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The Business Collateral Act B.E. 2558 (2015) (BCA) was enacted to provide additional means for creditors to secure primary obligations, such as amounts due under loan agreements. Collateral is a specified asset which serves as a security for the lender in the event the borrower defaults on the loan repayment. According to the BCA, there are two types of assets that can be used as collateral, namely, tangible and intangible assets. Tangible assets are assets that have a finite monetary value and usually a physical form such as land, buildings, automobiles, and machinery. Intangible assets are non-physical assets like goodwill, patents, trademarks, and copyrights.
In the past, intangible assets were not usually accepted as collateral for loans, due to the fact that it was quite difficult to interpret the value of these types of assets. However, with the enactment of the BCA, intangible assets, especially company trademarks, are now becoming a popular asset to be used as collateral due to the fact that their value is so high, and their opportunity for growth far exceeds those of tangible assets.
A trademark is a type of intellectual property consisting of a recognizable sign, design, or expression which identifies a brand’s products or services. Trademark owners may need to borrow money from lenders, and lenders usually require security for loans so that if the borrower defaults on the repayment of such loan, the lender can seize the property pledged as collateral or security for the loan. The parties usually enter into a security agreement that specifies the particular trademarks being used as collateral. Trademarks, as well as other intellectual property rights, can be crucial to a borrower’s financial success and may represent a significant portion of the value of the borrower’s business.
Section 8(5) of the BCA permits the use of intellectual property rights as collateral. However, it would seem that this section was added to the BCA as an afterthought. The reason for this is because this section contains phrases that are not suitable for intellectual property rights such as “loss” and “damage”. In addition to this, there exists no criteria of how to accurately calculate the value of a trademark. This is because the value of a trademark can rise and fall depending on a number of factors such as customer trust and loyalty, and brand image and reputation, as well as the revenues generated by the sale of the products covered by trademark rights. Additionally, there exists no criteria on how to enforce a trademark as collateral under Thai law.
In conclusion, with the enactment of the BCA, trademarks are now being accepted as collateral to secure loans to reduce financial frictions in credit markets. With lenders demanding high yielding assets to secure their loans, and the value of trademarks rising continuously, it was only natural for lenders to accept intellectual property rights, including trademarks as collateral. However, it is hard to accurately assess the value of trademarks, and the BCA does not provide a specific criterion in which this is possible. The value of a trademark is usually determined by the trademark’s ability to generate income and future predictions of profits derived from such trademark. For the practice of using trademarks as collateral to be more effective, additional principles regarding the use, appraisal, and enforcement of intellectual property rights used as collateral should be added to the BCA.
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