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In spite of fairly recent legal experimentation, Thailand's corporate reorganization through formal bankruptcy procedures has facilitated and speeded up financial recovery for big and medium-sized insolvent firms, especially after 1999. The study found co-operative restructuring to be more predominant than hostile and aggressive types. Though different in design, basic feature and pattern of U.S. Chapter 11 in which debtors manage the reorganized firms were empirically observed. Legal rules that are conducive to acceptance of the plan and judicial leniency may give rise to weak ex ante discipline, allocative inefficiency, various opportunistic behaviours, unfairness between creditors and debtors, and among creditors. Future changes in legal rules are suggested to enhance efficiency and fairness.
I. Introduction and Objectives
It has been almost seven years since Thailand faced a major and severe economic crisis in mid-1997. Thailand sparked off a currency and banking crisis resulting from over-investment and carelessly unhedged foreign over-borrowing of the corporate sector, which spread to other countries in Southeast Asia. The massive exchange rate collapse had a direct impact on corporate insolvency. Financial and negative 10.5 per cent output collapse in 1998 jointly interacted to produce financial distress for most large and small businesses. The cumulative net loss of the firms listed on the Stock Exchange of Thailand (SET) amounted to 1,438 billion baht or one-third of the country's gross domestic product (GDP). While accounting practices may not reveal negative net worth for many non-financial firms on the stock exchange, evidence from court-based reorganized firms showed a high degree of insolvency even in 1999, two years after the onslaught of the crisis. The total output and financial loss has been estimated to be more than 100 per cent of GDP or around 5,337 billion baht (Table 1). The highest ratio of non-performing loans (NPLs) to total loan was recorded at almost 50 per cent in mid-1999. Despite the bleak situation, Thailand has recorded current account surplus for six consecutive years (Table 2), and consequently has reduced its outstanding foreign debt. Thailand has also repaid its debt to the International Monetary Fund (IMF) ahead of schedule.
The turnaround in large segments of the corporate sectors, as well as the gradual good economic growth, warrants a study to analyse the methods, outcomes, and effectiveness of...