Debt Collection in Thailand

• Thai corporations' payment behaviour is fairly good, but when it comes to late payments, laws are minimal.

• While the domestic courts are fairly independent, there is room for improvement in the interpretation of the rule of law, as administrative delays and expenses may be a problem and the implementation of court decisions may be difficult. In fact, it is best to prevent the use of the courts and to take pre-legal collection activity.

• It is often exceedingly difficult to collect debts from insolvent debtors, particularly when the debt is not insured.

1. Summary

1.1. General financial information

1.1.1. Domestic business financial statements may be accessed directly from the Ministry of Commerce's Department of Business Development but the details may not be accurate.

1.2. Key legal structures

1.2.1. Corporate debt responsibility is defined by legal structures, listed as follows:

• Sole proprietorship is a popular choice for independently run small businesses where no corporate arrangement is needed. In this scenario, the claimant shall be held responsible for all contractual debts. Two or more people may also decide to share ownership and responsibility by Partnerships, in which case the partners may collectively and separately be responsible for the other partners' acts. Additionally, associations may be identified as Limited Liability Entities to give the parties limited liability.

• Private Limited Companies are the most favored legal entities because they require low minimum capital funds while the shareholder's liability is limited to their contribution. Public company operating under the Private Operating Companies Act B.E. In general, 2535 (AD 1992) are used for larger structures with the purpose of splitting their resources into tradable securities. The shareholder's responsibility in those companies is limited to the outstanding interest of their stock.

• Foreign companies that conduct business in Thailand through Representative Offices, but they are not authorized to generate income and can serve merely as intermediary or market analysts. It is fairly common to do business through Branch Offices even though such branches are not separate entities from the parent and do not offer any limitations on liability, but the most popular option is to set up subsidiaries in the form of private limited companies.

• Joint ventures are typically a partnership issue, and may not allow a corporation to be established.

1.3. Regulatory framework

1.3.1. Thailand has a codified system of law (civil law) which has been significantly influenced by common law. The Thai court system is complex, and consists of the Court system, the Administrative Court system, and Thailand's Constitutional Court.

1.3.2. Civil and criminal cases are handled by the Court of Justice (a three-tier system consisting of the Court of First Instance, the Court of Appeals and the Supreme Court where the district level courts can hear small claims up to THB 300,000 while the provincial courts would hear claims exceeding that amount).

1.3.3. There are also separate courts concerned with particular issues, such as the Juvenile and Family Court, the Central Employment Court, the Central Tax Court, and the Central Intellectual Property and International Trade Tribunal, where proceedings may be specifically put before the Supreme Court. Disputes with administrative bodies and public agencies are handled by the Administrative Courts, where further appeals can be brought before the Supreme Administrative Court.

2. Receiving payments

2.1. DSO - Days Sales Outstanding

2.1.1. Thai businesses have a fairly good payout behavior. Most payments tend to take place within 30 days but on average delays of 10 to 20 days may appear when transactions are not secured.

2.2. Late interests

2.2.1. The purchaser may be charged interest on late payments and up to 15 percent may be set in a deal. If no interest rate is set, the legal cost of 7.5 per cent may apply.

2.3. Costs of debt collection

2.3.1. Many Thai firms that incur extra late payment collection costs but this is not common practice.

2.4. Protecting ownership

2.4.1. Retention of Title (RoT) rules, which seek to retain ownership of traded goods as long as the debt has not been fully paid, are legal in Thailand. Therefore, as long as the owner of the products that have been unpaid for can show that they have possession of the goods, they can then appeal to the court to order the goods to be released.

2.4.2. The goods may be repossessed during the pre-legal action phase if that is permitted by the purchase agreement. Then legal action before the judiciary would need to be taken.

2.5. Payments

2.5.1. The most common methods of payment are as follows: bank transfers are among the most prominent means of payment for international transactions, as they are quick, safe and sponsored internationally and domestically by an increasingly integrated banking network.

2.5.2. Thai exporters often use D/P (Document against Payment) or D/A (Document against Acceptance) systems for export transactions, but the company can also be covered through an export credit insurance policy, which aims to minimize the risk of unexpected or unintended insolvency of customers.

2.5.3. Additionally, standby loan letters (a bank guarantees the credit standard and repayment ability of the debtor) are often used in conjunction with export shipping transactions because they provide secure assurances that can be enabled as a' payment of last resort' if the customer fails to fulfill a contractual obligation.

2.5.4. In fact, irrevocable and verified letters of credit documentation (a debtor promises that a certain amount of money will be made available to a borrower through a bank once certain requirements, specifically agreed by the parties, have been met) are progressively being used. Bank loans are reasonably accessible which tend to be costly, but down costs can be arranged.

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3. Collecting payments

3.1. Amicable action

3.1.1. Negotiating. While domestic courts are fairly independent, the understanding of the rule of law has room for change, and time is a matter considering the court case load. As such, friendly opportunities for settlement should always be seen as a serious alternative to initiating legal action.

3.1.2. The debtor's properties should be measured before beginning legal proceedings against a debtor as it makes an assessment as to whether the chances of recovery are at maximum. 3.1.3. Therefore, it is important to be mindful of the solvency position of the debtor: after bankruptcy proceedings have been started, investors must petition in bankruptcy proceedings for recovery of their debt.

3.2. Legal proceedings

3.2.1. Ordinary proceedings. Although there are no pre-action conditions, legal dunning will commence with a recorded Demand Letter advising the claimant of his obligation to pay the principal together with late payment interest (as stated in contract or as a guide to the legal rate) and likely agreeing to enter into negotiations.  Through fact, courts usually allow the parties to reach a compromise that is mutually acceptable, and most disputes are settled by arbitration.

3.2.2. Until launching formal legal action proceedings, consideration should also be provided to the prospect of securing an arbitral award (see the ADR section) or an international ruling which, although it may be difficult to enforce, may remain more effective than merely appearing until national courts.

3.2.3. Normally, ordinary legal action should begin if nice selection failed. The borrower must file a claim with the case, which will be delivered immediately to the claimant if considered admissible. The claimant is then granted 15 days to file an appeal (a default judgment may be imposed if the defendant refuses to file his response or if any party fails to appear before the court on the first day of the jury trial, but the losing party would be allowed to request reconsideration if it has reasonable grounds as recognized by law).

3.2.4. The court must define the problems to be argued at the first trial, and decide which defendant will bear the burden of evidence. The court will also ask the sides, though, if they would like to mediate their disagreement. If mediation fails, the tribunal will proceed with witness examination. Thai courts normally award remedies in the form of damages, performance or forbearance but punitive damages would only be awarded under very specific circumstances as prescribed by law.

3.2.5. Necessary documents. The documents required usually include:

• Letter of Request
• Commercial contracts
• Purchase orders and invoices
• Proof of delivery and receipts
• Power of Attorney
• Documents showing the applicant's identity or legal personality

3.2.6. Time limitations. Different limitation periods must be considered before the commencement of legal proceedings, but provisions relating to time limitations are complex in nature, so it is not optional to obtain legal advice in this respect.

3.2.7. Provisional measures may help to preserve the interests of the creditor pending a final judgment. Upon application by a party, the courts may order provisional measures aimed at protecting the interests of the party concerned, preserving the status quo and avoiding irreparable damage (provisional attachment of the debtor's assets, interim mandatory or prohibitory injunctions, as well as other forms of protection).

3.2.8. The general rule is that the applicant has to give reasonable reasons for such a request. For emergency situations, the court can prescribe temporary steps ex parte (i.e. without consulting the debtor), but the court may then require that the applicant provide a security deposit to reimburse the other party for the loss it may suffer as a result of the provisional measures being enforced. Arbitral tribunals are not allowed to grant temporary steps, therefore the parties to the arbitration process will be required to submit an alternative application for measures to the qualified Thai Court.

3.2.9. Appeal lodging.  In the case of a general civil dispute, decisions made at the Court of First Instance (trial court) may be taken before the Court of Appeal and, in special circumstances, the Supreme Court with leave. On the other side, decisions made by the specialist tribunals may be appealed immediately to the Supreme Court. Appeal proceedings can be lengthy because they can last for more than six months, so they can be used as a delaying tactic.

3.2.10. Duration of a legal action. Depending on the complexity of a given case, it can take nine to 18 months to receive a decision from the Court of First Instance. Furthermore, it may take between 12 to 18 months each for the Court of Appeal and the Supreme Court to make a decision. Accordingly, securing a definitive and enforceable order could take on average between three and five years.

3.2.11. Cases involving a foreign element are more time-consuming than cases involving no foreign elements precisely because relevant documents have to be translated into Thai and witnesses who can not speak Thai have to testify via an interpreter.

3.2.12. Costs of a legal action. As a general rule, the defeated party is usually ordered to pay to the successful party the court fee as well as the legal fee (not exceeding 5% and 3% of the amount claimed in the trial courts and appeal courts, respectively) and the legal costs (not exceeding 1% of the amount claimed), but the court has the discretion to decide which party should bear the court fee and how. There is a trial charge of 2 per cent (capped at THB 200,000) of the amount of demand up to THB 50 million and the sum above THB 50 million is a 0.1 percent fee.

3.3. Alternatives to legal action

3.3.1. Alternative Dispute Resolution Procedures (ADR). Despite the difficulty of obtaining enforceable judgement from domestic courts, examination of incentives for ADR is more fitting. Arbitration is particularly a reliable way of settling business disputes because it is confidential and straightforward. The parties agree by treaty to approve the resolution of their conflict on their behalf by an independent and impartial third party arbitrator (or jury of arbitrators). Arbitration is generally cost-effective as a quasi-judicial dispute settlement method, reducing delays and offering a binding decision which can then be enforced by the courts where necessary. The international arbitration may also be considered when involving international transactions.

3.3.2. On the other side, mediation hearings require the appointment of a mediator to serve as a facilitator to assist the parties reach a compromise. Having said that, it is always essential to ascertain whether there is any arbitration or mediation agreement between the parties, as legal actions initiated in contravention of such an agreement may be subject to preliminary disposal.

3.3.3. Foreign forums. There is also an alternative to depend on an international authority but in reality it remains uncertain. While Thai courts generally uphold the contractual agreements of the parties, numerous restrictions that restrict the degree to which authority is exercised, and may control provisions aimed at having a foreign law as the applicable law or putting the contract under the exclusive jurisdiction of a foreign court.

3.3.4. Firstly, Thai courts can apply a foreign law only if the said law is translated into Thai and does not contradict Thai public policy. Second, provisions pertaining to exclusive authority have been found unenforceable and do not prohibit Thai courts from practicing their jurisdiction where it is the normal venue.

3.3.5. Enforcement of international awards. Because Thailand does not have mutual acknowledgement and compliance arrangements with other foreign countries, global rulings are not enforceable directly. In fact, enforcing foreign judgments requires new legal proceedings, where the foreign judgment will be considered as evidence, and the opposing party will have access to defenses.

3.3.6. Despite the above, Thailand is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and international arbitration awards can therefore be enforced fairly quickly if they are final and binding in the issuing country

4. Managing insolvent debtors

4.1. Insolvency in Thailand

4.1.1. Insolvency proceedings in Thailand were regulated by the Bankruptcy Act BE 2483 (AD 1940, as amended), which calls for litigation for reorganization as well as for bankruptcy. In reality, reorganization procedures are fairly effective for sustainable firms and after the Asian financial crisis of 1997 a large number of Thai corporations succeeded in getting back on their feet. Nevertheless, when it comes to foreclosure, it is doubtful that unsecured creditors can recoup any loans.

4.2. Insolvency proceedings

4.2.1. Out-of-Court insolvency. Insolvency proceedings are exclusively court-based in Thailand.

4.2.2. Debt restructuring. Debt reorganization proceedings may be launched by the debtor or their creditors after lodging an appeal with the court, if the debtor owes a total sum of at least THB 10 million to one or more creditors.

4.2.3. The debtor must show that there are reasonable grounds to restructure his company. Once the court accepts the request, a moratorium is introduced to stay all enforcement proceedings against the debtor (until the plan is implemented or dismissed) while a planner is appointed to prepare a reorganization plan.

4.2.4. The creditors are then granted one month to seek debt repayment from the day the appointment of the manager is released in the Government Gazette but failure to apply for such debt repayment would preclude the borrower from getting any debt repayment.

4.2.5. In accordance with the reorganization plan, the court then appoints a plan administrator in charge of managing the debtor's business. The designated receiver often plays a vital role in reviewing debt repayment claims and scheduling creditor sessions. Once the creditors' conference and the court have accepted the reorganization agreement, then the proposal will be binding on the creditors. However, if the reorganization fails, and the court finds that the debtor should be declared bankrupt, the court may issue a receivership order and cancel the reorganization.

4.2.6. Winding up proceedings. As a general rule, only creditors that lodge bankruptcy proceedings (Section 9 of the Bankruptcy Act) but the claimant may owe a minimum amount of THB 1 million (for natural persons) or THB 2 million (for legal entities). If the court considers that the debtor is indeed insolvent, a receivership order will be issued and an official receiver appointed to collect and manage the debtor's assets.

4.2.7. Once the specified receivership order is released, borrowers will be granted two months to file their debt repayment applications. Once again, compliance proceedings against the trustee are immediately stopped once the court issues the receivership warrant.

4.2.8. Priority rules. The laws of priority normally apply while the profits are allocated to the creditors. Secured creditors are given priority to unsecured creditors in that they can actually implement the protection and demand the default to be repaid. All costs accrued as a consequence of the bankruptcy and reorganization process shall be deemed to be preferred loans, taking precedence over taxes due within six months prior to the topic of the litigation and compensation payable to the staff of the claimant pursuant to the case. Once all preferred loans have been paid, unsecured debts would be deemed null.

4.2.9. Cancelation of suspicious transactions. Planners, program management and legal creditors usually have the right to ask the judge to void those transactions completed prior to the bankruptcy and reorganization process.

4.2.10. In fact, any move taken by the debtor found to be adverse to the lender may be repealed up to one year prior to the start of the bankruptcy or reorganization proceedings (i.e. unequal loans, improper debt repayment, illegal disposition of properties, dishonest dealings and gratuitous acts).

4.2.11. Duration of insolvency process. Bankruptcy proceedings may take between two and a half years and three years, and reorganization trials can take between nine and 22 months.