THAILAND Law and Practice Contributed by: Jessada Sawatdipong, Sarunporn Chaianant, Supawich Nimmansomboon and Supawin Pongthananikorn, Chandler Mori Hamada
sion of a guarantee, security or financial assistance by the target for the acquisition of the target’s shares is considered an RPT, certain requirements must be met, as outlined in 5.3 Downstream, Upstream and
interests, compensation and any other charges relating to such obligation after the 60-day period has ended. Any provision in the guarantee agreement contrary to the guarantee law limitations will be rendered void and unenforceable. 5.6 Release of Typical Forms of Security Full repayment of a secured obligation (a loan) will legally extinguish all ancillary obligations or security agreements related to such secured obligation. If the security is registered with a competent official (ie, security created under a mortgage and BSA), the registration of release shall be made to reflect the actual extinguishment of the underlying loan agree- ment. For other types of security, a notice of release is usually served to the relevant obligors, and, in case of a pledge, the pledged property shall be returned to the pledgor. 5.7 Rules Governing the Priority of Competing Security Interests With respect to security that requires registration (ie, a mortgage and BSA), the security interest that was reg- istered first has priority over interests registered later. Assets subject to a mortgage can subsequently be collateralised under the BSA and vice versa. However, an asset subject to collateral under the BSA cannot subsequently be pledged; otherwise, the pledge will be invalid. In bankruptcy proceedings, under Section 96 (1) of the Bankruptcy Act B.E. 2485 (1942), a secured creditor who has preferential rights over an asset may waive its priority by agreeing to relinquish such asset given as security for the benefit of all creditors, and may apply for repayment of the debt in full. Nevertheless, it is uncertain whether the secured creditor can con- tractually waive its preferential rights over the secured assets prior to bankruptcy proceedings. With respect to unsecured debt, contractual and structural subordination are feasible in Thailand. In bankruptcy proceedings, a contractual subordination provision is recognised under Section 130 bis of the Bankruptcy Act, and, as a result, the subordinated
Cross-Stream Guaranties . 5.5 Other Restrictions Requirement for a Licence
A foreign entity (which includes a Thai-incorporated entity for which the shareholding structure is major- ity or wholly owned by a foreign entity) is considered a “foreigner” under the Foreign Business Operation Act B.E. 2542 (1999). That foreign entity is restricted from providing guarantees or any security to secure a third party’s debts, since provisions of a guarantee or security to secure a third party’s debt are considered as provision of services under Annex 3 of the Foreign Business Operation Act. In such cases, a foreigner is required to obtain a foreign business operation licence before providing a guarantee or any form of security in Thailand. A foreign business licence is to be granted for each transaction individually, and the foreigner is required to apply for the licence every time it is required to provide security or a guarantee. Thai Guarantee Law Limitations As a result of the amendment to the Thai Civil and Commercial Code, the Thai guarantee law imposes certain limitations on the provision of guarantees, such as: • an individual guarantor is prohibited from the provi- sion of guarantees as a primary debtor; • in the event of an extension of time granted by the creditor to the debtor for the secured obligation, the guarantor’s obligation shall be extinguished, unless the guarantor consents to such extension of time at the time of or after such extension; • in the event that the creditor reduces the amount of the secured obligation, interest, compensa- tion or any other charges, and if the payment after deduction has been made by the debtor and/or the guarantor, the guarantor shall be free from the guarantee; and • when a debtor defaults, the creditor must deliver a written notice to the guarantor within 60 days from the date that the debtor defaults – if the credi- tor fails to do so, the guarantor is released from
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