When a Debtor Hides Assets: Setting Aside Fraudulent Transfers in Thailand
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The Principle: A Debtor's Assets Are Your Security
Thai law starts from the proposition in section 214 that a creditor is entitled to have the obligation performed out of the whole of the debtor's property. The debtor's estate is, in effect, the creditor's security, even where no mortgage or pledge was ever taken.
Section 237 protects that security. Where the debtor has done an act knowing that it would prejudice creditors, a creditor may apply to the court to have the act set aside. The Supreme Court has described the purpose in exactly those terms.
Case in point — Supreme Court Judgment No. 3975/2010: the Court explained that an action to set aside a fraudulent transfer under section 237 exists to preserve the debtor's pool of assets, because that pool is the creditor's security for payment under section 214. It follows that the creditors entitled to bring the action are those who may enforce payment out of the debtor's property and who are prejudiced because that property has been reduced below what is needed to pay them.
You Do Not Need a Judgment First
This is the single most commercially useful point in this area, and it is widely misunderstood. Creditors routinely wait until they hold a judgment before worrying about asset-stripping, by which time the one-year clock has often expired.
In Judgment No. 3975/2010 the Court held expressly that a creditor entitled to apply need not be a judgment creditor, and that even a creditor whose debt has not yet been sued upon may apply to set the transfer aside. On the facts, the plaintiff had filed a criminal complaint and a civil claim for the return of money. Once that happened, the first defendant knew he had become a debtor. He then transferred the disputed land to the second defendant gratuitously and had no other property left for the plaintiff to enforce against. The Court held that he must have known this would prejudice the plaintiff, and the transfer was set aside.
What this means in practice is that the set-aside action can and often should run in parallel with the main claim, not after it. Waiting is what loses the asset.
There is one timing requirement that does bite. The applicant must have been a creditor of the debtor at the time the debtor made the transfer. A person who became a creditor only afterwards cannot complain of a transfer that predated the debt.
Case in point — Supreme Court Judgment No. 3922/1996: the Court stated that, as a matter of ordinary principle, a person who wishes to invoke section 237 must have been a creditor of the debtor at the time the debtor carried out the transfer.
What You Must Prove, and the Gift Exception That Changes Everything
Section 237 has two limbs, and the difference between them decides how hard your case will be.
For a transfer made for consideration, you must prove two states of mind: that the debtor acted knowing the act would prejudice creditors, and that the person who benefited also knew the facts that made the act prejudicial. If the beneficiary did not know, the transfer stands.
Case in point — Supreme Court Judgment No. 854/1991: the Court confirmed that section 237 addresses the situation where a debtor reduces his own assets so as to prejudice his creditors, that the transferee need not have been a creditor of the transferor beforehand, but that to set the transfer aside it must appear that at the time of the transfer the transferee also knew of the debtor's conduct and that it prejudiced the creditors.
For a gratuitous transfer, section 237 removes that second requirement altogether. Where the act was done without consideration, the debtor's knowledge alone is sufficient. This is why, in practice, the transfers that are most often successfully unwound in Thailand are the ones that look most obviously defensive: land signed over to a spouse, a child or a parent for nothing, or for a price that nobody would call a price.
Section 237 also carries one express exclusion: it does not apply to an act which does not concern rights in property.
The Third Party Who Bought From the Recipient
Assets are often moved twice, precisely to put a respectable buyer between the creditor and the property. Section 238 sets the limit of the remedy here, and the wording repays close reading.
A set-aside under section 237 cannot affect the rights of a third party acquired in good faith before the action to set aside was commenced. Crucially, the second paragraph of section 238 then provides that this protection does not apply where the third party's right was acquired gratuitously. So a good-faith purchaser is protected; a good-faith donee is not.
Two tactical consequences follow. First, the date you file matters, because good faith is tested as at the commencement of the action. Second, an interim order restraining further dealings, and a suspension of registration at the Land Office under section 254(3) of the Civil Procedure Code, should be sought at the same time as the claim rather than later, so that no further transfer can take place while the case runs.
Who Benefits From the Set-Aside
A creditor who brings the action should understand that the remedy is collective, not personal. Under section 239, the set-aside operates for the benefit of all the creditors. You do not obtain a private charge over the recovered asset by being the one who did the work, although you will normally be enforcing against it first in practical terms.
The pleadings also have to be drafted with care. In Supreme Court Judgment No. 533/1992 the application failed to allege that the debtor had acted knowing that it would prejudice a particular creditor, and the Court treated the application as limited accordingly. Vague pleading narrows the relief.
The One-Year Deadline That Ends Most Claims
Section 240 provides that an action to set aside may not be brought later than one year from the time when the creditor knew of the ground for the set-aside, or ten years after the act was done.
The one-year limit is where these claims die, and the Supreme Court has refused every attempt to restart the clock by changing who is complaining.
Case in point — Supreme Court Judgment No. 3923/1996: the official receiver argued that the one year should run from the date he learned of the fraudulent transfer. The Court rejected this. The Bankruptcy Act merely confers on the receiver a special power to act on behalf of the creditors by motion in the bankruptcy case instead of filing a fresh action. The limitation period must therefore be measured by reference to the creditor concerned. Since the petitioning creditor knew or ought to have known of the ground for the set-aside on 15 November 1984, and the motion was filed on 24 March 1988, the claim was time-barred under section 240.
Case in point — Supreme Court Judgment No. 19883/2012: the Court restated the same rule, holding that the day on which the official receiver came to know of the ground for setting aside the fraudulent transfer is not the starting point for the limitation period. What matters is the knowledge of the creditor concerned at the time the right could have been enforced.
The practical message for any creditor is uncomfortable but simple. The moment you become aware that assets have moved, the clock is running on you, and nothing that happens later, including an insolvency filing or a change of professional adviser, will reset it.
One narrow exception is worth noting. Where the transferor was not the owner at all and had no power to transfer, the act is not a section 237 set-aside case in the first place, and the one-year limit in section 240 does not apply to it. That was the holding in Supreme Court Judgment No. 404/1953.
The Insolvency Route: A Far Easier Case
Where the debtor can be put into bankruptcy or business rehabilitation, the creditor's position improves dramatically, because the Bankruptcy Act converts the hardest element of the claim into a presumption.
Sections 113 and 114 of the Bankruptcy Act B.E. 2483 allow the official receiver to apply by motion in the bankruptcy case to set aside a fraudulent transfer, without filing a separate action, and provide that where the act was done within one year before the bankruptcy petition and thereafter, or was gratuitous, or was for grossly inadequate consideration, it is presumed that both the debtor and the beneficiary knew it would prejudice creditors. The burden shifts to them to prove otherwise.
Case in point — Supreme Court Judgment No. 5400/2007: the disputed property was transferred within one year before the bankruptcy petition and without consideration. The presumption under sections 113 and 114 therefore applied, and the transferee and the debtor bore the burden of rebutting it. Their evidence was insufficient. Although the property was encumbered by a lease with more than ten years to run, it still had value, and the debtor had given it away for nothing at a time when five creditors had filed claims totalling over 86.9 million baht. The transfer was set aside as fraudulent under section 237.
A second and often overlooked tool is the preference claim. Section 115 allows the court to set aside a transfer or act done by the debtor, or with the debtor's consent, within three months before the bankruptcy petition and thereafter, where the intention was to give one creditor an advantage over the others. Where the favoured creditor is an insider of the debtor, the window extends to one year. Section 90/41 contains the equivalent provision for business rehabilitation, exercisable by the planner, the plan administrator or the official receiver. Section 116 protects a third party who acquired rights in good faith and for value before the bankruptcy petition.
Note the practical difference between the two routes. A section 115 preference claim does not require proof of fraud at all. It requires only that one creditor was favoured over the rest within the window. For a creditor who was paid nothing while a related-party lender was paid in full on the eve of collapse, that is a much shorter road than section 237.
Recognising the Transfers That Get Set Aside
Across the reported cases, a recurring pattern emerges, and it is worth checking against your own debtor.
Land or a condominium unit transferred to a spouse, child or parent shortly after a demand letter, a criminal complaint or the service of a claim.
A transfer at a price far below market value, or one where the stated consideration was never actually paid.
Company assets moved to an affiliate under common control, often documented as a set-off against an intra-group loan.
A debtor left with no other property from which the debt could be satisfied, which is the fact the courts rely on most heavily to infer knowledge of prejudice.
Payment in full to a director, shareholder or related company while ordinary trade creditors received nothing.
A Land Office title search showing the registration history, a company search showing the shareholding overlap, and the dates on your own correspondence will usually establish the pattern before any witness is called.
Common Mistakes to Avoid
Waiting for judgment before taking action, when no judgment is required and the one-year clock is already running.
Failing to apply for an interim restraint and a suspension of registration, allowing the asset to be sold on to a protected good-faith purchaser.
Assuming the one-year period starts when your new lawyer or the official receiver discovers the transfer, which the Supreme Court has repeatedly rejected.
Overlooking that a gratuitous transfer requires no proof of the recipient's knowledge, and litigating a far harder case than necessary.
Pleading section 237 without alleging the debtor's knowledge of prejudice to the particular creditor.
Ignoring the insolvency route, where the presumptions in sections 113, 114 and 115 do much of the work for you.
Frequently Asked Questions
My debtor transferred his land to his wife. Can I get it back?
If you were already his creditor when the transfer took place, the transfer prejudiced your ability to be paid, and he knew that, then yes. If the transfer was a gift, you do not need to prove that the wife knew anything at all, which makes these the most straightforward cases of all.
Do I need to win my main case first?
No. The Supreme Court has confirmed that a creditor need not be a judgment creditor, and that even a creditor who has not yet sued may apply. Running the set-aside action alongside the main claim is usually the right approach, because it protects the asset while the main case proceeds.
The property has already been sold on to someone else. Is it too late?
Not necessarily. A third party is protected only if the right was acquired in good faith before your action was commenced, and that protection does not extend to a third party who received the property gratuitously. Filing promptly and obtaining an order suspending registration is what preserves the position.
How long do I have?
One year from when you knew of the ground for the set-aside, and in any event ten years from the date of the act. The one-year period is measured against the knowledge of the creditor, and it cannot be restarted by a later discovery by an insolvency officer.
The company paid its director in full and left us with nothing. Is that a fraudulent transfer?
That is better framed as a preference. If the company then enters bankruptcy, section 115 allows a transfer intended to give one creditor an advantage over the others to be set aside if it was made within three months before the petition, extended to one year where the favoured creditor is an insider. No proof of fraud is required.
Speak to a Thai Debt Recovery and Insolvency Lawyer
A judgment against an empty company is worth nothing, and the window to do something about it is short. Our litigation team traces assets through Land Office and company records, applies for interim orders restraining further dealings and suspending registration, brings set-aside proceedings under sections 237 to 240, and uses bankruptcy and business rehabilitation where the statutory presumptions give a faster result. We act for foreign and Thai creditors, suppliers, lenders and shareholders in Phuket and nationwide. If you suspect assets are being moved out of reach, contact us immediately, because the one-year limitation period has already begun.
Disclaimer
This article provides general legal information only and does not constitute legal advice. Limitation periods in this area are short and are applied strictly. Please consult a licensed Thai attorney without delay before acting on any matter with legal consequences.
Thai law starts from the proposition in section 214 that a creditor is entitled to have the obligation performed out of the whole of the debtor's property. The debtor's estate is, in effect, the creditor's security, even where no mortgage or pledge was ever taken.
Section 237 protects that security. Where the debtor has done an act knowing that it would prejudice creditors, a creditor may apply to the court to have the act set aside. The Supreme Court has described the purpose in exactly those terms.
Case in point — Supreme Court Judgment No. 3975/2010: the Court explained that an action to set aside a fraudulent transfer under section 237 exists to preserve the debtor's pool of assets, because that pool is the creditor's security for payment under section 214. It follows that the creditors entitled to bring the action are those who may enforce payment out of the debtor's property and who are prejudiced because that property has been reduced below what is needed to pay them.
You Do Not Need a Judgment First
This is the single most commercially useful point in this area, and it is widely misunderstood. Creditors routinely wait until they hold a judgment before worrying about asset-stripping, by which time the one-year clock has often expired.
In Judgment No. 3975/2010 the Court held expressly that a creditor entitled to apply need not be a judgment creditor, and that even a creditor whose debt has not yet been sued upon may apply to set the transfer aside. On the facts, the plaintiff had filed a criminal complaint and a civil claim for the return of money. Once that happened, the first defendant knew he had become a debtor. He then transferred the disputed land to the second defendant gratuitously and had no other property left for the plaintiff to enforce against. The Court held that he must have known this would prejudice the plaintiff, and the transfer was set aside.
What this means in practice is that the set-aside action can and often should run in parallel with the main claim, not after it. Waiting is what loses the asset.
There is one timing requirement that does bite. The applicant must have been a creditor of the debtor at the time the debtor made the transfer. A person who became a creditor only afterwards cannot complain of a transfer that predated the debt.
Case in point — Supreme Court Judgment No. 3922/1996: the Court stated that, as a matter of ordinary principle, a person who wishes to invoke section 237 must have been a creditor of the debtor at the time the debtor carried out the transfer.
What You Must Prove, and the Gift Exception That Changes Everything
Section 237 has two limbs, and the difference between them decides how hard your case will be.
For a transfer made for consideration, you must prove two states of mind: that the debtor acted knowing the act would prejudice creditors, and that the person who benefited also knew the facts that made the act prejudicial. If the beneficiary did not know, the transfer stands.
Case in point — Supreme Court Judgment No. 854/1991: the Court confirmed that section 237 addresses the situation where a debtor reduces his own assets so as to prejudice his creditors, that the transferee need not have been a creditor of the transferor beforehand, but that to set the transfer aside it must appear that at the time of the transfer the transferee also knew of the debtor's conduct and that it prejudiced the creditors.
For a gratuitous transfer, section 237 removes that second requirement altogether. Where the act was done without consideration, the debtor's knowledge alone is sufficient. This is why, in practice, the transfers that are most often successfully unwound in Thailand are the ones that look most obviously defensive: land signed over to a spouse, a child or a parent for nothing, or for a price that nobody would call a price.
Section 237 also carries one express exclusion: it does not apply to an act which does not concern rights in property.
The Third Party Who Bought From the Recipient
Assets are often moved twice, precisely to put a respectable buyer between the creditor and the property. Section 238 sets the limit of the remedy here, and the wording repays close reading.
A set-aside under section 237 cannot affect the rights of a third party acquired in good faith before the action to set aside was commenced. Crucially, the second paragraph of section 238 then provides that this protection does not apply where the third party's right was acquired gratuitously. So a good-faith purchaser is protected; a good-faith donee is not.
Two tactical consequences follow. First, the date you file matters, because good faith is tested as at the commencement of the action. Second, an interim order restraining further dealings, and a suspension of registration at the Land Office under section 254(3) of the Civil Procedure Code, should be sought at the same time as the claim rather than later, so that no further transfer can take place while the case runs.
Who Benefits From the Set-Aside
A creditor who brings the action should understand that the remedy is collective, not personal. Under section 239, the set-aside operates for the benefit of all the creditors. You do not obtain a private charge over the recovered asset by being the one who did the work, although you will normally be enforcing against it first in practical terms.
The pleadings also have to be drafted with care. In Supreme Court Judgment No. 533/1992 the application failed to allege that the debtor had acted knowing that it would prejudice a particular creditor, and the Court treated the application as limited accordingly. Vague pleading narrows the relief.
The One-Year Deadline That Ends Most Claims
Section 240 provides that an action to set aside may not be brought later than one year from the time when the creditor knew of the ground for the set-aside, or ten years after the act was done.
The one-year limit is where these claims die, and the Supreme Court has refused every attempt to restart the clock by changing who is complaining.
Case in point — Supreme Court Judgment No. 3923/1996: the official receiver argued that the one year should run from the date he learned of the fraudulent transfer. The Court rejected this. The Bankruptcy Act merely confers on the receiver a special power to act on behalf of the creditors by motion in the bankruptcy case instead of filing a fresh action. The limitation period must therefore be measured by reference to the creditor concerned. Since the petitioning creditor knew or ought to have known of the ground for the set-aside on 15 November 1984, and the motion was filed on 24 March 1988, the claim was time-barred under section 240.
Case in point — Supreme Court Judgment No. 19883/2012: the Court restated the same rule, holding that the day on which the official receiver came to know of the ground for setting aside the fraudulent transfer is not the starting point for the limitation period. What matters is the knowledge of the creditor concerned at the time the right could have been enforced.
The practical message for any creditor is uncomfortable but simple. The moment you become aware that assets have moved, the clock is running on you, and nothing that happens later, including an insolvency filing or a change of professional adviser, will reset it.
One narrow exception is worth noting. Where the transferor was not the owner at all and had no power to transfer, the act is not a section 237 set-aside case in the first place, and the one-year limit in section 240 does not apply to it. That was the holding in Supreme Court Judgment No. 404/1953.
The Insolvency Route: A Far Easier Case
Where the debtor can be put into bankruptcy or business rehabilitation, the creditor's position improves dramatically, because the Bankruptcy Act converts the hardest element of the claim into a presumption.
Sections 113 and 114 of the Bankruptcy Act B.E. 2483 allow the official receiver to apply by motion in the bankruptcy case to set aside a fraudulent transfer, without filing a separate action, and provide that where the act was done within one year before the bankruptcy petition and thereafter, or was gratuitous, or was for grossly inadequate consideration, it is presumed that both the debtor and the beneficiary knew it would prejudice creditors. The burden shifts to them to prove otherwise.
Case in point — Supreme Court Judgment No. 5400/2007: the disputed property was transferred within one year before the bankruptcy petition and without consideration. The presumption under sections 113 and 114 therefore applied, and the transferee and the debtor bore the burden of rebutting it. Their evidence was insufficient. Although the property was encumbered by a lease with more than ten years to run, it still had value, and the debtor had given it away for nothing at a time when five creditors had filed claims totalling over 86.9 million baht. The transfer was set aside as fraudulent under section 237.
A second and often overlooked tool is the preference claim. Section 115 allows the court to set aside a transfer or act done by the debtor, or with the debtor's consent, within three months before the bankruptcy petition and thereafter, where the intention was to give one creditor an advantage over the others. Where the favoured creditor is an insider of the debtor, the window extends to one year. Section 90/41 contains the equivalent provision for business rehabilitation, exercisable by the planner, the plan administrator or the official receiver. Section 116 protects a third party who acquired rights in good faith and for value before the bankruptcy petition.
Note the practical difference between the two routes. A section 115 preference claim does not require proof of fraud at all. It requires only that one creditor was favoured over the rest within the window. For a creditor who was paid nothing while a related-party lender was paid in full on the eve of collapse, that is a much shorter road than section 237.
Recognising the Transfers That Get Set Aside
Across the reported cases, a recurring pattern emerges, and it is worth checking against your own debtor.
Land or a condominium unit transferred to a spouse, child or parent shortly after a demand letter, a criminal complaint or the service of a claim.
A transfer at a price far below market value, or one where the stated consideration was never actually paid.
Company assets moved to an affiliate under common control, often documented as a set-off against an intra-group loan.
A debtor left with no other property from which the debt could be satisfied, which is the fact the courts rely on most heavily to infer knowledge of prejudice.
Payment in full to a director, shareholder or related company while ordinary trade creditors received nothing.
A Land Office title search showing the registration history, a company search showing the shareholding overlap, and the dates on your own correspondence will usually establish the pattern before any witness is called.
Common Mistakes to Avoid
Waiting for judgment before taking action, when no judgment is required and the one-year clock is already running.
Failing to apply for an interim restraint and a suspension of registration, allowing the asset to be sold on to a protected good-faith purchaser.
Assuming the one-year period starts when your new lawyer or the official receiver discovers the transfer, which the Supreme Court has repeatedly rejected.
Overlooking that a gratuitous transfer requires no proof of the recipient's knowledge, and litigating a far harder case than necessary.
Pleading section 237 without alleging the debtor's knowledge of prejudice to the particular creditor.
Ignoring the insolvency route, where the presumptions in sections 113, 114 and 115 do much of the work for you.
Frequently Asked Questions
My debtor transferred his land to his wife. Can I get it back?
If you were already his creditor when the transfer took place, the transfer prejudiced your ability to be paid, and he knew that, then yes. If the transfer was a gift, you do not need to prove that the wife knew anything at all, which makes these the most straightforward cases of all.
Do I need to win my main case first?
No. The Supreme Court has confirmed that a creditor need not be a judgment creditor, and that even a creditor who has not yet sued may apply. Running the set-aside action alongside the main claim is usually the right approach, because it protects the asset while the main case proceeds.
The property has already been sold on to someone else. Is it too late?
Not necessarily. A third party is protected only if the right was acquired in good faith before your action was commenced, and that protection does not extend to a third party who received the property gratuitously. Filing promptly and obtaining an order suspending registration is what preserves the position.
How long do I have?
One year from when you knew of the ground for the set-aside, and in any event ten years from the date of the act. The one-year period is measured against the knowledge of the creditor, and it cannot be restarted by a later discovery by an insolvency officer.
The company paid its director in full and left us with nothing. Is that a fraudulent transfer?
That is better framed as a preference. If the company then enters bankruptcy, section 115 allows a transfer intended to give one creditor an advantage over the others to be set aside if it was made within three months before the petition, extended to one year where the favoured creditor is an insider. No proof of fraud is required.
Speak to a Thai Debt Recovery and Insolvency Lawyer
A judgment against an empty company is worth nothing, and the window to do something about it is short. Our litigation team traces assets through Land Office and company records, applies for interim orders restraining further dealings and suspending registration, brings set-aside proceedings under sections 237 to 240, and uses bankruptcy and business rehabilitation where the statutory presumptions give a faster result. We act for foreign and Thai creditors, suppliers, lenders and shareholders in Phuket and nationwide. If you suspect assets are being moved out of reach, contact us immediately, because the one-year limitation period has already begun.
Disclaimer
This article provides general legal information only and does not constitute legal advice. Limitation periods in this area are short and are applied strictly. Please consult a licensed Thai attorney without delay before acting on any matter with legal consequences.
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