16 December 2008

Law Roundup – Significant Changes to Thai Laws in 2008

Commercial and Corporate Law

Mutual Funds – 31 October 2008

Mutual fund companies, excluding property funds, are required to disclose their investment portfolios on a monthly basis, instead of bi-yearly as formerly. This new regulation by the Stock Exchange Commission was intended to make current information available for investors wishing to invest in mutual funds in volatile markets.  Mutual fund companies are now required to divulge the top five industries and top five stocks in their portfolios within 15 days after the end of each month.

Institutes of Deposits Protection  Act – 11 August 2008

On 11 August 2008, the Institutes of Deposits Protection Act took effect throughout Thailand, bringing changes to the amount of bank deposits insured.  At present commercial bank deposits are insured by the government at 100% for the duration of the deposit in the event a bank's license is cancelled or a bank goes bankrupt.  However, the new Act protects 100% of deposits with local and foreign financial institutions in Thailand in the first year, or until August 2009, decreasing to 100 million baht per person per bank in the second year, 50 million in the third year, 10 million in the fourth year, and 1 million from the fifth year on.

It is estimated that 900,000 accounts, or 1.2% of the total depositors, contain 1 million baht or more in deposits. Yet the accounts comprise 73% of the total money saved of 5.1 trillion baht.

Financial Institutions Business Act – 4 August 2008

The Financial Institutions Business Act, having taken effect on 4 August 2008, is the focus of much controversy with bankers.  The act prohibits related-party lending and stipulates criminal penalties for violators.  Section 48 specifies bank lending to directors, senior executives, their spouses and minor children.

Under the new Act, the maximum single lending allowable is 5% of the total capital or 25% of the total outstanding loans to a single business group according to sources. This limit will affect loans to large companies and conglomerates, which have numerous subsidiaries and will likely find funding through bond or equity markets more favorable compared to bank loans.

Some bank officials have criticized the Act as being overly broad in its prohibitions on loans to related parties.

New Rules on Company Registration – 1 July 2008

The government approved changes to the Civil and Commercial Code related to Thailand company registration on 23 February 2008.  The changes came into effect on 1 July 2008.

The main changes are as follows:

•  Section 1097 changes the number of persons needed to start a business from not less than 7 persons formerly to not less than 3 persons at present.

•  Section 1111/1 allows for company promoters to file a memorandum and register a company in a single day. Previously there was a requirement of a formal notice and a seven day waiting period.

•  Section 1246/1 permits a registered or limited partnership of not less than 3 persons to change its business entity to that of a limited company on the condition that all partners agree to the change. Once the business entity changes, the assets, debts, rights, and responsibilities transfer from a registered or limited partnership to that of a limited company.

•  Section 1175 requires that the notice of an Extraordinary Shareholders' Meeting be published at least once in a local newspaper, and not less than 7 days prior to the meeting appointment date. The former Act did not require such publication. The notice must be sent by registered mail to all shareholders listed on the company's register not less than 7 days prior to the meeting appointment date. The exemption to this is in the event of a notice for an Extraordinary Resolution, in which the notice must be given not less than 14 days prior to the meeting appointment date. The notice of an Extraordinary Shareholders' Meeting must specify the location, day, time, and the scope of activities of the meeting for deliberation, and in the event of a notice for an Extraordinary Resolution, the issue to be presented for resolution must be specified.

Securities and Exchange Act – 5 March 2008

The new Securities and Exchange Act, effective since 5 March 2008, makes compulsory and law-binding beneficial corporate governance practices which were only recommended in the past but not enforceable by law. The intent was to attract foreign investment and economic development. The act focuses on the rights of shareholders and their equal treatment and the duties and responsibilities of the company's board of directors. Shareholders are to receive the necessary information in order to make informed decisions on significant corporate transactions.  Minority shareholders cannot transfer interests to affiliates of majority shareholders or management.

Fraud in Thailand on the part of the company's executives and board of directors will bring about heavier punishment in terms of imprisonment and fines.  Employees aware of illegal practices on the part of top management are urged to inform the Securities and Exchange Commission, confident that they will receive protection under this act.

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