Court hailed for historic TPI verdict

THE landmark ruling in the Thai Petrochemical Industry Plc (TPI) case has created a new legal dimension for the Thai judicial system, which is capable of handling a technically very complicated and sophisticated bankruptcy procedure, Visit Visitsora-ath, the director of the Legal and Execution Department said yesterday.

"The deliberation of the TPI case creates a new dimension for the Thai court system. For the court has not only taken a look at the cashflow and the balance sheet of the company, it has also taken into account the structure or the nature of the business as an ongoing concern," he said.

"This is a totally new experience. But the court has proved that it has the competence to handle the case of this scale."

A British-educated expert of the Thai bankruptcy system, Visit sought to quash doubts that the court might not be sophisticated enough to handle the US$3.5 billion bankruptcy case, which had become a centre of focus over the past several months.

Yesterday the Central Bankruptcy Court handed down a decisive verdict in favour of the creditors, ruling that TPI was insolvent. But the court deferred the decision on who should act as planner of TPI's rehabilitation over the next two months.

Visit said the presiding judges, in deliberating the historic case, took a look at TPI's cashflow and the potential asset disposal to see whether the company was insolvent or not. This was what the lawyers on the creditors' side had been trying to contend in the court over the definition of "insolvency". They said the company had "excess debt" which could not be serviced by cashflow and the potential asset disposal.

Lawyers for TPI put forward their argument that the company was not insolvent because it had more assets than its liabilities.

Asked whether the present bankruptcy framework is adequate to handle corporate debt-restructuring, Visit said the law that has been put in place over the past eight months should provide justice to all parties.

Kitipong Urapeepatanapong, partner at law firm Baker and McKenzie, said the ruling in favour of the creditors' plan to restructure TPI's debt would boost international confidence in the Thai legal system.

Based on this ruling, creditors will not have to worry about the credibility of Thai bankruptcy law, as was the case when TPI tried to challenge the definition of insolvency by claiming to have more assets than liabilities, despite the fact that it was unable to service the debt for two years.

However, the government should still consider amending the law to clearly define the insolvency status, based on inability to service debts.

He said the ruling will close some loopholes abused by debtors in delaying debt restructuring.

Under the current bankruptcy law, insolvency is defined as having liabilities greater than assets.

Donaldson Hartman, deputy head of the regional financial institutions research at Salomon Smith Barney, also expressed confidence in the Thai bankruptcy system, arguing that the best way to judge the efficacy of the laws is to look at the extent to which the banks are willing to use the rules.

"Looking back, most banks were quite unwilling to initiate cases against their borrowers. In fact, bankruptcy cases could be counted on one hand," he said. "But now you can see that they have initiated cases against the borrowers. For instance, last year banks like SCB [Siam Commercial Bank] brought about 20,000 cases. Bank of Ayudhya almost 7,000 with 25,000 more planned for this year. And Thai Military Bank brought cases worth Bt57 billion."

He added that medium-size banks have reported the same thing, which is unprecedented. "Even the FIDF [Financial Institutions Development Fund] is turning over cases en masse to the office of the prosecutor general to collect on promissory notes in default, which were taken over from the 56 closed finance companies," he said.

The dramatic increase in cases clearly indicates that these institutions are not as afraid to use the new law or the court procedures currently in place.

In the Salomon Smith Barney report published on March 6, Hartman said the company expects more creditors and debtors to resort to bankruptcy court in the coming months in the wake of several major restructuring cases being settled promptly late last year.

"Currently there are 28 cases where the bankruptcy court has ordered the business reorganisation process to start. Of these, nine businesses have already won approval for their reorganisation plans, although in seven of them, approval was based on the old one-group voting rule," the report said.

"The speedier process under the new amended law appears to have significantly altered creditors' fears about lengthy bankruptcy and rehabilitation procedures," the report said.

"We also expect debtors' doubts over the court's harsher measures to evaporate once they understand more about the law as well as the benefit of the rehabilitation process. Debtors are likely to be more willing to file for bankruptcy to be removed from non-performing loan status so they can resume operations and make the most of the economic recovery."

BY SOMLUCK SRIMALEE and

THANONG KHANTHONG