Thailand - The Wheels of Justice Turn Slowly

September 27, 2022 Edward Dever

Rakesh Saxena, 70, was recently sentenced to 335 years in jail (yes, 335 years) over three lawsuits stemming from the Bangkok Bank of Commerce embezzlement scandal in the 1990s. He will serve only 20 years behind bars, the maximum term under the Thai Penal Code.

Bangkok Bank of Commerce was one of the first banks to fall ahead of the Asian Economic Crisis. Between 1993 and 1994, BBC spent over Baht 36 billion on business takeovers and leveraged buyouts. BBC also granted loans with insufficient or overpriced collateral to companies controlled by Saxena, BBC executives and associates, including politicians.

When the music stopped, it was clear that BBC was hopelessly insolvent and the Bank of Thailand took control. It was then liquidated in 1998.

Krirkkiat Jalichandra, the disgraced BBC president, was sentenced to 20 years in jail and fined Baht 3.1 billion. He died in October 2012 while serving his prison sentence.

Saxena fought extradition from Canada between 1997 and 2009. He then fought a legal battle in Thailand that ended this month with a final Supreme Court ruling.

The shenanigans at BBC mostly predated my time in Thailand. However, in my early days, I did come across it on the periphery of several transactions. One treated BBC with caution as rumours circulated that all was not well within the bank.

Rakesh Saxena and the Thai banking scandal that triggered Asia’s financial crisis

September 2022

The content of this publication is intended to provide a general overview on matters which may be of interest. It is not intended to be comprehensive. It does not constitute advice in relation to particular circumstances nor does it constitute the provision of legal services, legal advice or financial product advice.

Restructuring - When 1 + 1 No Longer Equals 2

December 4, 2020 Edward Dever

In any restructuring involving creditors, one of the hardest issues is value destruction.

A creditor's starting position will normally be getting their money back. While this does happen, often it is just not possible.

Value destruction in a business can occur for many reasons, including through:

- poor business decisions
- fraud (including related party transactions)
- external events such as civil unrest or Covid-19
- asset price deflation
- goodwill erosion
- changing market conditions.

One example of value destruction that comes to mind was where a company was lent USD 120 million by a group of banks even though they had only requested USD 90 million. So the company speculated on the stock market with the balance USD 30 million and lost it.

The banks were unhappy. Getting their money back was impossible. Arguably, the banks shared some blame in this instance as they had not monitored how the USD 30 million was used.

Where value destruction occurs, the prospect of creditors being made whole diminishes. A restructuring plan can be framed so that creditors participate in any recovery upside. Often, this is via a debt:equity swap or the issue of a convertible security interest.

How well a stakeholder fares in a restructuring may depend on their negotiating skills and whether the jurisdiction is more creditor or debtor friendly. Creditors are also subject to cram down under court approved restructurings.

It can be a challenge to get creditors to act realistically. It is why banks will often swap out the person who extended or managed the credit facility for a fresh face. This hopefully removes any emotional element from the restructuring.

December 2020

Avoiding BEC And Other Scams

November 24, 2020 Edward Dever

One of the more recent scams being perpetrated is the BEC or business email compromise scam where scammers intercept an email and change the banking details on the attached invoice. Their work is becoming more and more sophisticated.

It pays to check any new banking details with the supplier.

I double checked on two recent occasions and, fortunately, each one was ok. One was a law firm invoice where I was using the firm for the first time. The other was a series of strata levies with new banking details where the new font used on the notices made them look rather amateurish and was an immediate red flag.

It doesn't take long to check the banking details. Getting funds back is proving next to impossible and banks are denying liability.

In the article’s example, CBA and Bendigo washed their hands of the issue. AFCA and ASIC played ping pong, referring the complainant back to each other.

At some point, someone in government may suggest a form of deposit levy on the banks to establish a fidelity guarantee fund to deal with claims arising from BEC and other similar scams.

Tradies frustrated by banks as business email scam costs them $51,000

One of the scams that circulates periodically in the travel sector is the fake industry magazine or website ad scam.

I recall having a discussion with one group out of Europe threatening to sue because a manager had inadvertently signed their invoice for fake ads.

Given the complexities of enforcing foreign judgments in Thailand and the problems associated with civil litigation there, I welcomed the prospect of spending some quality time with them in court. Never heard from them again.

November 2020

The Perils of Joint Ventures in Asia

February 7, 2018 Edward Dever

A joint venture is sometimes described as two people sleeping in the same bed dreaming different dreams.

This is often the case in Asia. So parties need to be prepared for eventual problems.

The most important provisions in any joint venture agreement are the dispute resolution provisions and the governing law and jurisdiction provisions. These are the provisions with which most care should be taken. As they are normally towards the back of the agreement, parties often rush though them to complete the transaction.

In most joint ventures, the executed joint venture agreements are filed away and only dusted off in the event of disputes arising between the parties. So it is important that care is taken when drafting these so-called back end provisions.

Local legal advice is necessary to ensure that the dispute resolution provisions and the governing law provision work in the particular jurisdiction where the joint venture will be established. As an example, in some jurisdictions it is preferable to use the local law as the governing law but use arbitration in an offshore jurisdiction as foreign arbitral awards are more readily enforced than taking action through that country's civil courts. In some jurisdictions, civil court procedures can be used by a party to prolong proceedings and frustrate the other party. It can become expensive to fly in experts to give evidence only to have proceedings adjourned for several months before the expert has been able to make their appearance.

There are many things which may go wrong with a joint venture and it is near impossible to predict every eventuality. The joint venture partner may run short of funds and be unable to provide further agreed funding. I have seen examples where the joint venture was established in a factory within one party's property. When the parties fell out, that party then refused to allow the other access to the factory. It is advisable to establish the joint venture on neutral ground such as a government promoted industrial estate to minimise access issues.

Control of the joint venture is a critical issue. Often, foreign ownership restrictions will limit the foreign party to a minority position. There may be exceptions to this through government promoted investment schemes or through the use of commonly accepted shareholding structures and management arrangements. Foreign parties should never accept at face value claims by the local party that local law prevents majority foreign ownership as there may be options available to achieve majority ownership.

Care needs to be taken with any related party transactions involving the local party. A foreign party sometimes finds the joint venture unprofitable because of a number of related party transactions between the joint venture and the local party. That party is, in effect, taking more than their share of the joint venture's profits via inflated and sometime fraudulent transactions with parties related to them.

Reputation risk is another factor in joint ventures. Where success of the venture relies heavily on one party, any adverse change in their reputation can be disastrous for the joint venture. In one case which relied heavily on the reputation and business standing of one of the partners, the venture imploded overnight when that party's reputation was destroyed through their own actions which became headline news.

Finally, it is best to avoid what I refer to as 'absent partner syndrome' where a foreign party buys into a business effectively establishing it as a joint venture and goes home expecting the local partner to treat it is a joint venture. In one case, the local party continued to treat the business as his own and spent the profits on a fleet of Mercedes-Benz vehicles for himself and his family. Such was the hands-off approach by the foreign party, the true extent of the financial calamity was only revealed when the foreign party flew in to confront their partner after waiting in vain for the flow of joint venture dividends.

PELEN

February 2018

Dealing With Employee Fraud in Asia Business Operations

November 1, 2017 Edward Dever

Conducting business operations in different parts of Asia has its complexities. Managing a large employee base across different countries and cultures is no simple task. Often, senior management are able to spend only limited time in their Asia-based offices and may not be aware of certain issues involving their employees.

One common problem can be employees operating competing businesses. This is particularly problematic in smaller branch offices where employees may be relatively unsupervised. It is impractical to monitor employees at all times so the risk of employee fraud is real.

On one occasion, I had to deal with an employee who was operating a competing business, complete with its own website, from the company's own premises.

The employee was in a position to redirect company business to his own business. He used company negotiated supplier rates for his own business and, from what could be ascertained, was at times billing all his customer costs to the company while retaining all income. Clearly, a very profitable endeavour for the employee, much to the detriment of the company.

In order to flush out the fraud, we made a purchase from the competing business and, over several weeks, asked for more information about the business. As part of our evidence gathering, we were able to obtain a copy of the employee/business owner's passport and details of his connection to the business. With that information in hand, we had sufficient to confront the employee. The employee was then removed and the fraudulent activity ceased.

Combating employee fraud is an ongoing process that needs to be tailored to the business being monitored. It is important to investigate claims of employee fraud promptly and to also implement review strategies to identify incidents of fraud and take appropriate action. Any action against an employee needs to be in accordance with local labour laws, criminal and other civil laws and, therefore, local legal counsel input may be required. Often, the appropriate course is to have the employee resign rather than be terminated to avoid possible complications under local labour laws.

PELEN

November 2017