An amendment to the Thai Civil and Commercial Code introduces a new scheme of M&A transactions in Thailand. The amendment also alters certain requirements relating to the corporate governance of private companies. This briefing will provide an overview of the changes and their impact.

When will the amendment take effect?

The Amendment to the Thai Civil and Commercial Code, B.E. 2565 (the “Amendment”) has been approved and will be presented to H.M. The King for final enactment. The Amendment will become effective after the lapse of 90 days from the publication date in the Government Gazette.

Merger    

Prior to the amendment, the only business consolidation permitted under the Thai Civil and Commercial Code was an amalgamation. An amalgamation is a consolidation of two or more companies where the amalgamating companies will be dissolved, and a new entity will be formed at the end of the process.

The Amendment rewrites the Thai Civil and Commercial Code to create two types of consolidation for limited companies: (i) an amalgamation as discussed above, and (ii) the recently introduced ‘merger’. This unprecedented merger in the Thai legal system is a consolidation where two or more companies merge and only one merging company survives.

As a result, all property, debts, rights, obligations, liabilities and duties from the merging/amalgamating companies will be automatically transferred by operation of law to the surviving company (in the case of a merger) or the newly formed company (in the case of an amalgamation) at completion.

Minority shareholders’ shares

The Amendment includes a mechanism to accommodate the minority shareholder(s) who disagree with the merger/amalgamation by giving them an option to sell their shares to the purchaser. This would be arranged by the merging/amalgamating company at the purchase price to be agreed. Alternatively, the price may be determined by an appointed valuer if the parties cannot reach an agreement on the purchase price. A shareholder who rejects the offer will become a shareholder of the merging/amalgamating company if the share purchase does not occur within 14 days from the offering date.

Other amendments to the Thai Civil and Commercial Code

Certain requirements relating to the corporate governance of a limited company and certain formalities will be changed by the Amendment. Key issues are summarized below:

  • Minimum Number of promoters: changed from three individuals to two individuals
  • Validity period of Memorandum of Association (MOA) registered at the DBD before incorporation of the company: within three years from the date of MOA registration the MOA can be used for registration of incorporation of a company.
  • Share certificate: the requirement to affix a company seal (if any) has been added.
  • Electronic meeting of directors meetings: unless prohibited by the Articles of Association, directors meetings can be held electronically if the meeting platform meets the standards of the law on holding meetings via electronic means.
  • Notice calling for a general meeting of shareholders: a newspaper publication is no longer required except in a case where share certificates are issued to the bearers (whether physical or electronic).
  • The number of shareholders constituting a quorum at a general meeting: at least 2 shareholders and/or proxies are required to be present at a general meeting. In addition, the shareholders at the meeting must represent at least 25% of the share capital to adopt a resolution.
  • Revisions of the grounds for company dissolution in accordance with a court order: previously this applied where a company had less than three shareholders, however, this now applies where a company only has one shareholder

Further observations

  • The new type of merger under the CCC will be considered as an alternative option for M&A transactions in the Thai market by the private sector.
  • Under the new merger scheme, similar to the existing business transfer scheme, assets, obligations and liabilities will only remain with the surviving entity. Therefore, the new merger scheme would make the closing of transactions involving business transfers easier in cases where certain operating licenses are non-transferable. This is because the rights and obligations of the merging parties will be transferred automatically.
  • Investors and their advisors should also keep an eye on:
    • The ministerial regulation prescribing the criteria and procedures of the appointment of the valuer in a case where the purchase price for the shares of the shareholders who disagreed with the merger/amalgamation, cannot be agreed; and
    • clearer guidelines or regulations from the Revenue Department indicating whether there will be any new tax benefit for a transaction under the new merger scheme or the existing tax benefits for amalgamation and the Entire Business Transfer (EBT) scheme are available for a merger transaction given that it is one category of business consolidation under the operation of the law.