On the one hand, Thai companies need to follow the same principles as all companies worldwide: all conceivable measures must be taken to ensure the liquidity in the short and medium term, worst-case scenarios have to be calculated, additional cash flow sources need to be explored, discussions with current and alternative contractors upstream and downstream need to be initiated for example to minimize the risk of supply chain disruptions.
In our practice, we already see an increase in enquiries concerning extraordinary terminations of long-term contracts due to the current crisis. .
As explained above, a petition for business reorganization offers companies in financial distress the chance of rehabilitation and thus saving the enterprise by temporarily protecting the company from creditors’ action and possibly saving it in the course of implementing a reorganization plan.
If the company is already in distress, caution is otherwise absolutely necessary in terms of shifting assets to avoid criminal prosecution risks for moving assets to the detriment of creditors. This also applies to certain transactions prior to insolvency filing.
On the other hand, there are particular problems in Thailand arising from restrictions which foreign entrepreneurs are subject to with regard to their business. It is true that the Thai government promotes certain commercial activities with tax incentives and by exempting foreign companies from restrictions under Thai foreigner legislation
However, foreign entrepreneurs whose activities are not eligible for these privileges often depend on Thai partners. In practice, various legal and illegal structures are used to bypass the business restrictions which apply to foreigners. If the chosen structure is not legally “waterproof”, the entrepreneur then sails between Skylla and Charybdis, meaning is exposed to the risk of a crackdown by the local authority on one side and of a conflict with an unruly Thai partner on the other side, which makes the foreign entrepreneur the more vulnerable in times of a crisis like the current Corona-crisis.
The Corona crisis therefore demonstrates the importance of careful legal planning ahead of any business venture in Thailand. But even for already existing companies with the slightest doubts regarding their company structure and local partners, legal advice in view of the Corona crisis should be sought without delay.