In the last issue, I looked briefly at the issue of marriage. Aside from uniting funds and assets, the other issue that frequently arises in Phuket is that of one party loaning or investing funds to another in exchange for a promised return.

Although such deals can be struck in amicable environments and such matters are often raised by the person seeking the finance at a time when the potential lender is in a favourable mood – or position – the actual reality when pen is put to paper can be alarming unless scrutinized and monitored carefully.

From the lender’s perspective:

Ascertain what the benefit of the loan is for you. Will there be an interest rate of any value and aside from the maximum interest rate permitted is there any other benefit for you that can be provided at the end of the loan term.

The contract should clearly state what the benefits are and when they become due especially when such benefits may involve properties which haven’t been completed yet.

The term of the loan is important. Do you want extensions to be permissible – this will save drafting another loan agreement. In exchange for an extension you may want to receive another benefit or a penalty.

Try and obtain straightforward security for a loan. If the borrower has a property and really needs the money but assures you of repayment, then ask for a mortgage to be registered against the property.

You may have to pay the mortgage registration fees but reclaim them back after the loan has been repaid. If straightforward security isn’t available, you will have to elect for unregistered security.

If your borrower has a business (of value) then agree to take the shares in the borrower’s company to be transferred into your name until the loan is re-paid. Don’t agree to this without conducting proper due diligence on the company so you avoid inheriting shares in a company with debts or hidden liabilities.

From a borrower’s perspective:

Do not agree to unreasonable penalties related to unforeseeable events. Force majeure could prevent you repaying the loan and then your house could be forfeit if that was the security.

The agreement must be reviewed by a lawyer. Ensure you have the right to pay back the loan earlier than the term expiration date without penalty.

If you offer security then the lender should be prevented from placing additional charges or borrowing against the security until the expiration of the term of the loan.

If the loan is a sophisticated series of securities, intangibles and involves more than one property, ensure that there is an arbitration clause in the agreement in the event that one of the assets you have offered up as security is mishandled by the lender.

At a time when it may be necessary for friends to borrow money to start their dream development, purchase a boat or co-invest in land – it is worth considering on what terms you will loan money to others and, from the borrower’s perspective, the scope of risk that is acceptable.

Desmond Hughes is a partner in Belmont Limcharoen.
Tel: +66 (0) 76 342 882-4
Fax: +66 (0) 76 342 885
Mobile +66 (0) 9772 5077
desmond@belmontlimcharoen.com
www.belmontlimcharoen.com