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A guide to cross-border financing in Thailand

The market has evolved from catering solely for offshore lenders financing Thai borrowers to include Thai lenders financing foreign ventures. Nattaporn Pengkul and Passawan Navanithikul of Weerawong C&P look at the latest developments in lending rules

The market has evolved from catering solely for offshore lenders financing Thai borrowers to include Thai lenders financing foreign ventures. Nattaporn Pengkul and Passawan Navanithikul of Weerawong C&P look at the latest developments in lending rules

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In the past, most cross-border financings involving a Thai company involved an offshore lender providing financing to the parent of a Thai subsidiary. This typically requires security being provided by the Thai subsidiary. Recently however, several Thai commercial banks have been providing financing to subsidiaries of Thai companies established and operated abroad, for instance in Cambodia, Myanmar, Laos or Vietnam. Classic examples of this might include a project financing for a power plant in Myanmar or an acquisition financing for the acquisition of shares in Vietnam.

As to the development of the security interest regime in Thailand, the implementation of the Business Security Act BE 2558 (2015) (BSA) widened the class of assets which can be taken as security and solved difficulties in taking security over certain types of assets. The BSA therefore affords Thai borrowers greater opportunities to access financing and provides lenders with more effective security. However, this security regulation cannot currently be used in many cross-border financings, as foreign banks will only qualify as security receivers under the BSA if they provide a facility in the form of a syndication alongside a Thai commercial bank.

When it comes to the licences and approvals needed to lend to a Thai borrower, if the lender is a financial institution, it has to obtain a licence under the Financial Institution Act; if the lender is not a financial institution but is doing business that involves acquiring and lending capital – which falls within the scope of regulated businesses, then prior permission from the Ministry of Finance is required.

In recent years, fintech and funding platforms have been progressively developed in the Thai financing market. However, Thailand only started the process of legalising peer-to-peer (P2P) lending in 2018 by implementing new regulations that require a platform operator to obtain a permit before a business begins operating.

No exemptions to the above exist. However, if a lender does not engage in the lending business (for example, the parent company on-lends to its subsidiary), a lending licence is not required.

Key assets used for security interests

Shares and debt securities: Security can be taken over shares and debt, both in certificate form (by way of pledge) and scripless form (by way of the use of securities as collateral under the Securities and Exchange of Thailand Act). A pledge requires a delivery of the written instruments representing the pledged assets to the pledgee. Delivery of a notice of pledge to the relevant issuing company and the registration of the pledge in the registration book, is also required. Additional actions may be required depending on the type of securities. The use of securities as collateral involves special procedures administered through the Thailand Securities Depository Co., Ltd. and a specific securities deposit account.

Bank accounts, receivables, and contractual rights: Security can be taken via: (i) a contractual assignment which needs to be made in writing with a written notice of assignment given to the debtor, or consent in writing obtained from the debtor; or (ii) a business security.

Following the introduction of the BSA, which came into effect in July 2016, contractual rights, inventory, intellectual property, whole business and all future assets can be granted as security by way of a business security agreement. Unlike a creditor that takes security by way of assignment, a creditor that accepts a business security is regarded as a secured creditor under Thai bankruptcy proceedings. The business security agreement must be made in writing and registered with the business security registration office of the Department of Business Development. The BSA requires that the prescribed details are specified in the business security agreement, such as enforcement event, and the underlying debts.

Nevertheless, it is worth noting that currently, a foreign bank will only be qualified as a security receiver under the BSA if such a bank provides a facility in the form of a syndication with a commercial bank in Thailand.


Thai law does not contain the concept of a security trustee or a specific provision for a security agent


Insurance policies: Security can be taken and generally, the parties will require that the lender is named as the (sole) beneficiary directly on the relevant insurance policy. Additionally, an assignment agreement and the business security under the BSA could also be used.

Real property: Security can be taken by way of: (i) a mortgage which must be made in writing and registered with the competent land office in Thailand; or (ii) a business security which the real property used in the business may be granted as security by the owner of the real estate project. The perfection requirement mentioned for bank accounts, receivables, and contractual rights will also apply.

Plants and machinery: Security can be taken by way of: (i) a mortgage over machinery that has been registered with the Department of Industry; or (ii) a business security in the case of machinery used in the business. Following the implementation of the BSA, the non-registered machinery will be granted as security by way of a business security instead of pledge which has the impracticable possessory requirement. The formalities for this mortgage are the same as for a real property mortgage, as is the perfection requirement.

Intellectual property: This can be effected by way of a business security. Currently, only few business security agreements in respect of intellectual property are registered with the authority. This is partly because of the complications involved with asset appraisal.

Future/after acquired property and floating charges over all assets: Under the BSA, security can be taken over future/after acquired property and all the assets of a security provider by way of a business security agreement. In addition to the perfection requirement, in the case that a business is granted as a security, when proceeding with the registration, the security receiver shall also submit the consent of the security enforcer.

Limitations, transferability and registration under Thai law

The scope of secured future obligations under a mortgage needs to be carefully specified in a contract, as Thai law requires that minimum prescribed details of future obligations be clearly specified. Incomplete details may result in any certain future obligation not being covered under that mortgage agreement. A universal security agreement can be used to grant security over all assets in Thailand by way of a business security under the BSA.

Thai law does not provide for comprehensive classes of creditors except in the cases of mortgages granted with different rankings. Therefore, to achieve the benefit of different classes of creditors under the same security agreement, a contractual arrangement among all relevant creditors is necessary (for example, an intercreditor agreement).

Thai law does not contain the concept of a security trustee or a specific provision for a security agent as in other jurisdictions. Only the principal and agent concepts are recognised under Thai law. In practice, an agent can be appointed to enter into a security agreement and hold the security interest on behalf of the creditors and the agent in this transaction will generally be called a security agent.


Undue preference given to any creditor within the three month period prior to a bankruptcy application or business reorganisation petition can be nullified


When it comes to transferring and third parties, a written notice to or written consent from the debtor is recommended in order that the assignment or novation be enforceable against the debtor. Although mortgages, pledges or guarantees given in respect of the loans will be transferred by operation of law upon the assignment of the rights of the loans, for a novation, the consent for such a transfer of security is required from the third-party security provider. In the case of a mortgage and a business security, it is generally recommended that the change of mortgagee and business security receiver be registered with the relevant authority following the assignment or transfer. Rights can be granted by third parties. A security provider would generally have the right of subrogation but in practice, this subrogation right is usually waived.

There are also a few important considerations when it comes to registration requirements applicable to security interests created in Thailand, including considerations such as the timing, expense and the consequences of non-registration.

For instance, the failure to register a mortgage will result in that mortgage being void and unenforceable. A mortgage registration fee is payable. Pledges of shares or certain other instruments also need to be registered in the share register book so that they can be enforced against a third party and the issuing company. The BSA has established a new registration regime for business security agreements, which will be registered online with the Department of Business Development. The security receiver will be considered as a secured creditor under the Bankruptcy Act upon the completion of registration.

The consent from the security provider is required for the registration under the BSA. Further, if the security provider must obtain a consent from the person who permits the exercising of the rights concerning business operation before transferring such rights to a third person, the security receiver must submit a letter from such person consenting for the security provider to transfer the said right to a third person together with the application for registration.

Guarantees and their limits

Thai law does not distinguish between different types of guarantees. Any company can grant a guarantee as long as giving a guarantee is permitted under its company objectives. No regulatory approval is required for giving a guarantee unless it is a foreign majority owned Thai company, in which case a foreign business licence is required. As regards listed companies, they should consider the corporate governance rules of the Thai stock exchange regulators.

The Thai Civil and Commercial Code (CCC) sets out some statutory limitations concerning guarantees which may affect their enforceability. For example, the guarantor cannot agree to be jointly liable as a co-debtor with the primary debtor, except if the guarantor is a juristic person and expressly consents to that joint liability. The lender must also comply with required procedures in enforcing a guarantee. Failure to do so will affect the rights of the lender in enforcing the guarantee or in claiming accrued default interest from the guarantor. Another limitation is that certain agreements that are in conflict with the CCC regarding a guarantee will be unenforceable.

Secondly, the guarantor is subject to a foreign exchange control regulation which requires the Bank of Thailand's approval for its outward remittance of foreign currency to fulfil its guarantee obligations, in the absence of the Thai courts' judgment.

Foreign judgments: a case of yes and no

Local courts usually recognise and enforce foreign-law governed contracts, if the legitimacy of the choice of the foreign governing law is proved to the satisfaction of the Thai court and is not considered contrary to public order or the good morals of the people of Thailand. However, local courts will not recognise and enforce a foreign judgment that is given against a domestic company in foreign courts without re-examining the merits of the decision. Any judgment obtained in a foreign court will not be directly enforced by a Thai court and the creditor would have to start new proceedings in Thailand. Such a foreign judgment can (at the discretion of the Thai court) be admitted as evidence in new proceedings in a Thai court.

Final foreign arbitral awards can be enforced through Thai courts, provided that the award was issued in a jurisdiction that is a party to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, and subject to the requirements and provisions of the Thai Arbitration Act.

The main factor impacting timing, when enforcing security, is the nature of the enforcement process under Thai law, whereby for a pledge enforcement, a public auction is required, and for a mortgage enforcement, court proceedings and a public auction are required. Before enforcement, certain pre-requisite procedures are required (for example, reasonable demand notice to the debtor). According to the BSA, the enforcement procedures are, in principle, less time-consuming as they do not require court involvement and foreclosure of the secured asset or transfer of the secured asset by the lender is permissible. However, there are currently no precedents relating to enforcement of this type of security.

Restrictions applied to foreign lenders depend on the type of asset, for example in the case of mortgaged land, the foreign lender should be aware of the restriction under the Land Code which prohibits a foreign entity from owning any land in Thailand. If the security is a pledge of shares in a Thai company, it must be ascertained whether the business of the Thai company is subject to the Foreign Business Act or any specific law regulating that business which imposes foreign ownership restrictions.

How to recover debts during a restructuring or bankruptcy

The available insolvency procedures in Thailand are bankruptcy and business reorganisation.

Bankruptcy may be initiated by the liquidator or a creditor. After the Bankruptcy Court grants the receivership order, all rights and powers relating to the management of the debtor's assets and business will be passed to the receiver. It generally takes around one year before the Bankruptcy Court renders the bankruptcy order, and approximately another year for the receiver to collect the assets for distribution among the creditors. The time period for completion of distribution of debt recovery to the eligible creditors depends on the process of realisation of the bankrupted debtor's assets by public auction. In order to be entitled to receive debt repayment, creditors must file an application for the repayment of debts with the receiver within the prescribed time limit.

A secured creditor has two options for recovery of debts: to enforce the secured assets that the debtor grants to it prior to the order of receivership over such debtor's asset, without filing a claim for a debt repayment; or to file a debt repayment claim for the full amount of the debt if it agrees to surrender that secured asset for the benefit of all creditors (or for only the balance of the debt remaining unpaid if it has enforced the secured asset or agreed to have the secured asset enforced under bankruptcy law).

Business reorganisation, which is available for a debtor that is a juristic person, can be initiated by a creditor or the government agency (involuntary case) or by the debtor itself (voluntary case). The creditors will be divided into classes of creditors (depending on the security they hold and the debts owed to such creditors). The terms of debt repayment will be governed by the reorganisation plan, where creditors in different creditor classes are subject to different recovery of debt repayments. The creditors are entitled to direct or approve matters in the reorganisation proceeding through a resolution in the creditors' meeting. A business reorganisation proceeding takes around one year from the petition until the Bankruptcy Court approves the plan if there is no objection from creditors. The implementation of the plan itself should take around five years from the date the Bankruptcy Court approves such plan but no longer than seven years.

A fraudulent act can be nullified by the court provided that the beneficiary of such an act is aware of the fact that it may be prejudicial unless: (i) the fraudulent act is done within one year before the application for adjudication of bankruptcy or business reorganisation petition and thereafter; (ii) it is a gratuitous action; or (iii) the debtor receives less than a reasonable amount of compensation for that transaction. Undue preference given to any creditor within the three month period prior to a bankruptcy application or business reorganisation petition (and thereafter) can be nullified by the Bankruptcy Court. If the beneficiary creditor is a debtor insider, the hardening period can be extended to a year.

Bankruptcy and insolvency processes do provide for a moratorium on the enforcement of lender claims in business reorganisation proceedings. An automatic stay comes into effect once the court accepts the business reorganisation petition and thereafter during the reorganisation proceedings. The stay prevents certain activities (for example, pursuing existing lawsuits by the creditor, filing of civil claims or action against the debtor, or enforcing security by the creditor).

About the author

Nattaporn Pengkul
Partner, Weerawong C&P

T: +66 2 264 8000
E: nattaporn.p@weerawongcp.com
W: www.weerawongcp.com

Nattaporn Pengkul advises banks, corporations and other clients in domestic and cross-border transactions. Her practice includes transactions that involve bank lending, project and acquisition financing. Nattaporn has expertise in aviation; banking and financial services; power and renewable energy; commercial and residential real estate; transportation and infrastructure. Recent transactions include acting as Thai counsel to the foreign lessors and financiers in relation to the aircraft of airlines operating in Thailand; advising Wind Energy Holding on a THB37 billion financing for onshore wind projects in Thailand; acting for Asset World on a THB50 billion acquisition financing for hotel, retail and commercial building assets; advising Berli Jucker on a THB80 billion refinancing of the acquisition of Big C Super Center, for the repayment of loans under a bridging facility of €3.2 billion and a tender offer facility of THB88 billion; assisting WHA on a THB 40.5 billion financing for the acquisition of shares in Hemaraj Land & Development; and representing Green Earth Power on the financing for the largest solar power plant in Minbu, Myanmar.


About the author

Passawan Navanithikul
Partner, Weerawong C&P

T: +66 2 264 8000
E: passawan.n@weerawongcp.com
W: www.weerawongcp.com

Passawan Navanithikul advises banks, corporations and other clients in banking, finance and projects throughout the Asia-Pacific region. Her practice includes domestic and cross-border acquisition finance, investment facilities and asset-based lending facilities. Recent transactions include advising Thai Beverage in the $5 billion financing for the acquisition of a stake in Sabeco, the largest acquisition financing deal in Thailand and Vietnam to date; acting for BSR JV in the $1.9 billion financing for new monorail systems, which won Thailand Project Finance Deal of the Year at the Asian Legal Business SE Asia Law Awards, 2018; assisting Berli Jucker in the financing for the €3.2 billion acquisition financing, THB88 billion tender offer facilities and THB88 billion refinancing for a stake in Big C Supercenter; and representing Green Earth Power on the financing for the largest solar power plant in Minbu, Myanmar.


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