An amendment was made to the Thai Civil and Commercial Code that introduces new provisions for M&A transactions and will likewise alter certain requirements around corporate governance and formation of private companies. This includes provisions surrounding minority shareholders, the validity period of Memorandums of Association, as well as the number of shareholders required to form a quorum during general meetings.
The amendment, which was promulgated in late September 2022, is expected to take effect later this year.
Companies can now undergo mergers
Once the amendment takes effect, businesses in Thailand will have two options for consolidating companies, one being an amalgamation, where the amalgamating companies will be dissolved to form a new entity at the end of the process, and another being a merger, where the consolidated entities are merged with only one of the merging companies surviving the process. Prior to the amendment, businesses seeking consolidation were only allowed to undergo amalgamation as mergers were not a legally viable option.
Once companies have been merged, all properties, debts, rights, obligations, liabilities, and duties from each of the merged companies will automatically be transferred to the surviving company in the case of a merger or the newly formed company in the case of an amalgamation.
The new merger introduced by the amendment will be considered an alternative option for M&A transactions in the Thai market. Under this scheme, it is expected that closing transactions that involve business transfers will be easier where certain operating licenses are non-transferable.
Minority shareholders who disagree with any motion to merge or amalgamate their company will be given the option of selling their shares to the purchaser. If a price cannot be determined, an appraiser will determine the selling price. If the dissenting shareholder rejects a purchase offer proposed by the appraiser after 14 days, they will automatically become a shareholder of the merged or new entity.
What are the other changes to corporate governance introduced by this amendment?
Apart from the introduction of mergers as an option for consolidation, the amendment will also change the minimum number of promoters required to form a company from three individuals to two. Likewise, Memorandums of Association registered at the Department of Business Development can be used to incorporate a company up to three years from the date it was registered. However, the amendment will require share certificate to be affixed with the company’s seal.
Moreover, unless otherwise banned under the company’s Articles of Association, directors’ meetings can be conducted electronically, as long as the electronic platform meets the minimum standards upheld by the law for holding such meetings electronically. Newspaper publications are no longer necessary when calling a general meeting of shareholders except for meetings where share certificates are to be distributed to bearers; although notices of meetings still need to be delivered to all shareholders of a company by registered mail. This means that meetings still need to be organized in advance.
To reach a quorum during a general shareholder meeting, there need to be at least two shareholders present, and those representing at least 25% of the total share capital must be present for a resolution to be adopted.
What to look out for
Companies, directors, and shareholders should stay aware of prospective regulations regarding procedures for appraisal of purchase prices for shares that belong to shareholders who do not wish to undergo a merger or amalgamation.
The Revenue Department will likely issue a guide on whether there will be new tax arrangements for transactions under the new merger scheme or if those relevant to amalgamations will apply. Further updates will be provided on this.
For more information about the updates or any other matters around corporate governance, please contact us via [email protected] or using the contact form provided.