- The Washington Times - Tuesday, February 11, 2003

BANGKOK, Thailand, Feb. 11 (UPI) — When the Thai economy collapsed in disarray six years ago, there were rich pickings for the lawyers who stepped in to try to sort out the mess. Now the good days are over, and the major international firms are in retreat again. Not all are getting out unscathed.

One of the areas in which there was most demand for legal services was in debt restructuring. Distressed borrowers suspended debt servicing. Weak bankruptcy laws (and weaker legal practice) together with a weak credit culture meant that lenders had little power over defaulting borrowers. On the contrary, the borrowers held most of the cards.

Banks have been allowed to exclude from their count of non-performing loans any in respect of which a loan restructuring agreement has been signed. This is the case even before any payment of any kind is made. With investors and depositors nervous about high NPL ratios, there was a strong incentive for banks to restructure debt — which is one reason why some of the restructuring has been of questionable quality.

The result of the pressure on banks to accept restructuring is that debt write-offs have become part of the usual "package." In effect, in a reversal of the usual procedure, borrowers have been able to charge their banks a "restructuring fee." Inevitably, there has been competition among borrowers to get the best terms. Sound companies saw no reason why weaker competitors should be bailed out by the banks, and they, too, demanded debt forgiveness. It could almost be argued that directors of public companies had a fiduciary duty to shareholders to default on their debt.

All this restructuring generated work for lawyers. With the Thai legal profession having had limited experience in debt restructuring prior to the mid-1990s, the major international firms saw an opportunity to establish themselves in a big way. Big international names moved to bring people experienced in the field to bear on Thailand's problems.

Several years on, the work is drying up. The first round, at least, of debt restructuring is nearing completion. The state-owned Thai Asset Management Corporation, which was set up more than a year ago to deal (mainly) with NPLs of Thailand's nationalized banks, has already restructured the largest debts, and is making inroads into the second tier. Privately controlled banks did so long ago except in the most complex cases.

That much the lawyers had expected. What has been a major disappointment for them, though has been the lack of follow-up work. The scale of the financial and economic disaster in Thailand had promised much more for them. With NPLs reaching almost 50 percent of all loans in the late 1990s, and gross domestic product only now returning to the pre-crisis level in real terms, there should have been ample M&A; activity to follow debt restructuring. However, the weakness of the legal framework in bankruptcy cases means that there have been very few forced sellers, and the business culture works against voluntary transactions.

Not only that, but with the passage of time, more Thai lawyers are confident of their own abilities in the field of business rescue, clients are also less insistent on foreign expertise, and the highly-priced expatriates are less in demand.

The accountants and investment bankers, finding the same hopes disappointed in the same way, have cut back their Bangkok presence, and the lawyers are also trickling out of town. At least at Allen & Overy, Freshfields and others the cutbacks are going relatively smoothly, and as quietly as would be expected of a discreet profession.

Not so at the global market leader, which is embroiled in a messy, and very Thai, dispute Clifford Chance, the largest integrated law firm in the world, is the clear market leader in Hong Kong and Singapore, so the attraction of making a big impact in Thailand, neatly located between the two, must have been obvious enough. It made its "big push" in early 1999, by merging with the local firm Wirot International (to form Clifford Chance Wirot), taking its senior partner Wirot Poonsuwan into full partnership.

Less than four years later, the marriage is over, and an unpleasant fight in the divorce courts starts to look the best possible outcome. Problems first surfaced after less than three years, when criticisms were voiced to the effect that Wirot was not pulling his weight. The dispute came to a head last year, and Wirot has been suspended since last August.

Clifford Chance claims he has made damaging and unfounded allegations about the firm. These appear to include racial discrimination, tax fraud and padding timesheets. For his part, Wirot has been quoted as describing the firm as "imperialist," and demanding armed protection from "gangsters" sent round by Chance. (The response, that the alleged gangsters were just motorcycle messengers, is not as different from the allegation as it might seem. In a country where law and law enforcement are weak and ineffective, contract law tends to be enforced by gunmen riding pillion on motorcycles, the only reasonably sure getaway vehicles on Bangkok's crowded roads. For someone so familiar with the ways of Thai business and business disputes, it would not take exceptional paranoia to put two and two together to make rather more than four.)

From here there can be no way back. Clifford Chance has resolved to expel the suspended partner, the first such action in its history. Wirot in turn has started proceedings for criminal defamation against one of his former colleagues, and is demanding compensation of close to $50 million. In today's nationalistic mood in Thailand, recently strengthened by a spat with Cambodia in which the Thai embassy in Phnom Penh was wrecked by rioters, he may be feeling optimistic about his suit.

As they straggle out to the airport to catch their flights back to the West, competitors are left feeling they have got out of their Thai entanglements very lightly indeed.

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