Important Amendment to the Thai Civil & Commercial Code
Effective 12 February 2015, the Thai Civil & Commercial Code (No. 20) B.E. 2557 (2014) has been amended to reduce the obligations of guarantors in commercial transactions. The amended code will limit the liability of loan guarantors, as under the new law, guarantees are required to specify the duration and amount of the guaranteed obligation, as well as specify the underlying agreement that is covered by the guarantee.
Loan guarantees by commercial banks, as well as export credit guarantees, letters of credit, and international borrowing may be affected by the amendment, and banks may require additional collateral including joint debtors instead of guarantors, for secured lending transactions.
Details regarding the amendment to the Civil & Commercial Code are as follows:
1) In relation to guarantees, Section 681 has been amended so that the following must now be specified: the objectives of the secured obligation, a description of the debt, the maximum amount secured, and the period of creation of the debt to be secured.
Section 681/1 has been added to invalidate any agreement where a surety is liable in the same manner as a joint debtor.
According to new Section 686, in the event the debtor is in default, the creditor must now notify the surety within 60 days from the date of such default, otherwise the surety is discharged of its liabilities on interest, compensation and encumbrances, which are accessories of the debt.
Section 691 has been modified to benefit the surety in cases where the creditor has decreased the debt for the debtor, and also to stipulate that an agreement which adds additional burden to the surety is invalid. This differs from the current law where creditors are able to decrease debt without notifying the surety. The amendment has the effect of reducing the amount of debt for which the surety is liable.
Lastly, any agreement that a surety makes with a creditor which permits such creditor to grant a time extension prior to the creditor granting the debtor a time extension, shall be invalid.
It is clear that in relation to guarantees, the amendment aims to reduce burdens on the surety.
2) Regarding mortgages, Section 727/1 has been added. In the case where a mortgager has mortgaged their property as security for the performance of an obligation by another person, such mortgager will be liable for the amount not exceeding the price of the mortgaged asset.
Section 728 has been changed so that a mortgagee must notify a mortgager not less than 60 days of their wish to enforce the mortgage. Also, in relation to assets mortgaged as security for the performance of an obligation by another person, mortgagers must be notified within 15 days from the date that the mortgagee notifies the debtor of their wish to enforce the mortgage; otherwise the mortgager that mortgages their assets as security for the performance of an obligation by another person shall be discharged of liabilities regarding interest, compensation and encumbrances, which are accessories of the debt.
A new Section 729/1 has been added. This section stipulates that once the debt is due, the mortgager may notify the mortgagee in writing to sell the asset by auction without taking an action in Court. The mortgagee must henceforth sell the asset within one (1) year; if the mortgagee does not comply, the mortgager shall be discharged of liabilities on interest, compensation and encumbrances, which are accessories of the debt.
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