Doing Business in Thailand: Mergers & Acquisitions

This chapter serves as a comprehensive guide to the legal framework governing mergers and acquisitions (“M&A”) transactions in Thailand. The primary laws regulating M&A transactions in Thailand include the Civil and Commercial Code of Thailand and the Public Limited Companies Act B.E. 2535 (1992).

In Thailand, based on the nature of the transactions, M&A transactions can be broadly categorized into four main categories: (1) acquisition of shares; (2) acquisition of assets; (3) business transfer; and (4) merger and amalgamation.

(1) ACQUISITION OF SHARES

Shares in a company can be acquired through two main methods (i) purchasing from existing shareholder(s), or (ii) subscribing for newly issued shares.

1. Purchase of Shares from Existing Shareholder(s)

Private Limited Company

Unless otherwise restricted by the articles of association, shares in each private limited company can be freely transferred from a shareholder to any person. The transfer of shares will be effective and in full force against any third party upon the completion of the following steps:

1. The transferor and the transferee to execute a share transfer instrument.Signatures of both transferor and transferee must be certified by at least one witness.
2. The company to record the transfer of shares in its share register book and to issue new share certificate to the transferee.
3. The company to prepare an updated list of shareholders and to file such updated list of shareholders with the Department of Business Development, Ministry of Commerce (the “DBD”).
4. However, if there is any restriction on the share transfer under the articles of association of the company, the transferor and the transferee must ensure that any transfer of shares in such company complies with the steps required under the Civil and Commercial Code and with the requirements under the articles of association. Otherwise, any such transfer of shares would be ineffective, and accordingly, the ownership over the relevant shares would not be effectively transferred from the transferor to the transferee.

Public Limited Company

Unlike a private limited company, a public limited company cannot specify any restriction on the share transfer in its articles of association, unless such a restriction is to preserve rights and benefits to which the company is legally entitled or to maintain the shareholding percentage in the company between foreign and Thai shareholders.

Any transfer of shares in a public limited company will be valid and enforceable against any third party upon the completion of the following steps:

1. The transferor to endorse each relevant share certificate by specifying the transferee’s name in the share certificate and executing such share certificate.
2. The transferee to sign the share certificate endorsed by the transferor.
3. ธhe registrar of the company to record such transfer in the company’s share register book.

It is important to note that any acquisition of shares in a stock exchange-listed public limited company would trigger a reporting obligation by the transferee (or the transferor, or both) or a mandatory tender offer obligation (imposed on the transferee) if the number of shares acquired reaches any applicable threshold specified by the Securities and Exchange Commission of Thailand.

(B) Subscription of Newly Issued Shares

Private Limited Company

A private limited company can issue new shares by increasing its registered share capital. To increase a private limited company’s registered share capital, such company must convene a shareholders meeting and obtain a resolution from the shareholders meeting. The resolution approving the increase of the registered share capital requires the affirmative votes of at least 75% of the total shares owned by the shareholders attending the meeting and having the right to vote. The process for the increase of the registered share capital is as follows:

1. The company to deliver to all shareholders the 14-day prior notice to convene the shareholders meeting.
2. The shareholders to approve the capital increase and other related matters at the shareholders meeting.
3. The company to allot the capital increase shares to the existing shareholders per their respective pre- emptive rights. The subscribing shareholders to pay the subscription price.
4. The company to register the capital increase with the DBD.

If any shareholder waives his/her pre-emptive right to subscribe for his/her portion of capital increase shares, the company’s board of directors may then allot unsubscribed shares to other existing shareholders. Therefore, if any third party would like to subscribe for the capital increase shares, such third party must first become a shareholder of the company by purchasing at least 1 share from any of the existing shareholders before the commencement of the shareholders meeting approving the increase of the registered share capital.

Public Limited Company

Similar to a private limited company, a public limited company may need to increase its registered share capital before issuing new shares. To increase the registered share capital of a public limited company, such company must convene a shareholders meeting and obtain a resolution from the shareholders meeting. The resolution approving the increase of the registered share capital requires the affirmative votes of at least 75% of the total shares owned by the shareholders attending the meeting and having the right to vote. The process for the increase of the registered share capital is as follows:

1. The company to deliver to all shareholders and the registrar the 7-day prior notice to convene the shareholders meeting.
2. The shareholders to approve the capital increase and other related matters at the shareholders meeting.
3. The company to allot the capital increase shares.The subscribing shareholders to pay the subscription price.
4. The company to register the capital increase with the DBD.

In general, the capital increase shares can be subscribed by any person (whether in whole or in part). That is, a public limited company may offer capital increase shares either to the existing shareholders in proportion to their shareholding percentage or to any third party.

For a stock exchange-listed public limited company, there are four ways to offer capital increase shares:

1. Rights Offering (RO),which is an offer for sale of capital increase shares to the existing shareholders in proportion to their respective shareholding percentage;
2. Preferential Offering (PPO), which is an offer for sale of capital increase shares to the existing shareholders in proportion to their respective shareholding percentage. However, if the subscription of capital increase shares by any shareholder would subject the company to any requirement under foreign law, an offer will not be made to any such shareholder;
3. Private Placement (PP), which is an offer for sale of capital increase shares to a limited group of people; and
4. Public Offering (PO), which is an offer for sale of capital increase shares to public.

Although a shares sale and purchase agreement (SPA) or a shares subscription agreement (SSA) is not legally required for the acquisition of shares in Thailand, we would recommend the investor to enter into such an agreement to expressly prescribe the terms, conditions, consideration, rights and obligations of each relevant party in connection with the acquisition of shares.

After the acquisition of shares in a non-listed company, the investor may also consider to enter into a shareholders agreement with other shareholders of the company to govern their relationship, rights and obligations in the company and navigate certain aspects of the management and operations of the company. It is crucial to note that certain terms and conditions outlined in the shareholders agreement must be included in the company’s articles of association and must be registered with the DBD, such that those terms and conditions are enforceable against any third party to the fullest extent permitted by law.

(2) ACQUISITION OF ASSETS

In certain M&A transactions where the acquisition of shares may not be commercially viable, the acquirer may consider acquiring assets of the target company (instead of shares). The acquirer may purchase one or more assets from the target company whether in form of movable properties, immovable properties, rights or liabilities.

Although compared to the acquisition of shares, the acquisition of assets can be beneficial in some respects as the acquirer may not have to acquire all liabilities and other irrelevant risks in the target company, the process for the acquisition of certain assets can be time-consuming or tax-inefficient and may delay the timeline of the transaction.

Set out below are samples of assets that can be transferred and key legal requirements applicable to the transfer thereof.

(3) BUSINESS TRANSFER UNDER THE REVENUE CODE

Similar to the acquisition of assets, the business transfer is another way to acquire the entirety or part of the target company’s business. By complying with the requirements of the Revenue Code and relevant regulations issued thereunder, the business transfer arrangement would reduce the tax burden arising from such transfer of business.

However, for an entire business transfer (EBT), once a business transfer has been completed, the transferring company must be dissolved within the same fiscal year to receive the tax benefits.

(4) MERGER AND AMALGAMATION

Under the Civil and Commercial Code, two private limited companies can merge or amalgamate.

In both scenarios, all rights, obligations and liabilities of the non-existing company(ies) (that is, A and B in the first scenario, and either A or B in the second scenario) (each, a “Non-Existing Company”) will be automatically transferred to the surviving company (that is, C in the first scenario, and either A or B in the second scenario) (each, an “Existing Company”).

The process for the merger/amalgamation of private limited companies under the Civil and Commercial Code is as

follows:

1. Both merging/ amalgamating companies to deliver to their respective shareholders the 14-day prior notice to convene their respective shareholders meetings.
2. The shareholders to approve the merger/ amalgamation and other related matters at the shareholders meeting.
3. Both merging/ amalgamating companies to register the resolution of their respective shareholders meetings with the DBD.
4. Both merging/ amalgamating companies to notifytheir respective creditors and to publish in a local newspaper of their merger/amalgamation (as applicable).
5. The Existing Company to register with the DBD the merger/amalgamation and other related matters.

Upon notifying the creditors and publishing in a local newspaper of the merger/amalgamation, the creditors will have a one-month period to file an objection to such merger/amalgamation. If any creditor of any merging/ amalgamating company files an objection with the DBD, the DBD will not accept the registration of such merger/ amalgamation until each relevant merging/amalgamating company (i) repays its debt owed to the objecting creditor or (ii) places a security in favor of such objecting creditor to such objecting creditor’s satisfaction, such that the objecting creditor withdraws the objection from the DBD. Following the completion of the registration with the DBD, each Non-Existing Company will be dissolved, and the Existing Company will be duly incorporated (in cases of the amalgamation).

Although the rights, obligations and liabilities of a Non-Existing Company will be automatically transferred to the relevant Existing Company, certain requirements, such as consent from employees or notification to governmental authorities regarding business licenses or re-application of business licenses with governmental authorities, must also be considered. Therefore, to avoid non-transferability risks, we would recommend the relevant parties to conduct legal due diligence on the transferability before commencing any process relating to the merger/ amalgamation.

_{Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.}