Are directors personally liable for the company's debts?

Generally not. A limited company's debts are the company's. Directors become personally exposed where they have given personal guarantees, which banks commonly require, or where they have acted improperly — for example by moving assets out of the company to defeat creditors, or keeping false accounts. The time when that risk rises is exactly when the company is in difficulty.

What does business rehabilitation actually do?

Once the court accepts a rehabilitation petition, an automatic stay stops most creditor enforcement against the company while a plan is prepared. Creditors vote on the plan, and if it is approved by the court, the company restructures its debts under it and continues trading. It is designed for a business that is viable if its debt is reorganised, not for one that has no business left.

Can we simply close the company?

A voluntary dissolution and liquidation only works if the company's assets can pay its debts. If they cannot, the liquidator has to apply for the company to be declared bankrupt. Closing is a real option for a solvent company that has decided to stop; it is not a way to walk away from unpaid creditors.

Can we pay some creditors and not others while we decide?

Be careful. Payments or transfers that favour particular creditors, related parties or directors shortly before a bankruptcy or rehabilitation can be challenged and set aside, and transfers made to avoid creditors can carry criminal liability. Take advice before making unusual payments once the company is in difficulty.

When a Thai Company Can No Longer Pay Its Debts: Rehabilitation, Restructuring or Closure

Q: Is there a simpler track for smaller companies?

Yes. The Bankruptcy Act has included a rehabilitation track for small and medium-sized enterprises since 2016, and the rehabilitation regime has since been amended, including provisions for prepackaged plans agreed with creditors in advance. Eligibility depends on the company's status and debt level under the current rules, which should be checked for the specific company.

The options shrink as time passes

Most companies that end up in bankruptcy had options a year earlier. The pattern is familiar: a few lost contracts, a bank facility renewed on tighter terms, suppliers paid later each month, tax and social security filings slipping — and then a creditor files.

This guide sets out the options while they still exist, and the mistakes directors make in the meantime.

1. Early signs worth acting on

Suppliers paid later than terms every month
Borrowing to pay wages
Bank covenants breached or facilities not renewed
Tax or social security payments deferred
Customers withholding payment over disputes the company cannot afford to litigate
For contractors: performance bonds called, projects stalled, subcontractors unpaid

2. Option one: a negotiated restructuring

If the business is viable, the least disruptive route is a negotiated agreement with the main creditors:

Standstill — creditors agree not to enforce for a period
Rescheduling — longer terms, lower instalments
Partial write-off or conversion of debt
New money from shareholders, sometimes conditional on creditor concessions

This works when there are a few large creditors, typically banks, who prefer recovery over enforcement. It needs credible numbers: a cash-flow forecast and a plan that shows how the debt will be paid.

3. Option two: court-supervised business rehabilitation

Where negotiation fails or creditors are too many to coordinate, business rehabilitation under the Bankruptcy Act provides a framework:

A petition to the court by the company or creditors
Once accepted, an automatic stay stops most enforcement against the company
A planner prepares a rehabilitation plan
Creditors vote on the plan; the court approves it
The company restructures under the plan and keeps trading

It is meant for a business that is viable if its debt is reorganised. A company with no viable operation is not rescued by the procedure.

The SME track

Since 2016 the law has included a rehabilitation track for small and medium-sized enterprises, with its own eligibility criteria. The regime has since been amended, including provisions for prepackaged plans agreed with creditors before filing. Whether a particular company qualifies depends on its status and debt level under the current rules — check that first.

4. Option three: an orderly closure

A voluntary dissolution and liquidation is an orderly way to stop a business that can pay its debts. See closing a company properly.

If the company cannot pay its debts in full, liquidation does not solve the problem: the liquidator must apply for the company to be declared bankrupt. Closure is not a way to leave creditors unpaid.

5. If creditors act first

A creditor owed a sufficient amount may petition for the company's bankruptcy. The company then loses control of its assets to the official receiver. Filing for rehabilitation before that happens preserves options that disappear afterwards. If a creditor is already enforcing, see defending against debt enforcement.

6. What directors must avoid once the company is in trouble

Transferring assets to related companies, family or directors below value
Paying favoured creditors — related parties, directors' guaranteed loans — ahead of others
Taking on new debt with no realistic prospect of repayment
Destroying or failing to keep accounts
Ignoring employee entitlements — unpaid wages and severance have priority and are pursued actively

Transactions of this kind can be challenged and set aside, and transfers made to defeat creditors can carry criminal liability.

7. Employees during a restructuring

Wages keep running while the company decides. If a reduction is part of the plan, it follows labour law rules, including severance and notice. See planning a restructuring or redundancy. Unpaid wages are one of the fastest routes to a claim — see unpaid wages and overtime.

8. Personal guarantees

Directors who have personally guaranteed bank facilities are exposed whatever happens to the company. Factor the guarantees into every option: a rehabilitation plan or negotiated restructuring can address guaranteed debt; a bankruptcy usually leaves the guarantor facing the bank.

What to prepare for a first meeting

Latest financial statements and management accounts
A list of creditors with amounts, security and guarantees
Cash-flow forecast for the next three to six months
Major contracts, especially those at risk
Any enforcement letters, court documents or called bonds
Headcount and outstanding employee entitlements