update on the latest laws and regulations for m&a and jv deals in thailand

LAWPLUS

UPDATE ON THE LATEST LAWS AND REGULATIONS FOR M&A AND JV DEALS IN THAILAND

Kowit SomwaiyaManaging Partner

LEGAL & TAX ASPECTS FOR M&AS AND JOINT VENTURES IN THAILAND AND AEC 2016

IDEAL FORUMPULLMAN BANGKOK G SILOM

___ MAY 2016

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PRESENTATION TOPICS:

• Amendments to the Civil and Commercial Code (“CCC”)

- Guarantee

- Mortgage

• Business Collateral Act B.E. 2558 (2015) (“BCA”)• No change to the Securities Law and Regulations• No change to the Foreign Business Act B.E. 2542 (1999) (“FBA”)• Legislation Developments in Myanmar, Singapore, Vietnam• Potential Implications of Legislative Changes on M&A and JV Deals

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AMENDMENTS TO THE CCC – GUARANTEE (1)

• Amended in November 2014 and July 2015

The major amendments include:-

• The objective of the obligation which is guaranteed, type of obligation, the maximum guaranteed amount and the period of such obligation must be specified. The guarantor will only be liable for the specified amount (Section 681).

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AMENDMENTS TO THE CCC - GUARANTEE (2)

• An agreement which binds the guarantor to be jointly liable with the debtor or as a joint debtor is void (Section 681/1).

But this will not apply to the guarantor who is a legal entity agreeing to be liable as a joint and several debtor.

• When the debtor is in default, the creditor cannot demand for repayment of the debts immediately from the guarantor. But the creditor must send a notice to the guarantor within 60 days from the default date. Otherwise, the guarantor will be discharged from the interest, the indemnification and any charges accessary to the principal debt that is incurred after the 60-day period (Section 686).

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AMENDMENTS TO THE CCC - GUARANTEE (3)

• If the creditor reduces the amount of debts; and (i) the debtor has already paid for the reduced debt in full; or (ii) the debtor did not pay or has already paid in part but the guarantor has already paid for the reduced debt or for the remaining reduced debt, regardless of the payment is overdue or not, the guarantor will be discharged.

• Any agreement which causes more burden to the guarantor than those specified above will be void (Section 691).

• The debtor cannot be extend the time for payment of the debts unless the guarantor agreed to such extension.

• A prior guarantor’s consent to the extension of time by the creditor is not enforceable against the guarantor, except for a financial institution guarantor (Section 700).

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AMENDMENTS TO THE CCC - MORTGAGE (1)

• Amended in November 2015 and July 2015

• An agreement on enforcement of the mortgage which is different from the provisions of Section 728, 729 and 735 the CCC is void (Section 714/1).

• The mortgagor will not be liable for the debts in excess of the value of the property mortgaged at the time of enforcement of the mortgage or foreclosure of the mortgaged property (Section 727/1).

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AMENDMENTS TO THE CCC - MORTGAGE (2)

• After the debt is due for payment, the mortgagee can sell the mortgaged property by a public auction within one year from the receiving date of the notice from the mortgagor without filing a lawsuit with the court (Section 729/1).

• A period for the mortgagee to send a notice for enforcement of the mortgage against the transferee of the mortgaged property is extended from 30 days to 60 days before the enforcement of the mortgage (Section 735).

• If the mortgagee has notified the enforcement of the mortgaged property to the transferee of the mortgaged property, the period for the transferee to redeem the mortgaged property is extended from 30 days to 60 days from the notification date (Section 737).

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Business Collateral Act (1)

• Enacted on 5th November 2015 and will become effective on 2nd July 2016.

• Business collaterals consist of:-

(1) businesses

(2) Claims (accounts receivable)

(3) movable properties used for operating business, e.g. machinery, inventory, raw materials

(4) real property in case of the collateral provider operates real estate business

(5) intellectual property

(6) other properties to be specified in the Ministerial Regulation.

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Business Collateral Act (2)

• A business collateral agreement must be made in writing and registered with the Business Collateral Registration Office, Department of Business Development.

• A collateral receiver must be only a financial institution or other person to be specified in the Ministerial Regulation.

• A collateral provider can retain possession of the collateral, use, exchange, sell, distribute and transfer it unless agreed otherwise between the collateral receiver and the collateral provider.

• A collateral receiver is a secured creditor with preferential rights.

• An licensed collateral enforcer must be appointed to enforce the collateral if the collateral is a business.

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NO CHANGE TO THE SECURITIES LAW AND REGULATIONS (1)

• Securities and Exchange Act B.E. 2535 (1992)• Rules and Regulations of SEC, which include:-

(1) Notification of the Capital Market Supervisory Board (the “CMBS”) No. TorJor. 12/2554 (2011)

Re: Rules, Conditions and Procedures for Acquisition of Securities for Business Takeover (2) Notification of the CSMB No. TorJor. 31/2554 (2011)

Re: Rules, Conditions and Procedures for Acquisition of Securities for Business Takeover (No.2)

(3) Notification of the CMSB No. TorJor. 14/2554 (2011) Re: Action or Omission with Effect to Tender Offer of Securities of Business

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(4) Notification of CMBS No. TorJor. 28/2554 (2011) Re: Rules for Reporting of Acquisition or Sale of Securities

(5) Notification of the CMSB No. TorJor. 7/2552 (2009) Re: Relationships or Practices of Acting in Concert and Performance under Sections 246 and 247

(6) Notification of the CMSB No. TorJor. 34/2552 (2009) Re: Rules for Offering of Newly Issued Securities Together with Tender Offering of Existing Securities of Listed Companies for Restructuring of Shareholding Structure and Management

(7) Notification of the CMSB No. TorJor. 40/2552 (2009) Re: Reporting Form and Duration for Preparing Opinion on Tender Offer

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CMBS Notification No. TorJor. 12/2554 Re: Rules, Conditions and Procedures for Acquisition of Shares for Business Takeover

• Mandatory tender offer upon acquiring 25%, 50% or 75% of the total shares with voting rights of the business.

• Offering period must be at least 25 consecutive business days but not more than 45 consecutive business days.

• Tender offer price must be not less than the highest price paid for shares of the same class by the offeror during the period of 90 days before submitting the tender offer documents with the SEC Office.

• Exceptions: Acquisitions by (i) inheritance, (ii) payment of dividend by shares, (iii) Thai Trust Fund or Thai NVDR Company Limited, etc.

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CMBS Notification No. TorJor. 28/2554 Re: Rules for Reporting Acquisition or Sale of Securities

• A report must be filed with the SEC Office within 3 days from the date of acquisition or sale of securities resulting in an increase or decrease of 5% or more of the total securities with voting rights in a company.

• Applicable to acquisition or disposal of securities by a person and related persons.

• Not applicable to: Disposal of convertible securities, acquisition of shares or convertible securities by right offering, acquisition or disposal of securities through securities borrowing and lending transactions made with securities business licensees, etc.

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NO CHANGE TO THE FOREIGN BUSINESS ACT B.E. 2542 (1999)

• Foreign ownership limits

− List 1 activities: prohibited

− List 2 activities: 40% of all shares

− List 3 activities: 49% of all shares

• Exceptions of foreign ownership limits

− Board of Investment (BOI) promotion certificates

− Industrial Estate Authority of Thailand (IEAT) permits

− Exceptions under the Treaty of Amity and Economic Relations between Thailand and other countries (Thai-US Treaty, Thai-Australia Treaty, AFAS, JTEPA, ACIA)

• The business that does not fill in List 1, List 2 or List 3 is not prohibited or restricted

• Foreign Business License or Foreign Business Certificate must be obtained before operating the restricted business

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LEGISLATION DEVELOPMENTS IN MYANMAR (1)

• A new Companies Act is being drafted to replace the Companies Act 1914

• The new Companies Act may include:-(1) Percentages foreign ownership limits.(2) Cancellation of the permit to trade.(3) Requirement for both the transferor and the transferee of

shares to sign the share transfer instrument (not only the transferor);

(4) Shares can be paid up in part.

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LEGISLATION DEVELOPMENTS IN MYANMAR (2)

• Under the current laws of Myanmar:-(1) Foreigners include a company registered in Myanmar with at least

one share owned by a non-Myanmar shareholder.(2) Most business activities are allowed only for foreign-Myanmar JVCo

(Foreign Investment Law 2012 and the MIC Notification No. 49/2014);

(3) Foreigners are not allowed to do import, export and domestic trading.(4) Foreigners cannot hold more than 80% of the shares in company that

operates restricted business.(5) Acquisition of shares in a company registered under the FIL is

possible upon approval of the MIC.

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LEGISLATION DEVELOPMENTS IN SINGAPORE

• Amendments to the Singapore Companies Act in two phases. Phase 1: Effective on 1st July 2015, the amendments include:-(1) Broader criteria for exemption of the statutory audit filing for small companies.(2) Requirement to obtain approval from the Accounting and Corporate Regulatory Authority of Singapore (“ACRA”) for resignation of auditors of listed companies, financial institutions and large charity organizations.Phase 2: To become effective in 2016, the amendments include:-(1) Allowing shares with different voting rights(2) Conversion of classes of shares(3) Disclosure of interests by the CEO(4) A share transfer becomes effective after the ACRA’s register is updated(5) Reduction of authorized representatives of foreign companies from two to one

representative

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LEGISLATION DEVELOPMENTS IN VITENAM

• Amendment to the Law on Investment 2005.• Effective on 1st July 2015.

• 51% foreign ownership limit. • Cancellation of the requirement to obtain an Investment Certificate for the M&A

investment and the purchase of shares in public companies. • Amendment to the Law on Enterprises 2005

• Effective on 15th July 2015.• Allowed enterprises to appoint more than one legal representative and only one of

them is required to reside in Vietnam.• Acquisition of shares by a foreigner in a target company operating in a conditional

business sector or acquisition of shares by a foreigner from any company from 51% up must be registered.

• Total capital contribution in a company must be paid up within 90 days from the issuance date of the Enterprise Registration Certificate instead of 36 months.

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POTENTIAL IMPLICATIONS LEGISLATIVE CHANGES ON M&A AND JV DEALS

Potential Implications on M&A and JV Deals

• Legal structure of the target company

• Controlling power / management of the target company

• Less stringent foreign ownership limits

• Transfers of shares / licenses / permits may not be approved

• Additional approvals / licenses / permits may be required for acquisitions by foreigners

• Enforcement of encumbrances over the assets of the target company

• Failure to fulfill conditions precedent due to changes of laws

• Less filing and compliance liabilities of the target company

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