Services / Bankruptcy and rehabilitation
What the court checks before approving a plan
A rehabilitation plan does not pass merely because most creditors vote for it. The statute sets criteria for the court to check as well, and the third of them is the question every creditor should be able to answer before voting.
The three criteria the court applies
Section 90/58 of the Bankruptcy Act B.E. 2483 (1940) requires the court to approve a plan where it finds that the plan contains all the particulars required by section 90/42; that the payment proposals do not conflict with section 90/42 ter; and that when the plan has been carried through, creditors will receive not less than they would if the court adjudged the debtor bankrupt. Those are criteria the court checks itself, separately from whether the creditors' meeting has resolved to accept the plan.
The third criterion is the real question
The criterion that creditors receive not less than in a bankruptcy is a comparison of two scenarios: the outcome under the plan against the outcome on adjudication. A creditor deciding whether to accept a plan is therefore asking the same question the court will ask, and the answer turns on valuing the assets and on where that creditor ranks in each scenario, rather than on an impression of whether the plan looks sound.
A missing particular is not automatically fatal
The second paragraph of section 90/58 softens the first criterion: where particulars required by section 90/42 are missing, the court asks the planner, and if it considers the missing particulars not material to rehabilitating the debtor's business, the plan is treated as complete. An objection resting only on something being absent therefore has to go on and explain why that item is material.
If the creditors' meeting does not accept
The third paragraph of section 90/48 provides that where the creditors' meeting passes no resolution accepting the plan, passes no resolution at all, or no creditor attends, the official receiver reports to the court without delay; the court then fixes an urgent hearing with not less than three days' notice to the debtor and all creditors, and if satisfied, revokes the rehabilitation order. Not attending therefore counts the same as not voting.
An approved plan does not release guarantors
Section 90/107 provides that an order for rehabilitation and approval of the plan does not alter the liability of a partner of the debtor, a person liable jointly with the debtor, a guarantor, or a person in the position of a guarantor, for debts existing before that order — and does not make such a person liable for debts created under the plan, unless they consent in writing.
PREPARE
What to bring
- The draft plan to be considered and its supporting papers
- Your own debt and where it ranks for payment
- Any valuation of the debtor's assets
- Any guarantees and co-obligors involved
- The notice of the creditors' meeting and its date
QUESTIONS
Questions this raises
I am a small creditor. Does attending change anything?
The third paragraph of section 90/48 groups no creditor attending together with no resolution being passed, and both lead to a report to the court and a hearing on whether to revoke the rehabilitation order. Beyond that, the criterion in section 90/58(3) is one each creditor holds its own information about — what it would receive on each route — and that is information the court uses too.
The company is in rehabilitation. Is the guarantor off the hook?
Section 90/107 answers this directly: an order for rehabilitation and approval of the plan does not alter the liability of a guarantor, or of a person in the position of one, for debts existing before the order. The belief that a company entering a plan carries its guarantors out with it does not match the words of the provision, and it is something a guarantor should know before any vote is taken.
LAW
The legislation
- Bankruptcy Act B.E. 2483 (1940), section 90/48
- Bankruptcy Act B.E. 2483 (1940), section 90/58
- Bankruptcy Act B.E. 2483 (1940), section 90/107
ENQUIRIES
