Services / Bankruptcy and rehabilitation
Pre-bankruptcy transfers, and how far back
A debtor who can see the end coming often pays some creditors first, or moves assets to people close by. Insolvency law looks back at those steps, and looks back further when the recipient is an insider.
Preferring one creditor
The first paragraph of section 115 of the Bankruptcy Act B.E. 2483 (1940) provides that where the debtor made or allowed a transfer of property or any act within three months before the bankruptcy petition, or afterwards, intending to prefer one creditor over the others, the court may on the official receiver's application by petition order it avoided.
A year where the beneficiary is an insider
The second paragraph provides that where the preferred creditor is an insider of the debtor, the court may avoid such a transfer or act done within one year before the petition, or afterwards. Repaying a loan to a relative or a director before bankruptcy is therefore open to review over a period four times as long as a payment to an ordinary trade creditor.
The presumption in rehabilitation cases
In rehabilitation proceedings section 90/40 adds a presumption: on an application to avoid a fraudulent act under the Civil and Commercial Code, where the transaction took place within one year before the petition or afterwards, or was a gift, or the debtor received markedly inadequate consideration, it is presumed that the debtor and the person benefiting knew it would prejudice creditors.
Sales at a markedly low price
The words markedly inadequate consideration in section 90/40 describe the commonest pattern exactly: property transferred to someone close at far below market value and then defended as a genuine sale. An unusually low price is therefore not merely a suspicion but a fact to which the statute attaches a consequence.
The debtor's criminal exposure
Section 164 provides that within the year before the bankruptcy petition, or afterwards but before the receivership order, a debtor who removes, conceals, destroys or alters books or documents relating to the business or its property, makes false entries, pledges, mortgages or disposes of goods obtained on credit and unpaid for, or dishonestly conceals or transfers its property, commits an offence punishable by a fine of up to two hundred thousand baht, imprisonment of up to two years, or both.
PREPARE
What to bring
- A schedule of transfers and payments over at least the past year
- The transfer documents, with the price stated in them
- The relationship between the debtor and the transferee
- A market valuation of the property at the time of transfer
- The date the bankruptcy petition was made
QUESTIONS
Questions this raises
I paid one creditor first because they pressed hardest.
Section 115 does not forbid paying a debt; it allows the court to avoid a payment made within three months of the petition, or afterwards, with the intention of preferring one creditor over the others. The question is therefore the intention, established from the surrounding circumstances such as the financial position at the time and the order in which payments were chosen.
I transferred a house to my child ten months ago.
Where the recipient is an insider, the second paragraph of section 115 extends the reviewable period to one year before the petition. A gift, or a transfer for markedly inadequate consideration, is the kind of transaction to which section 90/40 attaches a presumption in the rehabilitation context. The documents and the actual price are worth examining before any conclusion.
LAW
The legislation
- Bankruptcy Act B.E. 2483 (1940), sections 115, 90/40 and 164
ENQUIRIES
