Thailand Business Security Act: Borrow Against Inventory, Receivables, Machinery — or Your Whole Business — Without Mortgaging Land
Under Thailand's Business Security Act B.E. 2558 (2015), a business can — without handing over possession of the property — register inventory, raw materials, machinery, accounts receivable, intellectual property, or even the entire business as security for financing from a financial institutionSection 5Section 8; the security agreement must be made in writing and registered with the registrarSection 13, and once registered the security receiver is entitled to payment out of the secured property ahead of ordinary creditorsSection 29.
Why this law matters for SMEs
Traditionally, a Thai business borrowing from a bank either mortgaged land and buildings or pledged movables into the creditor's possession — and a pledge means the goods or machinery, once handed over, can no longer be used in the business. The Business Security Act creates a third route: the security provider grants security over property to the security receiver without having to deliver the property to the other sideSection 5. Inventory keeps selling, machinery keeps running, receivables keep coming in — while those same assets secure your loan. For SMEs that own no land but have steady inventory turnover and receivables, this is the single most important credit-enhancement tool.
A security provider may be a natural person or a juristic personSection 6, and may grant security either for its own obligation or for another person'sSection 5.
What property can be used as business security
The law expressly lists six categories of property that may serve as securitySection 8:
- A business — the whole operation together with its related rights, so that on enforcement the security receiver can step in and immediately continue the businessSection 3;
- Rights of claim — i.e. rights to receive payment of a debt such as accounts receivable, but excluding rights represented by written instruments such as billsSection 3;
- Movable property used in operating the business — such as machinery, inventory or raw materials;
- Immovable property — only where the security provider itself operates an immovable-property business;
- Intellectual property rights;
- Other property prescribed by Ministerial Regulation — the exact scope is as officially prescribed (our firm can help confirm).
Notably, a security provider may grant security not only over property it owns now, but also over property it will acquire in the future under a contract or legal relationship — although the preferential right over future property arises only when the property is actually acquiredSection 9. That means rolling inventory and receivables generated in the future can all be brought within a single security agreement — a very good fit for a going concern.
Who can be the security receiver
There is no restriction on who may act as security provider, but the security receiver must be a financial institution or another person prescribed by Ministerial RegulationSection 7. Financial institutions include financial institutions under the financial institution business law, licensed life and non-life insurance companies, and banks or financial institutions established under specific legislationSection 3. In other words, ordinary companies cannot freely use this regime between themselves — it mainly serves businesses raising finance from banks, insurers and similar institutions; the exact list of persons added by Ministerial Regulation is as officially prescribed (our firm can help confirm).
How it is created: written agreement + DBD registration
A business security agreement must be made in writing and registered with the registrarSection 13. The business security registry sits within the Department of Business Development (DBD), which handles registration, amendment and cancellation and provides public searchesSection 14. In practice, the security receiver files the registration with the security provider's written consent; once registered, the security receiver is deemed a secured creditor under the bankruptcy law — the key reason banks are willing to lendSection 17.
The registration must include at least: the date and time of registration, the debtor and the security provider, the security receiver, the secured obligation, particulars of the secured property (for movables: type, quantity and value), the maximum secured amount, and the events of enforcement agreed in the contractSection 18. The events of enforcement may be freely agreed by the parties, so long as they are not contrary to public order or good moralsSection 11. If the secured property is itself registered property (such as registered machinery), the registrar will also notify that property's original registry and its registered preferential-right holders, and the security under this Act will be recorded in that property's registration fileSection 19.
If the entire business is given as security, the contract must additionally designate one or more licensed "security enforcers"Section 13Section 12, and the enforcer's letter of consent must be filed together with the registrationSection 17.
Can you still run the business normally while the security is in place?
Yes — that is exactly what this regime was designed for. Unless the contract provides otherwise, the security provider remains entitled to possess, use, exchange, dispose of, transfer and mortgage the secured property and to collect its fruitsSection 22. Inventory can be sold to customers as usual, and raw materials can go into production. But there is one hard prohibition: property already subject to a business security must not be pledged — any such pledge is voidSection 22.
In return, the security provider owes the care of a prudent manager: if the property is lost or falls in value, the provider is in principle liable in damages unless it can prove the cause was not attributable to itSection 23; it must also keep accounts of the secured property in line with trade practice or as agreed in the contractSection 24. At any time before the property is disposed of or vested in the security receiver, the security provider may pay the debt and redeem the secured propertySection 27.
A security provider who damages, diminishes the value of, hides, moves or transfers to another person the secured property, so that the security receiver cannot enforce the security in whole or in part, faces imprisonment of up to two years or a fine of up to two hundred thousand Baht, or bothSection 86. "The goods are in my hands anyway" is never a licence to deal with them at will.
Priority: first to register, first in line
The security receiver is entitled to be paid out of the secured property before ordinary creditors, even if the property has been transferred to a third partySection 29. Where the same property is registered as security for several security receivers, or carries both a business security and a mortgage, priority follows the date and time of registration — the earlier registration is paid firstSection 33.
Proceeds of an enforcement sale are applied in the statutory order: first the costs of keeping and maintaining the property, then reasonable enforcement expenses and fees, then payment to the security receivers and other registered preferential-right holders in order of registration, then distribution to judgment creditors who applied to share, with any balance returned to the security providerSection 52. If the proceeds fall short, the security receiver may still pursue the debtor for the shortfall; but if the security provider is not the debtor (third-party security), no shortfall claim can be made against the providerSection 52.
What happens on default (property security)
Once an agreed event of enforcement occurs, the security receiver gives written notice to the security provider; from that notice the provider may not dispose of or transfer the secured property or do anything that diminishes its value, and the security receiver becomes entitled to possessionSection 38. Two routes then follow:
- Cooperative delivery: where the security provider agrees to hand over possession, the security receiver must, within fifteen days of taking possession, give written notice demanding that the debtor and the security provider pay within fifteen days; failing payment, it may take the property in satisfaction of the debt or sell it and apply the proceeds. Perishable property, or property at risk of damage from delay, may be sold immediately in an appropriate mannerSection 39. A sale must in principle be by public auction, with written notice of the date, time, place and method of the auction given to the security provider and registered preferential-right holders at least seven days in advanceSection 40. Taking the property outright (foreclosure) is tightly restricted: it is available only where the unpaid debt is not less than the value of the secured property, interest has been in arrears for five years, and there is no other registered security or preferential right over the propertySection 37; and if the security receiver claims the property as its own but the security provider objects in writing within the time limit, the auction procedure must still be followedSection 44.
- Refusal to deliver: where the security provider or the person in possession refuses to hand over, the security receiver applies to the court for an enforcement orderSection 46; if the court finds the enforcement event established, it orders enforcement as applied for; the judgment may be appealed to the Court of Appeal within fifteen days, and the appellate decision is finalSection 48.
Two types of property have a fast track: where the secured property is accounts receivable, once the security receiver notifies the third-party debtor in writing, that debtor may no longer pay the security provider and must pay the security receiver directly when the debt falls dueSection 39; where the secured property is a deposit with a financial institution and the security receiver is that institution, the deposit may be applied against the debt immediately upon the enforcement event, with notice to the security provider within seven daysSection 43.
Securing the whole business: takeover by a licensed enforcer
Where a business is given as security, enforcement does not follow the property procedure above; it is conducted by the licensed security enforcer designated in advance in the contractSection 61. Enforcers must obtain a licence from the registrar, valid for three yearsSection 54Section 57. The procedure runs broadly in three steps:
Notice and fact-finding Opens within 7 days
When an enforcement event occurs, the security receiver notifies the enforcer in writing; within seven days of receiving the notice, the enforcer must fix the date, time and place for establishing the facts and notify both partiesSection 63. The security provider must report the current state of the business in writing within seven days; if it fails to do so, the registered particulars prevailSection 64.
Decision Within 15 days of fact-finding
The enforcer decides whether the enforcement event is established; if so, it must also determine the amount of the debt, and where there are several enforcers they decide by majority. The whole review must be completed within fifteen days of the start of fact-finding, and the decision must be made in writing, stating the facts, the legal basis and the reasonsSection 67Section 68.
Taking over the business Handover within 7 days
Once enforcement is decided, the security provider's powers to manage the business, and its rights as shareholder or partner (except the right to dividends), pass to the enforcer immediately, and other creditors may not seize the businessSection 71; the security provider must hand over the business within seven days, together with seals, account books and documents on its assets and liabilitiesSection 72.
The point of this machinery is that the bank ends up holding not a pile of dismantled assets but a business that can be transferred as a whole and continued immediatelySection 3 — which greatly increases the value of a business as collateral, and makes this one of the more distinctive financing arrangements in Thai law.
When the security ends, and how prescription works
A business security agreement is extinguished in the following cases: the secured debt is extinguished for any reason other than prescription; the parties agree in writing to terminate it; the secured property is released from the security; or the secured property is disposed of in enforcement or vested in the security receiverSection 80. One special reminder: the principal debt becoming time-barred does not extinguish the security — the security receiver may still enforce it, but may recover no more than five years of unpaid interestSection 81.
What SLF can do for you
Half the success of business security financing lies in the quality of the contract and registration documents: whether the property description covers future inventory and receivables, how the maximum secured amount and the events of enforcement are drafted, and how the enforcer is chosen for a business security all directly affect both the drawdown and any future enforcement. SLF can help you map your securable assets, liaise with the lending bank, draft and review the business security agreement, handle the DBD registration, and clarify priority where an existing mortgage and a business security coexist. If you would like to assess whether your business can raise finance against inventory or receivables, feel free to contact our firm.
FAQ
What property can be used as business security in Thailand?
The law lists six categories: an entire business; rights of claim (accounts receivable, but not rights represented by written instruments such as bills); movable property used in operating the business (machinery, inventory, raw materials); immovable property (only where the provider operates an immovable-property business); intellectual property rights; and other property prescribed by Ministerial Regulation (Section 8, Section 3). Property to be acquired in the future may also be given as security, with the preferential right arising only when the property is actually acquired (Section 9).
Does a business security agreement have to be registered? Where?
It must be made in writing and registered with the registrar (Section 13). The registry sits within the Department of Business Development (DBD), and registration details are open to public search (Section 14). Once registered, the security receiver is deemed a secured creditor under the bankruptcy law (Section 17), and priority over the secured property is determined by the date and time of registration (Section 33).
Can I still sell my inventory after granting security over it?
Yes. Unless the contract provides otherwise, the security provider remains entitled to possess, use, dispose of and transfer the secured property and to collect its fruits (Section 22), but may not pledge it again (any such pledge is void). However, damaging, hiding, moving or transferring the secured property so that the security receiver cannot enforce the security in whole or in part carries imprisonment of up to two years or a fine of up to two hundred thousand Baht (Section 86).
How does a bank enforce business security after the debtor defaults?
The security receiver gives written notice of the enforcement event and becomes entitled to possession (Section 38). If the security provider hands over the property, the receiver may sell it by public auction once a fifteen-day payment demand goes unmet (Section 39, Section 40); if delivery is refused, the receiver applies to the court for an enforcement order (Section 46). Where an entire business is the security, a licensed security enforcer establishes the facts, decides, and takes over the business (Sections 63 to 72); for accounts receivable, the third-party debtor can be notified to pay the security receiver directly (Section 39).