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Legal Update

Draft Collateral Bill Approved by Thai Cabinet

24 July 2009
Mayer Brown JSM Legal Update

Summary

A Commercial Collateral Bill (the"Bill") aimed at increasing the types of assets that can be used as collateral was approved by the Thai Cabinet on 9 July 2009.

Full Update

Under the current law, only a limited variety of assets can be given as collateral, such as mortgages and pledges. This prevents borrowers from using other forms of assets that have commercial value as collateral, which often precludes them from being able to obtain loans to enhance their businesses.

To resolve this issue, the Bill was proposed to expand the types of assets that can be used as collateral which should enable borrowers to make use of more of their assets and properties when applying for loans.

Highlights of the Bill

  • New forms of assets to be used as collateral may include inventory, machinery, raw materials, claims and even the underlying business itself.
  • Collateral agreements in relation to those types of assets will need to be registered with the Department of Business Development (the "DBD"), the Ministry of Commerce.
  • Fundamental rights over the collateral, such as the right to possess and utilise, will remain with the collateral provider, provided that creditors are permitted to examine the assets.
  • Creditors shall have preferential rights when it comes to enforcing the collateral.
  • In cases where a business is used as collateral and the debtor defaults on loan repayments, the enforcement of the collateral must be executed by an expert licensed by the DBD. However, in the event of default where other types of property or assets are used, creditors can enforce the collateral independently.

To support the effect of the said Bill, amendments to the Civil and Commercial Code were also proposed to allow creditors to claim full repayment should there be a default on a mortgage and the proceeds from public auction of the mortgaged properties do not cover the total debts.

It is expected that the new Bill, if it becomes law, will help companies seek bank lending thereby facilitating economic recovery.

For inquiries related to this Client Alert, please contact:

Peter Burke ( )

Sudkhate Jungcharoen ( )

Learn more about our Bangkok office, Asset Finance and Corporate & Securities practices.

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