A new guideline on the use of “fair” credit terms between economic operators and small and medium-sized enterprises (“SME“) will take effect on December 16, 2021. The new credit conditions described are as follows:
- For trading, manufacturing and service companies: not exceeding 45 days, unless a shorter period has already been agreed; and
- For trade, manufacturing and service businesses only related to agricultural products or processed agricultural products using a simple manufacturing process: not exceeding 30 days, unless a shorter term has already been agreed.
The guidelines provide for flexibility in setting credit terms different from the above terms, provided there are justifiable business, commercial or economic reasons, subject to the terms and conditions of the agreement.
We explain the rationale behind the publication of these guidelines and their intended scope below.
Guideline of the Commercial Competition Commission
The new guidelines have been published by the Commercial Competition Commission (“Commission“) in the form of a notification concerning the Guidelines for the Review of Fair Business Practices in Credit Terms for Small and Medium-Sized Enterprises (SMEs) that are Sellers of Goods or Services (“Notification“), which was published in the Official Journal on June 18, 2021 and will enter into force on December 16, 2021.
The stated intention of the notification is to regulate the functioning of businesses and to maintain free and fair competition, especially for SMEs which may be exploited due to weaker bargaining power in a way that could be considered as an “unfair commercial practice” under section 57 of the Commercial Competition Act BE 2560 (2017) (“TCA“). Section 57 of the TCA states that:
“A business operator must not undertake any conduct that results in damage to other operators in the following manner:
(1) Unfairly hampering the business activities of other business operators;
(2) Unfairly use superior market power or bargaining power;
(3) Set business terms that unfairly restrict or prevent the business activities of others;
(4) Other conduct prescribed by the Commission.
Statistically, there are more investigations and enforcement proceedings undertaken by the Office of the Trade Competition Commission (“OTCC“) for alleged infringements under section 57 TCA than for other provisions.
What is the definition of “SME” used by the Commission?
According to the notification, SMEs are economic operators with the following characteristics:
(1) A Manufacturing company who has 200 employees or less Where To annual turnover not exceeding THB 500 million;
(2) One Trade in services, wholesale or retail who has 100 employees or less Where To an annual turnover not exceeding 300 million THB.
Based on clause 4 (3) of the notification and informal guidance given by the CTO, the following documents should be sufficient to verify the status of SMEs under this notification:
(1) Declaration form for withholding tax (PND.1) or payment of social security contributions (SorPorSor.1-10) which supports the employment criteria; and or
(2) Audited financial statements that support income criteria.
Is there an exception to this requirement?
Clause 4 (1), paragraph 2 of the notification allows credit terms to be set that are different from the prescribed credit terms. On the date of entry into force of the Notification, a credit term of 30 days or 45 days, as the case may be, must apply, unless an agreement between an entrepreneur and an SME for a longer credit period sufficiently satisfies the exemption. In this case, the agreement on such a credit term must be justified by commercial, commercial, marketing or economic reasons. However, there are no guidelines or samples to consider in relation to such justifications. It therefore appears that the question of whether such longer credit terms are justified will be examined on a case-by-case basis, taking into account the facts of each case.
Penalties for non-compliance
We note that this notification is not specifically published pursuant to Section 57 (4) TCA; however, a credit term arrangement with SMEs that does not meet the requirements of this notice regarding credit term, could be considered an unfair trade practice under Article 57 (1) to (3) in general. .
If it turns out that such an agreement constitutes an unfair commercial practice under Article 57 of the LTC, the entrepreneur would be liable to an administrative fine not exceeding 10% of his turnover during of the year of the offense, in accordance with article 82 of the TCA law.
Section 84 TCA further provides for the individual liability of directors and / or other liable persons in the event that the offender is a legal person.
It should also be noted that, in accordance with section 60 of the TCA, the Commission has the power to order the business operator to suspend, stop, correct or modify his conduct when there is evidence. sufficient to believe that such conduct violated or will violate Section 57 of the CTA.
This customer update is provided by the contact partners listed above with the assistance of Suwapak Jaruampornpan (Senior Partner) and Praonapha Rakchartcharoen (Partner) of R&T Asia (Thailand) Limited.