Services / Bankruptcy and rehabilitation
Sued for bankruptcy: the ways to defend
A bankruptcy case does not turn only on whether the debt is real. The statute puts the court under a duty to ascertain the truth, and leaves three routes to dismissal open — two of which the debtor has to establish.
What the creditor must have in place first
Section 9 of the Bankruptcy Act B.E. 2483 (1940) allows a creditor to petition only where the debtor is insolvent; where a debtor who is a natural person owes the petitioning creditor or creditors not less than one million baht, or a juristic person not less than two million; and where the debt can be determined with certainty, whether payable immediately or in future. All three must be present.
Where the petitioner holds security
Section 10 adds conditions where the petitioner is a secured creditor: it must not be barred from enforcing against the debtor's property beyond the secured asset itself, and the petition must state either that it will surrender the security for the benefit of all creditors if the debtor is adjudged bankrupt, or a valuation of the security which, set against the debt, leaves a shortfall of not less than one million baht for a natural person or two million for a juristic person.
The court's duty under section 14
Section 14 provides that in hearing a bankruptcy case on a creditor's petition, the court must ascertain the truth of the matters set out in section 9 or section 10. The words placing the court under a duty to ascertain the truth put the obligation on the court itself, rather than leaving it to weigh only what the parties bring. If the court finds those matters established, it makes an absolute receivership order.
The three routes to dismissal
The second half of section 14 is the frame of the defence: if the matters are not established, or the debtor proves that it may be able to pay all the debts, or there is other cause why the debtor ought not to be adjudged bankrupt, the court shall dismiss the petition. The first route attacks the section 9 or 10 elements; the second demonstrates capacity to pay; the third is open wording inviting the court to weigh the whole of the circumstances, and it rests most heavily on the particular facts.
Even after an order, a route remains
Section 135 empowers the court, on the application of an interested person or the official receiver, to cancel the bankruptcy where any of the listed grounds appears. Among them are that the debtor ought not to have been adjudged bankrupt, and that the debts have been paid in full — a debt the debtor disputes counting as paid where the debtor contracts and gives security to the court to pay it in full, as does a debt whose creditor cannot be found where the full sum is deposited with the court.
PREPARE
What to bring
- The petition and all documents annexed to it
- Evidence of assets and income showing capacity to pay
- Which debts are disputed, and on what grounds
- All payments made and negotiations to date
- Any circumstances going to why bankruptcy is not warranted
QUESTIONS
Questions this raises
I admit the debt. Is there still a defence?
Admitting the debt answers only part of section 9. Insolvency and the threshold amount remain, and section 14 still leaves two further routes: proving the debtor may be able to pay all the debts, and other cause why bankruptcy ought not to follow. An admission therefore does not end the case; it moves where the argument has to be made.
The debt is under one million. Can they still petition?
Section 9(2) sets the figure at not less than one million baht for a natural person and two million for a juristic person, counting debts owed to the petitioning creditor or creditors. What to examine is therefore how the total was assembled, and which items really are debts capable of determination with certainty under subsection (3).
LAW
The legislation
- Bankruptcy Act B.E. 2483 (1940), sections 9 and 10
- Bankruptcy Act B.E. 2483 (1940), section 14
- Bankruptcy Act B.E. 2483 (1940), section 135
ENQUIRIES
