Anda di halaman 1dari 7

Bank finance and regulation

Multi-jurisdictional survey
Thailand
Enforcement of security interests in banking transactions
Kowit Somwaiya
LawPlus Ltd
kowit.somwaiya@laplusltd.com

Part I types of security


1.

What are the most common types of security in banking transactions in your
jurisdiction (eg, standard security package)? Please provide a brief characteristic of
each type of security.

The types of the most common security in banking transactions in Thailand are mortgage,
pledge, assignment and guarantee.
Mortgage
A mortgage is created by way of a written mortgage agreement registered with the
authorities. A mortgage of real properties (land and buildings or any structures built thereon)
must be registered with the Land Office that has jurisdiction over the land.
A machinery mortgage must be registered with the Central Machinery Office in Bangkok.
Before the machinery is mortgaged, it must be installed and its ownership must be first
registered with the Central Machinery Department.
A mortgage of ships of six tons gross and over or seagoing vessels of 60 tons gross and
over can be made and it must be registered with the Harbor Department in Bangkok.
The mortgage agreement must be made in the Thai language. If it is made in a foreign
language, a Thai translation must be held. The official form of the mortgage agreement in
the Thai language must also be made.
The title deeds and ownership documents for the mortgaged assets must be delivered to the
mortgagee. The particulars of the mortgage must be recorded in the title deed or the
ownership documents.
The physical control of the mortgaged assets is not required to be delivered to the mortgage.
A mortgage can be made by either the debtor or a third party, with or without consideration,
in favor of the creditor. The amount of the mortgage can be higher or lower than the loan
amount. Both Thai and foreign creditors can take mortgages as security of their loans. The
mortgage amount must be specified in a sum certain or maximum amount must be
mentioned. It can be in Thai Baht or in a foreign currency. A mortgage creates preferential
rights for the creditors over the mortgaged assets.

Pledge

A pledge must be made in writing but it is not required to be registered or filed with any
official authority. Normally the subject of a pledge is movable properties, securities
documents and financial instruments, such as bills of exchange, promissory notes,
certificates of deposits. The pledged assets must be physically delivered to the pledgee or a
person designated by the pledgee to act as its representative or custodian of the pledged
assets. A pledge creates preferential rights to the pledge as a secured creditor.
Assignment
A conditional assignment of claims or rights against a third party can be made as banking
security. Assignments of property lease rights and accounts receivable are the most
common. It is required that an assignment must be made in writing. A notice of assignment
must be given to the debtor of the assigned claims unless his written consent is given. An
assignment is made effective from day one but its enforcement is conditional upon the
default of the debtor. Once the debtor is in default, the assignment will become enforceable.
Guarantee
A corporate guarantee issued by a company or a personal guarantee issued by one or
several individuals is also a common type of banking security. It was popular before the
Asian economy crisis in 1997. Lenders relied on the creditability and reputation of the
shareholders, directors, sponsors or any persons related to corporate borrowers. Thus, their
personal guarantees were acceptable. It was normal for a parent company to issue a
corporate guarantee to secure the obligations of its subsidiary. But in the past recent years,
a guarantee became less common as banks have realised that in an economic crisis,
wealthy and well-known persons and established companies could become bankrupt.
A guarantee must be made in writing as a unilateral agreement. It can be signed singly by
the guarantor. The law does not prohibit the debtor to guarantee its own debt. But in
practice, no bank ever accepts a guarantee of the debtor itself. A guarantee is not required
to be registered or filed with any public office.
2.

In relation to the following types of assets, please provide the types of security that
can be created or granted in your jurisdiction and give details of any registrations
required:

(a)

Real estate:
A real estate can be mortgaged and the mortgage must be registered with the Land
Office.

(b)

Charging assets (inventory, stock etc):


Charging assets can be pledged by way of the warehouse master issuing a warrant
with details of the stock. The warrant can then indorsed as evidence of the pledge of
the stock. The pledge is not required to be registered or filed with any public office.

(c)

Movables:
Movables in the form of ships or vessels of 6 tons or more or seagoing vessels of 60
tons gross or over can be mortgaged. Other movables can be pledged or assigned.

(d)

Shares:

Shares can be pledged. The pledge must be recorded in the company share register.
Registration is not required.
(e)

Rights under contracts (receivables):


Rights under contracts can be assigned. The assignment agreement must be signed
by the assignor and the assignee. Consent must be obtained from the obligor of the
assigned receivables or otherwise a written notice of assignment must be given to
the obligor. Otherwise, the assignment will not bind the obligor.

(f)

Bank account:
Bank account can be pledged. But it must be stated very clear in the pledge
agreement that what was pledged was not the bank passbook of the bank account,
but was the rights to receive the payment of the money deposited with the bank
under the bank account.

(g)

Financial instruments (eg, securities):


Financial instruments can be pledged.

(h)

Intellectual property:
Intellectual property can be assigned as collateral of a bank loan. The assignment
must be made in writing and registered with the Trademark Office in case of a
trademark assignment or the Patent Office in case of a patent assignment. An
assignment of copyright can be made in writing, but it is not required to be registered
with the Copyright Office because there is no system for registering a copyright
assignment. A copyright is established by law upon its creation. It is not required to
be registered.

(i)

Plant and machinery:


Plant and machinery can be mortgaged. The plant built on a plot of land can be
mortgaged as part of the land mortgage. The machinery can be mortgaged if its
ownership has been registered with the Central Machinery Department. Nonregistered machinery can be pledged provided that the machinery itself must be
delivered to the creditor. It is a practice that the creditor appoints an executive of the
corporate debtor or a third party to hold the physical control of the pledged machinery
for and on behalf of the creditor.

(j)

Other assets.

3.

Can a trustee or security agent be used in your jurisdiction, or must security be


granted in favour of all lenders? Is the parallel debt clause concept recognised in
your jurisdiction?

Thailand does not recognise a concept of trust or a trustee. Section 1686 of the Civil and
Commercial Code provides that establishing of a trust directly or indirectly by will or any
juristic act shall have no effect unless otherwise by virtue of the provisions of the law solely
for creation of a trust. But a trustee for securities issued by companies listed on the Stock of
Exchange of Thailand can be appointed for the purpose of holding of such listed securities.
For a mortgage of real property, machinery, ships and vessels, the creditors can appoint an
agent to act for them, but the creditors names must be named as mortgagees under the
mortgage agreements which are registered with the government offices.

Parallel debt concept is not recognised under the law of Thailand. An agent of the lenders in
a syndicated loan can act only as a security agent. If only its name is registered as the
mortgagee, its arrangement with the debtors as the security agent must be privately made.
4.

Please explain the latest amendment to the law governing secured transactions in
your jurisdiction. Are there any amendments which will be introduced in the near
future (within one to two years) which might have an impact on the legal framework
of secured transactions? Please also explain recent practical developments
regarding secured transactions in your jurisdiction.

There was no amendment to the law on secured transactions in Thailand in the past few
years. But the law on escrow agents was passed in 2008 whereby commercial banks are
licensed to act as escrow agents for commercial and financial transactions which are mainly
involved with merger, acquisition, financing and corporate and debt restructurings.
The government may submit to the Parliament in 2010 a draft of the law on floating charges.
The government approved the draft in 2009. The draft is being reviewed by the Council of
State. If this law is enacted, fixed and floating charges of movable assets will be possible.

Part II enforcement of security


1.

Please explain briefly general rules of enforcement of security indicated in answer to


the Question 1 in Part I above (excluding rules in a bankruptcy or insolvency
proceeding see Question 3 below). In your answer please explain whether specific
security may be enforced only through judicial proceedings or whether extra-judicial
methods are also available. Furthermore, please provide estimate of costs (if they
create significant obstacle in enforcement, including taxes and any other duties/
costs) and timing for enforcing such security. Please also explain degree of difficulty
(eg, burdensome formalities, whether enforcement requires actions of a state body)
in enforcing security. Also please explain whether taking security by an entity from
other jurisdiction influences possibility of establishing security and its enforcement.

Enforcement of security in a situation whereby the debtor is not under either a bankruptcy or
insolvency proceeding can be made either in court or outside the court. In case of a real
property mortgage, a registered machinery mortgage and a ship or vessel mortgage, the
security holder must always file a lawsuit in court against the debtor and the mortgagor after
the debtor failed to perform its obligations. The lawsuit must be filed with a court of
jurisdiction, i.e. the Civil Court, or the Intellectual Property and International Trade Court if
the banking transaction was made with one or several foreign creditors. Once a final court
judgment is given in favor of the creditor, then the creditor can have it enforced against the
security assets by having them sold by a public auction. The debtor and mortgagor are
entitled to oppose the public auction if the selling price at any auction is unreasonably lower
than the normal forced sale price of the assets. The court has discretion to approve of reject
the auction price in case where the debtor or the mortgagor opposed it.
After the occurrence of the default, if all the parties agree that the mortgage will not be
enforced in court, it is legally possible for the mortgaged assets to be foreclosed or disposed
of otherwise. But the law does not allow the parties to agree on the date of the mortgage
agreement that the mortgage will be enforced outside the court.
Enforcement of a pledge of shares, movable assets and financial instruments must be made
in court in the same manner as enforcement of the mortgage summarised above.
Assignments of accounts receivable or any other types of claims against a third party can be
enforced without filing a lawsuit in court. The assignee can simply give a default notice to the
debtor and a demand notice to the obligor of the accounts receivable. Upon giving the said

notice and demand, if the obligor fails to comply with the demand, the assignee will have no
choice but to file a lawsuit with the court to enforce its rights as the assignee against the
receivables.
2.

Please explain briefly specific features (if any) of enforcement of security established
over following types of assets:

(a)

Real estate:
The mortgage of a real state must be enforced in court as part of the enforcement of
the obligations of the debtor. The debtor must first have been in default and the legal
action has been filed to enforce the loan including the property mortgage. The
mortgaged assets must be sold by a public auction. The proceeds from the auction
sale are then applied to payment of the loan obligations.

(b)

Charging assets (inventory, stocks etc):


The pledge of inventory and stocks must be made under a court proceeding as part
of the lawsuit to enforce the principal debt. The pledged assets must be sold by a
public auction and the proceeds from the sale are paid to the creditor after deduction
of expenses and applicable taxes and stamp duties (if any). It is not allowed for the
parties to agree in advance (before the occurrence of the default by the debtor) to
enforce a pledge otherwise than by court proceedings. Thus, the parties cannot
agree, for example, before the default by the debtor that the creditor can foreclose
the pledged assets instead of selling them by a public auction. Of course, after the
default by the debtor, the parties can agree to enforce the pledge outside the court.

(c)

Fixed charge over movables:


A pledge of movables is enforced in the same manner as the pledge of inventory and
stocks under 2 (b) above. Thailand does not have law on fixed charges.

(d)

Shares:
A pledge of shares can be enforced in the same manner as enforcement of the
pledge of inventory under 2 (b) above.

(e)

Rights under contracts (receivables):


An assignment of accounts receivable can enforce outside the court. The parties can
agree in advance on how to enforce the assignment. It is a practice for the creditor to
notify the debtor of its default and then give a demand notice to the obligor under the
receivables to make payments of the receivables directly to the creditor. The notice
and the demand are normally given by registered-answered mail to ensure that the
creditor has evidence showing that the notice and the demand have been given, just
in case it is necessary for the creditor to enforce the assignment in court because the
obligor of the receivables does not make payments as demanded.

(f)

Bank accounts:
A pledge of bank accounts can be enforced in the same way as outlined in 2 (b)
above.

(g)

Financial instruments (eg, securities):

A pledge of shares, debentures, warrants, bills of exchange, promissory notes and


other financial instrument can be enforced in the same way as outlined in 2 (e)
above.
(h)

Intellectual property:
An assignment of trademarks or patents can be enforced by the assignor registering
the assignment upon default of the debtor. The registration must be made with the
Trademark Office or the Patent Office.

(i)

Plant and machinery:


Enforcement of a plant and machinery mortgage must be made as outlined under 2
(a) above.

(j)

Other assets.

3.

How does a commencement of bankruptcy or insolvency proceeding influence the


rights of the security holder to enforce its rights? In bankruptcy or insolvency
proceedings, what are the suspect periods is claw-back possible, and what other
types of rights (tax debts, employees, etc) have preference over security granted?
Please explain briefly specific features (if any) of enforcement of security established
over the following types of assets in a bankruptcy or insolvency proceeding:

Subject to the automatic stay in the insolvency proceedings for rehabilitation (also called
reorganisation) of the debtor or the absolute receivership over the security assets of the
debtor in the bankruptcy proceedings, the security holder can freely enforce its rights against
the security assets once the debtor is default.
Once an insolvency case is filed and accepted against the debtor, the automatic will take
place and the secured creditor cannot freely enforce its security assets. It needs to file a
petition with the court for a release of the security assets from the automatic stay on the
grounds that the security assets are not essential to the business reorganisation of the
debtor or the creditors rights as the secured creditor are not sufficiently protected under the
automatic stay.
In a bankruptcy case, the secured creditor can still enforce its security assets without
claiming for payment from the asset pool of the debtor but the creditor must allow the official
receiver to examine the details of the security assets (Section 95 of the Bankruptcy Act B.E.
2483 as amended). Or it can file a claim for sharing payments from the asset pool of the
debtor and agree to release its security for sharing with other creditors. Otherwise it can file
a claim for payment from the asset pool of the debtor, without releasing the security assets,
for the difference between the amount of its claims and the proceeds from enforcement of
the security assets. The claims for payments from the asset pool must be made within 2
months from the publication date of the absolute receivership, or within 4 months from the
said date in case of a foreign creditor, if permitted by the official receiver.
If the debtor made any payment of the debt to the creditor or transferred any assets or
created any rights to the creditor without consideration or with consideration of a value less
than the fair market value within a period of one year before the insolvency or bankruptcy
petition date or thereafter, such transactions can be subject to cancellation or a claw-back
as a fraudulent transaction under Sections 113 and 114 of the Bankruptcy Act.
If the debtor received any payment of the debt or made any transaction with a creditor within
three months before the filing date of the petition or thereafter knowingly that such payment

or transaction will prejudice other creditors, such payment or transaction can be subject to
cancellation on the grounds of an undue preference under Section 115 of the Bankruptcy
Act.

Under Section 130 of the Bankruptcy Act, the rights of the creditors to receive payments
from the asset pool of the bankrupt debtor are junior to the payments of expenses related to
the administration of the assets of the debtor, the expenses of the official receiver, the
lawyer fees, the court fees, the State taxes and the employee wages.
4.

Are there any specific features or problems of enforcement proceedings if the


security is granted to a trustee or security agent or the parallel debt structure is
used?

As the names of the creditor must be entered into the security agreement even though the
creditor was represented by an agent when the security agreement was created, in practice
it is not a problem for the creditor acting by itself or as represented by the agent to claim its
rights for payments in an insolvency proceeding or a bankruptcy case.
5.

Please explain the latest amendments to the law governing secured transaction in
your jurisdiction in relation to a bankruptcy or insolvency proceeding. Are there any
amendments which will be introduced in the near future (within one to two years)
which might have impact on the legal framework of the enforcement of secured
transactions in the light of insolvency law? Please also explain recent practical
developments regarding secured transactions in your jurisdiction in relationship to
insolvency law.

Since 1997, the Bankruptcy Act of Thailand has been amended four times in 1998, 1999,
2000, and 2004. The 1998 amendment was to add a chapter of business reorganisation.
The change in 1999 was to further revise the provisions on the cancellation of fraudulent and
undue preference transactions, business reorganisation plans, groups of creditors,
amendment of business reorganisation, plan, etc. The 2000 amendment was mainly on the
procedures for the official receiver. The 2004 amendment was on how to vote and to count
votes in creditors meetings, cancellation of bankruptcy and the courts fees in bankruptcy
cases.
The government appointed a committee to prepare a further amendment to the Bankruptcy
Act effective in 2007. The committee is amending the provisions on allocation of payments to
creditors as fees for gathering of assets.
As the economy in general has recovered from the 1997 economic crisis, the volume of the
insolvency and bankruptcy cases has reduced substantially. Most of the major cases filed
with the court in the period of five years during 1997 to 2002 have completed their business
reorganisations under five or seven year plans. Only a few plan administrators have asked
for extensions of the terms of their plans. On the bankruptcy cases, in the past few years,
creditors who claimed for payments in the bankruptcy cases of their debtors began to
receive payment parts of their claims. But the percentages of the repayment were very low.

Anda mungkin juga menyukai