What are the legal frameworks for corporate restructuring in Thailand?

What legal frameworks govern corporate restructuring in Thailand?

Corporate restructuring in Thailand is governed primarily by the Thai Civil and Commercial Code (CCC), the Public Limited Company Act B.E. 2535 (1992), and the Foreign Business Act B.E. 2542 (1999). Depending on the type of restructuring, various legal provisions apply. For example, a merger between public companies must comply with the Public Limited Company Act, while asset sales or business acquisitions often fall under the Civil and Commercial Code.

The Bankruptcy Act B.E. 2483 (1940) also plays a crucial role in cases involving distressed businesses seeking restructuring through rehabilitation procedures. Additionally, companies with foreign ownership may face restrictions under the Foreign Business Act, which limits the percentage of foreign equity allowed in certain sectors. Therefore, foreign-owned companies undergoing restructuring should be aware of these limitations to ensure compliance with Thai law.

What are the types of corporate restructuring in Thailand?

In Thailand, corporate restructuring typically falls into one of several categories, each with its own legal considerations:

• Financial restructuring:

This type of restructuring focuses on adjusting the company’s capital structure, such as through debt consolidation or equity reorganization. Under the Thai Bankruptcy Act, companies facing insolvency can seek court-sanctioned rehabilitation plans, enabling them to restructure their debts while continuing operations.

• Operational restructuring:

In operational restructuring, a company may revise its business model or streamline operations to increase efficiency. This can involve changes in the company’s organizational structure, such as the consolidation of departments, the divestment of non-core business units, or workforce downsizing. Legal considerations include compliance with Thailand’s Labor Protection Act B.E. 2541 (1998), which regulates the termination of employees and the payment of severance.

• Asset restructuring:

Companies often restructure by selling off assets or merging with other entities. This is governed by the Civil and Commercial Code, which outlines the procedures for asset transfers, mergers, and acquisitions. In cases involving foreign companies, compliance with the Foreign Business Act is critical to ensure that foreign ownership restrictions are not violated.

• Ownership restructuring:

Changes in a company’s ownership structure can occur through mergers, acquisitions, or the introduction of new shareholders. In Thailand, ownership restructuring must adhere to the Public Limited Company Act, which outlines the process for share issuance and transfer, as well as the approval required from shareholders and relevant authorities.

What is the role of mergers and acquisitions (M&A) in corporate restructuring?

Mergers and acquisitions (M&A) are common strategies used in corporate restructuring, particularly in cases where companies seek to consolidate resources, enter new markets, or eliminate competition. In Thailand, M&A activities are regulated by the Public Limited Company Act and the Civil and Commercial Code.

For public companies, mergers require shareholder approval, and the process is closely regulated by the Securities and Exchange Act B.E. 2535 (1992). In particular, companies must notify the Securities and Exchange Commission (SEC) of any merger or acquisition that involves a substantial change in the company’s shareholding or management structure.

The M&A process also requires compliance with antitrust laws under the Trade Competition Act B.E. 2560 (2017), which prohibits anti-competitive mergers that could lead to market dominance. The Thai Trade Competition Commission has the authority to review and approve mergers to ensure that they do not harm competition within the relevant market.

What are the legal requirements?

In cases where a company is facing financial distress, rehabilitation can be a viable option to restructure its operations and debts. The Bankruptcy Act B.E. 2483 (1940) governs the rehabilitation process in Thailand, providing a legal framework for companies to continue operations while reorganizing their debts.

Under the Bankruptcy Act, a company can file for rehabilitation with the Central Bankruptcy Court if it is insolvent or unable to meet its financial obligations. Once the court approves the rehabilitation petition, the company is granted protection from creditors, and a rehabilitation plan is drafted. The plan, which may involve debt restructuring, operational changes, or asset sales, must be approved by both the court and the company’s creditors.

Rehabilitation provides companies with an opportunity to restructure while maintaining control over their operations. However, it requires close adherence to the legal procedures outlined in the Bankruptcy Act, and failure to comply can result in the company’s liquidation.

What challenges can foreign companies face during restructuring in Thailand?

Foreign companies restructuring in Thailand often face additional challenges, particularly in complying with the Foreign Business Act. This law restricts foreign ownership in certain industries, such as telecommunications, agriculture, and retail, among others. As a result, foreign companies restructuring their ownership or operations must ensure that they do not exceed the allowable foreign equity thresholds unless they obtain the necessary approvals.

One way for foreign companies to navigate these restrictions is by applying for a Foreign Business License (FBL), which grants them the legal right to engage in restricted business activities. The application process for an FBL involves demonstrating that the company’s restructuring aligns with Thailand’s economic goals and that it will contribute to the country’s development.

Additionally, companies that qualify for Board of Investment (BOI) promotion may benefit from exemptions from the Foreign Business Act’s restrictions. BOI-promoted companies are often granted the right to majority foreign ownership, as well as other tax and non-tax incentives, which can be advantageous during corporate restructuring.

How do tax considerations impact corporate restructuring in Thailand?

Tax considerations play a critical role in corporate restructuring, particularly when it involves the transfer of assets or the reorganization of ownership structures. The Revenue Code of Thailand governs corporate tax matters, including capital gains, transfer pricing, and value-added tax (VAT). Companies undergoing restructuring must carefully assess the tax implications of their transactions to avoid potential liabilities.

For instance, asset sales as part of a restructuring may trigger capital gains taxes. Under Thai law, companies are subject to a 20% corporate income tax on profits, and this applies to gains made from the sale of assets. In addition, companies must consider the VAT implications of their restructuring activities, as the transfer of certain assets may be subject to VAT at the standard rate of 7%.

Companies seeking to minimize their tax liability during restructuring can explore tax incentives available under the BOI promotion. BOI-promoted companies often receive tax exemptions or reductions, which can significantly reduce the financial burden associated with corporate restructuring.

How can companies ensure compliance during restructuring?

To ensure compliance with Thai laws during restructuring, companies must take several steps. First, they should conduct a thorough legal review of their restructuring plans to identify potential regulatory hurdles. This includes reviewing the company’s compliance with the Public Limited Company Act, the Civil and Commercial Code, the Bankruptcy Act, and the Foreign Business Act.

Second, companies should engage with relevant government authorities, such as the Department of Business Development (DBD), the Securities and Exchange Commission (SEC), and the Thai Trade Competition Commission, to obtain the necessary approvals for mergers, acquisitions, or ownership changes.

Finally, companies must ensure that they meet all tax obligations related to restructuring. This includes filing the appropriate tax returns with the Revenue Department and paying any applicable taxes on asset sales or capital gains.

Conclusion

Corporate restructuring in Thailand is a complex process that requires careful navigation of the country’s legal framework. From mergers and acquisitions to financial and operational restructuring, companies must comply with various laws, including the Civil and Commercial Code, the Public Limited Company Act, and the Bankruptcy Act. Foreign companies face additional challenges under the Foreign Business Act, but BOI promotion and FBL applications can provide solutions. By ensuring legal compliance and considering the tax implications, companies can restructure successfully to remain competitive in Thailand’s evolving market.