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December 16, 2022
2022-6233

Thailand amends provisions of Civil and Commercial Code related to business combinations

  • The Act to amend certain provisions governing limited companies under the Civil and Commercial Code (the Amended Code) was published in the Royal Gazette on 8 November 2022.

  • The Amended Code will become effective on 7 February 2023.

  • One of the key developments under the Amended Code is the introduction of new provisions on business combinations (Merger).

  • Companies planning a merger should monitor for the issuance of relevant guidance by the Thai Revenue Department to confirm whether this merger will be qualified for a concession tax regime similar to an amalgamation, although it is anticipated that both methods of business combination (i.e., amalgamation and merger) will be eligible for the existing tax exemption scheme.

Executive summary

Amendments to provisions of the Civil and Commercial Code governing limited companies published in the Government Gazette on 8 November 2022 (the Amended Code) include changes and additions to the provisions relating to business combinations.

Under the current law, the only method of business combination recognized is an amalgamation, where a new company is formed and all amalgamating companies are automatically dissolved by law. However, under the Amended Code, mergers are introduced as another method of business combination, where one merging company survives and the other merging companies cease to exist. The Amended Code will become effective 90 days after its publication in the Government Gazette (i.e., 7 February 2023)

Detailed discussion

This Alert summarizes the key changes to the provisions of the Civil and Commercial Code relating to business combinations.

Method of business combination

The concept of merger has been added.

The Amended Code now recognizes two methods of business combination as follows:

  • Amalgamation: A completely new company is formed, and all amalgamating companies cease to exist by law.

  • Merger: One merging company survives while the other merging companies cease to exist.

Rights of dissenting shareholders

A new provision addresses shareholders who disagree with the business combination.

  • Any dissenting shareholders are entitled to sell their shares at an agreed price or the price determined by an appraiser, if a price cannot be agreed.

  • In the event that a dissenting shareholder refuses to sell the shares within 14 days from the date of the offer to purchase the shares, they will become a shareholder of the new company (in case of amalgamation) or the surviving company (in case of merger).

Notification to creditors

The Creditors’ objection period has been reduced from 60 days to one month.

  • Notice of the special resolution passed by shareholders to proceed with the business combination is required to be:
    • Sent to all creditors listed in the accounts of the amalgamating/merging companies within 14 days from the date of the special resolution.
    • Published in a local newspaper within 14 days from the date of the special resolution.
  • Creditors must submit any objections within one month of the date of receipt of the notice. The business combination cannot then proceed unless the relevant debt has been settled or guaranteed.

Timing of joint shareholders’ meeting

There is a new provision on timeframe for holding a joint shareholders’ meeting to approve the amalgamation/merger.

  • A joint shareholders’ meeting to approve the business combination must be held within six months (extendable up to one year with the approval of a joint shareholders’ meeting) from the date of the resolution to proceed with the amalgamation/merger.

Conditions of joint shareholders’ meeting

A new provision has been added regarding agenda, quorum and voting requirements.

  • The directors of the amalgamating/merging companies must call the joint shareholders’ meeting in order to consider the new (amalgamation) or surviving (merger) company’s name, objectives, share capital, allocation of shares, memorandum of association, articles of association, directors, auditor and other appropriate matters.

  • The quorum for the joint shareholders’ meeting is shareholders representing in total at least half of the number of shares of each amalgamating/merging company.

  • The resolution must be passed by a majority vote of the shareholders attending the meeting unless agreed otherwise.

Period to transfer business and documents                                     

This is a new provision.

  • The boards of directors of the amalgamating/merging companies must transfer the business, assets, accounting records, documents, and other evidence of the amalgamating/merging companies to the new company (amalgamation) or the surviving company (merger) within seven days from the date of the joint shareholders’ meeting.

Registration procedures

This is also a new provision.

  • The boards of directors of the amalgamating/merging companies must register the amalgamation/merger and submit the memorandum of association and articles of association of the new company (amalgamation) or the surviving company (merger) within 14 days from the date of the joint shareholders’ meeting.

Implications

Companies planning a merger should monitor for the issuance of relevant guidance by the Thai Revenue Department to confirm whether this merger will be qualified for a concession tax regime similar to an amalgamation However, it is anticipated that both methods of business combination (i.e., amalgamation and merger) will be eligible for the existing tax exemption scheme, with the merging company exempted from income tax and indirect tax (i.e. value added tax, specific business tax, and stamp duty) on the transfer of its business, assets, and liabilities to the surviving entity and the shareholders of the merging company are also exempted from income tax upon receiving shares in the surviving company.

_________________________________________

For additional information with respect to this Alert, please contact the following:

EY Corporate Services Limited, Bangkok

Ernst & Young LLP (United States), Thai Tax Desk, New York

Ernst & Young LLP (United States), ASEAN Tax Desk, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago

 
 

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