Debt Recovery in Thailand
Many individual expatriates or even international corporates doing business in Thailand may have experienced difficulties and complications, collecting outstanding debts from customers regardless of whether they are Thai or Foreign debtors. After several attempts to follow up in a friendly manner, outstanding debts may remain unsettled. While FP Accounting Service Thailand always advocates negotiation and communication as the preferred commercial means of settling any outstanding amounts or disputes. The reality is that many customers are often intent on trying to avoid payment or negotiate reductions even if they have signed contracts agreeing to payment terms and conditions. When all reasonable attempts have been made to collect outstanding amounts without success, FP Accounting Service Thailand advises suppliers or creditors to engage one of the many law firms in Bangkok to assist with the collection. Initially by negotiation and finally, when all friendly avenues have been exhausted via the use of the Thai Legal System.
This article provides readers with a very brief summary of the debt recovery and enforcement procedures available to them. We emphasize, however, that creditors should always attempt to negotiate with the debtor before pursuing recovery proceedings in the Thai Courts.
Debt recovery in Thailand may simply be divided into pre-litigation, litigation, and enforcement stages as detailed below:
I. PRE-LITIGATION STAGE
Pre-litigation is a preliminary stage of legal action conducted by law firms in Bangkok who have been engaged by the creditor (after failing to reach an amicable settlement with the debtor). Pre-litigation procedures will include:
- Liaison, negotiation, and meeting with debtors;
- Delivery of demand letter(s) to the debtor (demand to pay) (generally, the period for repayment fixed in the demand notices is between seven and fifteen days, depending on the amount of the claim);
- Notification to the police and subsequent meeting(s) with official(s) (in the case where there is a criminal penalty, e.g., dishonored cheque).
After this stage, some creditors may receive a full settlement of debts from their debtors. Creditors who have no success may have to consider moving to the next step, which is litigation.
Litigation is the legal procedure taken at the Court against the debtor. It involves the procedures at the Court of First Instance, Appeal Court, Supreme Court, and the Enforcement of the Judgment.
1. COURT OF FIRST INSTANCE STAGE
Where the debtor fails to comply with the demand notices, the creditor can file a claim, and the following procedures will be applied:
- File a claim with the Court
- Where the value of the property or the amount in dispute does not exceed 300,000 Baht, the complaint must be lodged at the District or Provincial Court (In some provinces, there are no District Courts).
- If the claim amount exceeds 300,000 Baht, the complaint must be filed at the Civil or Provincial Courts.
- Court fees will be charged at the rates of 2 percent and 0.1 percent depending on the level of the claim amount (i.e., 2 percent for claim amounts up to 50,000,000 Baht and 0.1 percent for amounts that exceed 50,000,000 Baht). In practice, proceedings in the District Courts are faster than the Civil or Provincial Courts, but obtaining hearing dates may be slower due to extensive caseload backlogs.
- Mediation by the Courts
- It is the policy of the Courts to screen unnecessary cases from court trials. Most Civil Courts have mediation centers for parties to negotiate and compromise. Once a case has been settled amicably, a compromise agreement will be prepared, and the Court will pass judgment in accordance with such.
- Each party is responsible for documenting the issue and the burden of proof with respect to their case.
- Taking evidence
- Each party must bring witnesses and present evidence to the Court in accordance with the burden of proof as determined by the Court.
- The witnesses list must be submitted to the Court not less than seven days before the evidence date.
- Making of judgment
- Once the Court has considered and weighed the evidence presented by the parties, the judgment will be made. The time frame at the Court of First Instance can take up to between one and three years.
2. APPEAL COURT
- Within one month from the date of pronouncement of the judgment of the Court of First Instance, it is possible for a party with an adverse judgment to file an appeal to the Appeal Court.
- An appeal on questions of fact shall not be allowed if the disputed amount in the Appeal Court does not exceed fifty thousand Baht unless leave is granted by the judge of the Court of First Instance who tried the case or by the Chief Judge of the Court of First Instance or by the Chief Judge of the Region.
- In cases where the appeal relates to questions of law, the appellant may apply for permission to file an appeal directly to the Supreme Court.
3. SUPREME COURT
- The parties are entitled to lodge a dika appeal against the judgment of the Appeal Court within one month from the date of the pronouncement of such judgment.
- In cases where the value of the property or the amount claimed in the dika appeal does not exceed two hundred thousand baht, no dika appeal can be lodged on questions of fact, unless permitted by a Judge of the Appeal Court or, a Judge of the Court of First Instance trying the case, or by the Chief Judge of the Appeal Court.
III. ENFORCEMENT OF JUDGMENT
If the debtor fails to comply with the judgment, the creditor is entitled to take action on the execution process as follows:
Issuance of an execution decree;
- Delivery of an execution decree to the judgment debtor;
- Issuance of a writ of execution;
- Seizure of property belonging to the judgment debtor;
- Sale of property by auction; and,
- Repayment to the debtor.
The judgment creditor is entitled, within ten years from the date of pronouncement of the judgment, to apply for the execution of the judgment.
Debt recovery not only helps the creditor to collect its money from the debtors, but it also provides evidence for the creditor to write off bad debts and gain a tax advantage due to the requirements of the Revenue Department. It will allow the creditor to write off the bad debt and obtain the tax advantage only if such creditor has taken proper legal actions (subject to the level of debts) against the debtor. Consequently, it is worth it for the creditor to enter into the debt recovery process. It must be appreciated, though, that some debtors have managed to get themselves into a financial predicament, which will not allow them to settle their outstanding debts in part or in full. Notwithstanding this, it is still necessary for the creditors to exhaust any available recovery procedures if they are to receive the appropriate tax benefits from the write-off. It is, therefore, a materiality decision as to whether a creditor wishes to pursue the debtor for recovery or not.
FP Accounting Service Thailand employs a team of lawyers who are highly qualified and experienced law practitioners, having served in many local and international law firms in Bangkok prior to joining Fischer & Partners. Should readers have concerns with respect to Thai collection procedures using the Thai Legal system, we would encourage you to contact our legal team.