cross-border financing projects
TRANSCRIPT
LAWPLUS
OMEGAWORLD CLASS
CORPORATE FINANCE LAW 2017
CROSS-BORDER FINANCING PROJECTS
22 September 2017
The St.Regis Bangkok
Kowit Somwaiya
Managing Partner
www.lawplusltd.com
LAWPLUS
The information provided in this document is general in nature and may not
apply to any specific situation. Specific advice should be sought before
taking any action based on the information provided. Under no
circumstances shall LawPlus Ltd. or any of its directors, partners and
lawyers be liable for any direct or indirect, incidental or consequential loss
or damage that results from the use of or the reliance upon the information
contained in this document. Copyright © 2017 LawPlus Ltd.
www.lawplusltd.com.
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Presentation Topics
1. Updates on key legal issues and risks relating to cross-border financing
2017
2. Major legal issues in negotiating and drafting cross-border financing
contracts
3. Tax issues applicable to cross-border financing
4. Recommendations for effectively managing disputes arising from cross-
border financing
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• Provision of mortgage agreement is void if it is contrary to:-
- Section 728 (lawsuit must be filed to enforce mortgage);
- Section 729 (conditions precedent for foreclosure);
- Section 735 (prior notice to transferee of mortgaged assets before enforcement).
• Mortgagor is not liable for more than value of mortgaged property (at the time of
foreclosure or enforcement).
• Mortgagee can sell mortgaged property by auction sale within 1 year from receiving a
notice for auction sale from mortgagor without filing a lawsuit.
• Transferee of mortgaged property can redeem mortgaged property anytime or within 60
days of receipt of a notice from the mortgagee.
Updates on key legal issues and risks relating to cross-
border financing 2017 - Amendments to CCC on Mortgages
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• Type, purpose, amount, term of guaranteed obligation must be specified in guarantee
agreement.
• Guarantor is liable for only guaranteed amount.
• Agreement for personal guarantor to be liable jointly and severally with debtor is void. This
does not apply to corporate guarantor.
• Creditor must notify guarantor within 60 days from default date, otherwise the guarantor is
discharged from interest incurred after the 60-day period.
• If part of debt is forgiven and if the remaining debt is paid in full, guarantor is discharged.
• Prior consent for extension of time by a non-financial institution guarantor is not
enforceable.
Updates on key legal issues and risks relating to cross-
border financing 2017 - Amendments to CCC provisions on
Guarantees
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• Collateral assets: businesses, claims (accounts receivables), machinery, inventory, raw
materials, intellectual property, etc.
• Business collateral agreement must be made in writing and registered with the Business
Collateral Registration Office, Department of Business Development.
• Collateral receiver must be a financial institution or other persons specified in the
Ministerial Regulation.
• Collateral receiver is a secured creditor with preferential rights.
• Collateral provider can retain possession of the collateral, use, exchange, sell, distribute
and transfer it unless agreed otherwise between the collateral receiver and the collateral
provider.
• Licensed collateral enforcer must be appointed to enforce the collateral if the collateral is
the business itself.
Updates on key legal issues and risks relating to cross-border financing 2017 - Business Collateral Act B.E. 2558
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• Official Receiver (OR) has power to approve or reject payment application, subject to
objection in Court within 14 days.
• Creditors Committee: Not less than 3, not more than 7.
• Minimum requirement for composition request: payment order, composition amount,
composition plan and procedures, payment period, plan for management of collateral
assets and guarantee.
• Creditor abroad can file for debt repayment after the 4-month period if there is a force
majeure event.
• Creditor in Thailand can file for debt repayment after the 2-month period if there is a force
majeure event.
Updates on key legal issues and risks relating to cross-
border financing 2017 - Amendments to Bankruptcy Act
(No. 8) B.E. 2558
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• Business rehabilitation for individual and SME debtor.
• Debt not less than THB2 million for individual.
• Debt not less than THB3 million for group of persons, non-registered partnership, ROP,
limited partnership.
• Debt more than THB3 million but less than THB10 million for limited company.
• Cashflow test, in addition to liquidity test, etc. is allowed.
• Petition for rehabilitation must be accompanied by a rehabilitation plan approved by
creditors holding 2/3 of total debt.
Updates on key legal issues and risks relating to cross-
border financing 2017 - Amendments to Bankruptcy Act
(No. 9) B.E. 2559
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Major legal issues in negotiating and drafting cross-border financing contracts – General Issues
• Cross-border financing has elements of a domestic loan transaction plus additional issues
and risks due to its cross-border character.
• Lender should be familiar with law of country of borrower and seek advice and opinion from
local lawyer on validity and enforceability of loan agreement and security documents under
relevant foreign law.
• Types of available collaterals (tangible or intangible, moveable or immovable) may differ
between jurisdictions.
• Procedures for enforcement of creditor’s rights under the loan and security documents in
jurisdictions of borrower and security providers can be complex.
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Major legal issues in negotiating and drafting cross-border
financing contracts - Taking security interests
• Procedures and requirements for creating security interest is often different for tangible and
intangible assets.
• Security on real property is normally required to be registered with local public registry.
• Registration process for registration of some security can be complicated.
• Failure to comply with registration process may affect priority or enforceability of security.
• Lack of clear provisions of law on creation and enforcement of security in some countries can
deter lenders from taking security located in such countries.
• Multiple security interests (mortgage, pledge, assignment, guarantee, liens, etc.) are
advisable.
• Advice, opinion and assistance of local lawyers are necessary.
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• Law of foreign jurisdiction dictates types of enforcement and actions available to lender.
• Self-remedies or self-enforcement actions are generally not available.
• Foreign jurisdiction may require a court approval to enforce security.
• Notarization and translation of documents into the local language are normally required for
filing them with local court.
• Costs (court fees, lawyer fees, notarization and legalization fees, etc.) can be costly.
• Sometimes they are calculated by reference to the amount of claimed debts or the value of
collateral, or the security amount.
• Judicial procedures to enforce loan and security can take several years.
Major legal issues in negotiating and drafting cross-border
financing contracts - Enforcing a security over foreign assets
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• If borrower is located or registered in a jurisdiction where enforcement risk is high,
collaterals in a risk-free country that can be enforced without reliance on law and court of
the borrower’s jurisdiction should be created, if possible.
• Offshore Share Pledge: a pledge of shares in a holding company that ultimately owns the
borrower (project finance in Myanmar where the holding company is located in Singapore).
• Offshore Collateral Account: borrower opens and maintains an offshore collateral bank
account in a risk-free country and borrower’s revenues are paid into that account by
customers of borrower.
Major legal issues in negotiating and drafting cross-border
financing contracts - Collateral in a risk-free jurisdiction
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• Transaction might involve a number of jurisdictions, increasing the potential conflict between
laws of jurisdictions involved.
• Where the governing law is specified, local court may not recognize some provisions of
agreements even they are enforceable under the governing law.
• It is not always possible to choose foreign law as the governing law of security documents.
• Governing law for security documents is usually the law of the jurisdiction in which security
asset is located.
• Chosen governing law must be recognized and enforceable in jurisdictions where borrower
and security assets are located.
Major legal issues in negotiating and drafting cross-border
financing contracts – Selecting governing law
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• Borrower may be required to withhold tax on some payment to the lender under the loan
agreement, e.g. interest, arrangement fee, management fee, etc.
• Double-tax treaty between jurisdictions of lender and borrower may address withholding tax
issues.
• In practice, loan agreement contains a “gross-up” provision requiring borrower to pay
lender for any withholding tax withheld from payment to lender.
• Stamp duties may be payable on loan agreement or collateral agreements.
• Failure to pay required stamp duties can make documents inadmissible as evidence
in court proceedings.
• Paying or sealing of stamp duties can be practically difficult.
Tax issues applicable to cross-border financing - Withholding
Tax and Stamp Duties
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Recommendations for effectively managing disputes arising from cross-border financing – Choices of dispute resolutions • Disputes arising from cross-border financing can be complicated, often involving multiple
proceedings taking place at the same time before courts of different jurisdictions.
• Loan agreement normally contains provisions on methods for dispute resolution.
• Practical choices
- amicable negotiation
- mediation
- arbitration
- litigation
• Litigation in jurisdiction where borrower and collateral assets are located is a preferable
choice.
• Weak point of litigation: Local courts do not readily recognize and enforce judgements of
foreign courts.
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Recommendations for effectively managing disputes arising from cross-border financing - Arbitration • Key advantages of international arbitration for resolving cross-border financing disputes:
- Enforcement: 148 countries are signatories of the New York Convention on Recognition
and Enforcement of Foreign Arbitral Awards, which provides for recognition and
enforcement of arbitral awards, with limited grounds for challenges.
- Neutrality: International arbitration allows parties to resolve their disputes in a neutral
forum.
- Confidentiality: The parties can specify in the dispute resolution clause that they will have
to maintain the confidentiality of the proceedings.
• Thailand is a member state of the New York Convention.
• Need to have an arbitration clause in loan agreement and collateral documents
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Contacts:
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