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SCMP Reporter

Buddhist monks were brought in to perform rituals when the Thai Prime Minister Chuan Leekpai inaugurated his country's first dedicated bankruptcy court at the auspicious time of 9:09am.

  But if Indonesia's experience is anything to go by, Mr Chuan is going to need more than monks' blessings for the new Central Bankruptcy Court to be a success.

  He is going to require a clean, efficient and qualified judiciary and genuine political willpower to make it work.

  Despite stronger economic growth figures, foreign investors are unlikely to come clamouring back into Thailand with fresh funds until a clean and clear debt restructuring and foreclosure process is seen to perform.

  Thailand still has 2.7 trillion baht (HK$562.41 billion) worth of bad debts in the banking system unresolved - equivalent to half the assets in the entire country.

  'The new bankruptcy law and court are definitely steps in the right direction,' said Anthony Norman, managing director of financial restructuring consultants Ferrier Hodgson in Bangkok.

 Indonesia revamped its antiquated and inept bankruptcy law in August last year and set up a separate court manned by specialist judges, following similar pressure from the International Monetary Fund.

  It now takes just months for bankruptcy cases to be heard and completed in Indonesia, instead of years or decades.

 But the results to date have been pretty much the same - occasionally mindboggling to say the least.

 'If anything, the corruption is even worse,' said outspoken Jakarta business lawyer Frans Winarta, of Frans Winarta & Partners.

  With Indonesian judges still paid an official monthly salary of just three million rupiah (about HK$3,486) to five million rupiah it is little wonder temptation continues to thrive.

  Fearing the unpredictable should they walk into a courtroom, most foreign investors in Indonesia are still trying to recover their debts out of court.

  Without a serious threat of foreclosure, lingering stalemates between debtors and creditors remain.

  Thailand similarly needs to look at the broader picture. Whether there is the political willpower to instigate a painful break from the past, has yet to be seen.

  When changes to Thailand's 1940 bankruptcy law were debated by the Senate in March, speaker Meechai Ruchuphan warned the proposed changes were tantamount to writing a death sentence for thousands of debt-burdened Thai entrepreneurs.

  'Not only have we given [foreigners] knives, but also machine guns,' he told The Nation newspaper.

  A minority of senators sought to delay establishment of the court by two years and give it jurisdiction only over loans made after the onset of the country's economic crisis in 1997.

  In other words, almost everyone would be excluded and local businesses could continue happily ignoring outstanding loan demands.

  To Thailand's credit, both amendments were eventually defeated by large margins with the final bill passed by a vote of 103 to three, suggesting the necessary broad-based commitment for change prevails after all.

  It is hoped Bangkok's new court will handle up to 3,000 cases a year - if that many can be attracted.

  In its first fortnight, just three petitions were received, of which two were automatically deferred - hardly a deluge.

  Whether Thailand has enough suitably qualified judges and clerks to handle 3,000 cases a year is questionable. Initially the court will be manned by just 13 Australian-trained bankruptcy judges and 50 support staff.

  Pornchai Aswawattanaporn, Central Bankruptcy Court secretary, said this would later be increased to 60 judges and 85 support staff once enough capable personnel could be found and trained.

  Jakarta's bankruptcy court has suffered a similar handicap.

  A large proportion of Thailand's non-performing loans are bad because borrowers have deliberately withheld payment, comfortable in the knowledge there has until now been little chance of being shut down.

  This comfort still largely remains. Thanks to a statutory moratorium of wind-up actions, Thailand has created probably the world's only bankruptcy court that cannot declare any firm bankrupt - except on most extreme occasions.

  Instead, its judges are encouraged to appoint financial planners to work out five-year debt-restructuring plans or what the Thai's dub as 'haircuts', where creditors agree to take a partial loss.

  If Mr Chuan is serious about luring foreign investors and lenders back, a realistic threat of bankruptcy needs to be reinstated.

  Bankruptcy law is well established in South Korea and this has resulted in a hastier debt and corporate-restructuring process and a speedier return of foreign investors.

  Southeast Asia needs to look north and learn.



Political willpower essential for Thai bankruptcy court to work