Business Collateral Act to help IP owners obtain financing more easily

Thailand

With the aim to improve financial stability for small and medium enterprises by increasing access to funds from financial institutions, the Business Collateral Act (BE 2558) was published in the Royal Thai Government Gazette on November 5 2015. Most of the provisions will become effective on July 1 2016 (240 days after the date of publication), except some provisions which will become effective on the day following the date of publication, including those related to the appointment of receivers, the appointment of the minister in charge, control over the execution of the act, and appointment of the competent officials.

The Business Collateral Act is expected to assist IP owners in obtaining financing from financial institutions more easily. In the past, the use of IP assets as collateral faced numerous hurdles. Under Thailand’s Civil and Commercial Code, intellectual property was not recognised as a financial asset and, therefore, it could not be used as an asset for mortgages, pledges, liens or security deposits. Under the Business Collateral Act, however, IP owners can use their IP assets as collateral to secure loans without delivering these assets.

IP owners can be individuals or juristic persons. Secured parties must be financial institutions or other persons specified under the Ministerial Regulations. In order to use IP assets as collateral to secure loans, an IP owner - as the debtor - must enter into a security agreement with a secured party or a lender. The IP owner would grant security interests in its IP assets to the secured party as collateral for a loan.

Importantly, the security agreement must be made in writing and registered with the Department of Business Development. The Department of Business Development will then cooperate with the Department of Intellectual Property to register the information and provide the public with concordant records.

A search system is being developed to allow third parties to ascertain whether any assets are being used as collateral under the Business Collateral Act. A secured party which receives written consent from an IP owner has the obligation to carry out the registration process.

The secured party is responsible to ensure that the information provided to the Department of Business Development is correct. When the registration process is complete, the secured party is recognised as a 'secured creditor' under the Bankruptcy Act. The secured party is then entitled to claim the collateral with priority over the other unsecured creditors. As to the priority among other secured parties of the collateral, the date and time of registration are determinative factors.

Although security interests are granted to the secured party by the IP owner, the IP owner is still entitled to use, exchange, dispose, transfer, manufacture and use as security against other loans the IP assets used as collateral and their proceeds, unless the parties agree otherwise.

While the Business Collateral Act takes significant steps toward facilitating the financing of IP assets, in practice, their use as collateral remains a challenge due to difficulties in valuation and foreclosure, and the lack of secondary markets for certain types of intellectual property. Small and medium enterprises will find some measure of financial stability under the Business Collateral Act, but the new law should be closely observed to align with current business practices.

Ploynapa Julagasigorn, Tilleke & Gibbins, Bangkok

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