The draft Business Security Act (BSA) passed its third
reading by the National Legislative Assembly on August 7 2015.
After royal consent and publication in the Government Gazette,
it will become effective after 240 days (section 2).
Unlike the laws of many developed countries, Thai law does
not provide a way for a borrower to give lenders legal security
in most types of movable property. This is a restraint on
lending and borrowing, especially for borrowers with
substantial inventories of raw materials, work in progress and
products, accounts receivable, bank accounts, unregistered
machinery and other movable property, and contract rights.
Under the Bankruptcy Act, in the insolvency context, there
are only the following types of security: mortgages; pledges;
rights of retention; and, preferential rights in nature of a
pledge. There are no floating charges or other security over
movable property (with few exceptions), and no mortgages of
leaseholds or reclaimed land. There is no pledge substitution
In practice, lenders and borrowers enter into additional
security documents which provide the appearance of security in
assets in insolvency, but may be unenforceable or otherwise of
little practical value. Such security documents include, among
others: assignments of rights, and conditional novations, of
project documents; assignments of rights under performance
security under project documents; conditional assignments of
accounts; pledges of accounts; pledges of permitted
investments; general pledges over movable property; assignments
of insurances and reinsurances.
The BSA introduces business security contracts under which a
borrower (security provider) provides agreed assets to a lender
(security receiver) as security for repayment of debt, without
the need to deliver the assets to the lender. The lender must
be a financial institution or other person as prescribed in
ministerial regulations. The parties agree on grounds for
enforcement in the business security contract. The business
security contract must be in writing and be registered with the
business security registration office to be established in the
Department of Business Registration (DBR), Ministry of
The following types of assets may be subject to business
security contracts, including assets acquired by the borrower
in the future (sections 8 and 9): business; claims; movable
property used in borrowers' business operation such as
machinery, inventories, raw materials used for production of
goods; immovable property where the borrower directly operates
real estate business; intellectual property; and, other assets
as prescribed in ministerial regulations.
The business security registration office has the duty to
register, amend registration particulars, and cancel the
registration. Its records will be open to the public.
In general, the lender may enforce security by foreclosure
or by a sale by open bid. However, the BSA contains a number of
provisions concerning enforcement of security in different
forms of assets, including mortgaged assets under other
The BSA sets out qualifications of a security enforcer, and
rules governing licensing of security enforcers. In cases where
a business is used as security, a security enforcer must be
appointed, and must follow the prescribed enforcement
The BSA has one annex (rate of fees). The fee for
registration of a business security contract is: (i) in the
case of land, the fee will be equal to the fee for registration
of a land mortgage (one percent of the mortgaged amount) but no
more than Bt200,000 ($5,500); or (ii) in the case of assets
other than land or business, the fee will be no more than two
percent of the amount secured, but no more than Bt200,000.
The BSA has 94 sections, some of which prescribe enforcement
processes for different types of assets, and some in light of
third party rights under mortgages or other security interests.
It provides for supervision of certain findings by the civil
The Minister of Finance and Minister of Commerce are in
charge of enforcement of the BSA, and have the power to issue
ministerial regulations and notifications for implementation of
It will be necessary to wait for the regulations and
notifications to be published, to have a better understanding
of: (i) the administration of the BSA; (ii) acceptable forms of
business security contracts, and meaning of 'such agreement
must not be contrary to the public order or good morals'
(section 11); (iii) risks posed by conflicts with security
interests under other Thai laws; (iv) the importance and value
of the continued use of the informal security documents used in
practice (as listed above); and, (v) the number of business
security registration offices in Thailand.
CCC section 305 is being amended to include business
security to pass with a transfer of a claim, in addition to
rights of mortgage or pledge.
Supattra Sathapornnanon, Nopamon Thevit Intralib and