Unveiling the Loophole: Protecting Shareholders' Rights
Thailand’s current legal framework falls short in swiftly safeguarding shareholders from unlawful means when it comes to adopting company resolutions. Temporary preliminary or emergency injunctions, which could temporarily halt the enforcement of such resolutions before they reach the court, face an uphill battle for success.
At Pisut & Partners, we understand that a robust system of governance and a balanced management structure are pivotal for businesses to achieve their objectives and generate value for stakeholders. To achieve this, it is crucial to clearly define the authority vested in company regulations, joint-venture agreements, and shareholders’ agreements. These documents outline policies related to finance, operations, management, and overall direction, ensuring compliance with internal and external laws and regulations.
While these mechanisms provide comprehensive specifications, they do not grant those in authority the power to dictate policies based on personal desires. This includes matters like appointing key management personnel, dividend issuance policies, or capitalisation increases aimed at maximising control by diluting shares.
Through our extensive experience in advising private companies and Thai-based joint ventures, we have identified that operational disputes often arise from the appointment of key management individuals who do not enjoy favor from their business partners. These situations can quickly escalate into a barrage of lawsuits, seeking to cancel shareholders’ resolutions and claim compensation for breaches of investment or shareholders’ agreements. In some cases, the disputed amounts can reach several billion Thai baht. When both parties hold an equal number of shares or lack the ability to cast a decisive vote on resolutions, operational deadlock becomes a reality.
This deadlock compels both sides to employ strategies and tactics, guided by legal counsel, to gain control over the company’s affairs. These tactics range from convening shareholder meetings in distant or foreign locations, subjecting attendees to excessive verification procedures, obstructing access to meeting venues, colluding with postal workers to delay official meeting invitations, to seeking court judgments that favour one party in adopting resolutions.
Yet, the existing legal framework in Thailand still struggles to adequately protect shareholders from resolutions adopted through unlawful means in a timely manner. Temporary preliminary or emergency injunctions, intended to halt the enforcement of such resolutions before they reach the court, face slim chances of success. Courts typically view the issuance of such injunctions as potentially awarding victory to the requesting party before the case is fully heard, leading to limited grounds for their issuance.
Furthermore, under current law, only shareholders or directors possess the right to initiate legal proceedings to set aside a resolution within one month of its adoption in a general shareholders’ meeting. Violations of company regulations or related laws do not automatically render the meeting or its resolutions void.
A critical aspect to consider is the registration of unlawfully adopted resolutions with the Company Registrar. Even if one party claims the resolution is unlawful, the Registrar will proceed with registration as they lack the authority to determine whether the general meeting was conducted in good faith. This determination falls under the purview of the court. Consequently, if no plea for setting aside is filed or if it is filed too late, the court may dismiss the proceeding or complaint, allowing the unlawfully adopted resolution to remain valid and enforceable.
Moreover, Thai courts have established a precedent where the set aside of company resolutions only takes effect from the date of the court’s judgment. This means that an unlawful resolution could be in force for several years until it is finally invalidated by a court. Thus, a legal loophole exists, where actions deriving authority from such unlawful resolutions may be deemed lawful until the resolutions are officially invalidated by the court. Exceptions apply in cases where the meeting itself was conducted illegally or where it would be unreasonable to consider the meeting as that of the company.
Therefore, conducting thorough due diligence and structuring company regulations, including implementing a management strategy focused on corporate governance for investments in Thai-based companies, is of utmost importance. This strategic approach significantly mitigates the risk of disputes and ensures effective governance for your company well into the future.
For expert legal guidance on corporate governance, shareholder rights, and mitigating risks, turn to Pisut & Partners, where we are committed to safeguarding your interests and providing proactive solutions.
Pisut Rakwong, MCIArb was an extensive experience litigation and arbitration lawyer in Thailand for 23 years. He is the Founder and Managing Partner of Pisut & Partners, an international law firm based in Bangkok, Thailand.
Thailand’s current legal framework falls short in swiftly safeguarding shareholders from unlawful means when it comes to adopting company resolutions. Temporary preliminary or emergency injunctions, which could temporarily halt the enforcement of such resolutions before they reach the court, face an uphill battle for success.
At Pisut & Partners, we understand that a robust system of governance and a balanced management structure are pivotal for businesses to achieve their objectives and generate value for stakeholders. To achieve this, it is crucial to clearly define the authority vested in company regulations, joint-venture agreements, and shareholders’ agreements. These documents outline policies related to finance, operations, management, and overall direction, ensuring compliance with internal and external laws and regulations.
While these mechanisms provide comprehensive specifications, they do not grant those in authority the power to dictate policies based on personal desires. This includes matters like appointing key management personnel, dividend issuance policies, or capitalisation increases aimed at maximising control by diluting shares.
Through our extensive experience in advising private companies and Thai-based joint ventures, we have identified that operational disputes often arise from the appointment of key management individuals who do not enjoy favor from their business partners. These situations can quickly escalate into a barrage of lawsuits, seeking to cancel shareholders’ resolutions and claim compensation for breaches of investment or shareholders’ agreements. In some cases, the disputed amounts can reach several billion Thai baht. When both parties hold an equal number of shares or lack the ability to cast a decisive vote on resolutions, operational deadlock becomes a reality.
This deadlock compels both sides to employ strategies and tactics, guided by legal counsel, to gain control over the company’s affairs. These tactics range from convening shareholder meetings in distant or foreign locations, subjecting attendees to excessive verification procedures, obstructing access to meeting venues, colluding with postal workers to delay official meeting invitations, to seeking court judgments that favour one party in adopting resolutions.
Yet, the existing legal framework in Thailand still struggles to adequately protect shareholders from resolutions adopted through unlawful means in a timely manner. Temporary preliminary or emergency injunctions, intended to halt the enforcement of such resolutions before they reach the court, face slim chances of success. Courts typically view the issuance of such injunctions as potentially awarding victory to the requesting party before the case is fully heard, leading to limited grounds for their issuance.
Furthermore, under current law, only shareholders or directors possess the right to initiate legal proceedings to set aside a resolution within one month of its adoption in a general shareholders’ meeting. Violations of company regulations or related laws do not automatically render the meeting or its resolutions void.
A critical aspect to consider is the registration of unlawfully adopted resolutions with the Company Registrar. Even if one party claims the resolution is unlawful, the Registrar will proceed with registration as they lack the authority to determine whether the general meeting was conducted in good faith. This determination falls under the purview of the court. Consequently, if no plea for setting aside is filed or if it is filed too late, the court may dismiss the proceeding or complaint, allowing the unlawfully adopted resolution to remain valid and enforceable.
Moreover, Thai courts have established a precedent where the set aside of company resolutions only takes effect from the date of the court’s judgment. This means that an unlawful resolution could be in force for several years until it is finally invalidated by a court. Thus, a legal loophole exists, where actions deriving authority from such unlawful resolutions may be deemed lawful until the resolutions are officially invalidated by the court. Exceptions apply in cases where the meeting itself was conducted illegally or where it would be unreasonable to consider the meeting as that of the company.
Therefore, conducting thorough due diligence and structuring company regulations, including implementing a management strategy focused on corporate governance for investments in Thai-based companies, is of utmost importance. This strategic approach significantly mitigates the risk of disputes and ensures effective governance for your company well into the future.
For expert legal guidance on corporate governance, shareholder rights, and mitigating risks, turn to Pisut & Partners, where we are committed to safeguarding your interests and providing proactive solutions.
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