004 Amendments to Thailand’s Bankruptcy Act - (Cont.) • Issues/concerns not addressed by 2004 Amendments • “Superpriority”status for post-reorganization order loans/extensions of credit • Committee formation at an earlier stage of the case • Ability to use business reorganization provisions of the Act when debtor’s business is to be sold as a going concern or for liquidating cases • Extending business reorganization provisions of the Act to natural persons (guarantors)

16. IV. Bankruptcy Reform in Thailand – The 2004 Amendments to Thailand’s Bankruptcy Act - (cont.) • Given the government's focus on resolving NPLs through the TAMC and the resulting fall-off of business reorganization filings before the CBC, it is uncertain if and when there will be further amendments to the Thai Bankruptcy Act

17. V. The Role of the Central Bankruptcy Court and the Business Reorganization Office • CBC • Independent court with national jurisdiction - Court of "First Instance" in Bankruptcy matters • CBC has 23 specialized judges who have handled complex reorganization cases since the Court’s inception in June 1999. • CBC has streamlined its procedures and has adopted new technology. Court now conducts videoconference hearings to allow parties “up country” easier access to the CBC and recording equipment has been installed in all the CBC courtrooms in Bangkok-parties no longer have to rely on judges' handwritten notes for the record.

18. V. The Role of the Central Bankruptcy Court and the Business Reorganization Office – Cont. • BRO • Arm of the legal execution department of the Thai Ministry of Justice • Staff of comprised of official receivers and other staff members • Charged with reviewing claims, administering business reorganization proceedings, reviewing applications for professional compensation (similar to functions of US Trustee)

19. VI. Thai Asset Management Corporation (TAMC) Background: • TAMC established by the Emergency Decree on the Thai Asset Management Corporation, B.E. 2544 (2001) on June 7, 2001. TAMC's goal was to quickly reduce Thailand’s NPLs to stimulate lending/investment • Owned by the Financial Institutions Development Fund (FIDF), TAMC is empowered to issue 10 yr. notes guaranteed by the FIDF to purchase NPLs from qualified State and private financial institutions under prescribed guidelines

20. VI. Thai Asset Management Corporation (TAMC) - (Cont.) Background: • TAMC has been given unprecedented powers to accomplish its tasks and is able to conduct an “end run” around the Bankruptcy Act and to use the CBC and its processes to force debtors/recalcitrant parties to accept debt restructuring/business reorganization plans • TAMC cleared a constitutional hurdle in October 2001 and accepted the first lot of asset transfers on October 15, 2001

21. VI. Thai Asset Management Corporation (TAMC) - (Cont.) Assessment: • The bulk of the resolved cases involve debt restructurings (putting off the inevitable) • The Emergency Decree establishing the TAMC appears to have been hastily drafted and is full of inconsistencies • Since the TAMC was formed there has been a sharp decrease in new filings for formal business reorganization cases before the CBC

22. VI. Thai Asset Management Corporation (TAMC) - (Cont.) Assessment: • TAMC, while well-intentioned, will not jump start lending and investing in Thailand. These goals are more likely impeded by the government’s reticence (i) to enact and adopt key amendments to Thailand’s foreclosure law and Bankruptcy Act (ii) to finalize and and enact a secured transactions law (Business Security Act) and (iii) to adopt clear corporate governance standards

23. VII. Impact of TPI and Other Key Cases • At time of commencement of case in early '00, TPI had approx. $3.7 Billion (US) in debt and approx. 140 creditors (including B of A, IFC, US Ex-Im Bank, Citibank) • TPI case (plan was confirmed in December '00) was viewed as the seminal Thai reorg. case to test the efficacy and impact of Thailand's new Business Reorganization law • In April '03 (after years of skirmishing between former management and the Court-appointed Planner, Effective Planners, Ltd.), the CBC entered an order removing Effective Planners, ostensibly for failure to meet the plan targets. As a result, the former CEO Khun Prachai Leophairatana was "reinstated" as the Interim Planner of TPI

24. VII. Impact of TPI and Other Key Cases - (Cont.) • Government intervention in the new planner selection process resulted in the selection of a new planner group headed by former government officials; after a slow start, the TPI case appears to be heading on the right track. • TPI case is not the only recent decision seen as detrimental to foreign investment in Thailand; other recent CBC decisions in other cases have been viewed as being adverse to foreign creditors (is the pendulum swinging back?)

25. VIII. Conclusions • The failure to reform key Thai economic laws (Bankruptcy Act, foreclosure law), to enact a secured transactions law and to adopt clear corporate governance standards can only serve as a drag on the Thai economy • The threat of criminal actions being used in the context of Business Reorganization cases (Thai Wah, TPI) may have a chilling effect on future investment, foreign lending in Thailand.

26. Questions & Answers Sawadee Krap