This content is from: Local Insights

Thailand

Because of the economic shakedown taking place in Thailand, 58 finance companies have been forced to shut down for an undisclosed period of time. Other finance companies and banks have been left in dire financial straits. The Thai government as a consequence has passed two Royal Proclamations to help tackle the financial crisis:

  • The Royal Proclamation on Special Vehicle for Asset Securitization.
  • The Royal Proclamation on the Secondary Market Corporation.

Royal Proclamation on Special Purpose Vehicle for Asset Securitization (SPV)

The Securities and Exchange Commission (SEC) is the body responsible for supervising and executing this law. An SPV is a limited company, a public limited company or another legal person. It will purchase the collateral which has been given to a finance institution facing cashflow problems to solve those problems. The SPV will then issue securities to investors. These will be available against a cash purchase and will enable those investors to receive the interest based on it.

Section 10 states that the persons who can propose such a project are: commercial banks, finance companies, credit foncier companies, securities companies, and other juristic persons as prescribed by the SEC. The law governing the SPV is the Securities and Exchange Act BE 2535 (1992).

The SPV will accept transfers of assets, issue securities for sale to investors, and execute contracts with other persons, which will accord with the approved project, and be submitted to the SEC.

They will be entitled to create debts and obligations as they have stated in the permitted project; invest or seek benefits from the transferred assets, from which they receive profits or benefits, as stated in Section 12 of the Royal Proclamation.

Should the SPV's operation be a finance or a credit foncier company, then the SPV will not be subject to a permission under the laws concerning the mentioned institutions.

In accordance with Section 20, should the SPV accept the transfer of assets from the seller, the provisions of Section 114 of Bankruptcy Act BE 2483 (1940), shall not apply. Section 114 states:

"Transfers of property, or any acts affecting the property, done or permitted to be done by the debtor during the three years before the application to make him bankrupt, may be cancelled by order of a court on an application by the official receiver by way of motion unless the transferee or the beneficiary can prove to the satisfaction of the court that the transfer was made in good faith and consideration."

In paragraph 2 of Section 20 the acceptance of the transfer of assets is defined as follows:

  • a transfer of assets for which payment of the price has been made according to fair market price;
  • a transfer of assets that causes the SPV to secure the risk and benefit in the assets; and
  • a transfer of assets that the SPV may hold the right in the benefits of the transferred assets.

On top of this, the SEC can prescribe other descriptions and transactions.

Royal Proclamation on the Secondary Market Mortgage Corporation (SMMC)

The SMMC will be a state organization, formed as a legal person. Its function will be the same as the SPV, with a capital of Bt1 billion, which will be made from the Reserve for Stabilization of Profit to the Bank of Thailand.

The SMMC will retain ownership and right of possession and possess a full range of rights in connection with property both within and outside the kingdom. It will be able to accept immovable property, participate in asset securitization, issue securities and financial instruments, collect interest and discount fees. It will be able to borrow money from abroad to operate and accept deposits for asset securitization. It will also be able to perform other business deemed necessary to achieve the objectives of the corporation — the same as those of SPV mentioned above.

In addition, five new Royal Decrees are expected to be promulgated shortly, to address the problems in the Thai finance and banking sectors. Their contents are not yet accurately available, but are likely to be as follows:

  • Amendment to the Bank of Thailand Act, amending the Bank of Thailand Act BE2485 (1942). This Royal Decree is related to the authority of the Fund for Rehabilitation and Development of Financial Institutes. It plans to provide protection for fund officials from any possible charges of wrong-doing in their handling of troubled finance companies. It is not be considered an amnesty.
  • Royal Decree establishing the Financial Restructuring Agency (FRA), which will be the agency responsible for salvaging the 58 finance companies which have been shut down.
  • Royal Decree to protect depositors and creditors of the 15 commercial banks and the 33 unsuspended finance companies.
  • Royal Decree amending the Commercial Banking Act BE 2505 (1942). No details are available at present, but it is expected to deal with the relaxation of foreign shareholding limits and possible capital adequacy conditions of banks.
  • Royal Decree Amending the Finance Companies Act BE 2522 (1979). There are no details available at present, but it is also expected to deal with the relaxation of foreign shareholding limits and capital adequacy conditions of finance companies.

JP Tuggener

Instant access to all of our content. Membership Options | One Week Trial