Introduction
In 2022, the Thai Civil and Commercial Code (the “CCC”) underwent a significant amendment, introducing the concept of a merger, which allows one merging entity to remain in existence. While this concept may not be new for other jurisdictions, it is a development for Thai private companies and is expected to impact business integration. Although this new concept does not apply to public companies, we believe it is worthwhile exploring the key business consolidation schemes currently available under the relevant primary corporate laws and the key considerations when deciding to implement a merger and/or amalgamation.
Legal Requirements
Private Company
Previously, the CCC provided only one scheme for business consolidation. The recent amendments to the CCC introduce a new process for business consolidation (i.e. a merger), allowing one merging entity to remain undissolved and continue as the surviving entity. This results in two business consolidation schemes under the CCC, with the key difference being the surviving entity, as follows:
1. Amalgamation: This traditional mechanism involves the amalgamation of at least two private companies to form a new private company, which results in the dissolution of the amalgamating companies.
2. Merger: this mechanism involves the merging of at least two private companies, with one entity surviving while the other is dissolved.
While other legal requirements, such as the surviving entity (whether a new company under the amalgamation scheme or the surviving entity under the merger scheme), which, to the extent permitted by law, will accept all the assets and liabilities by operation of laws, remain the same and apply to both schemes, a notable addition is the adoption of an exit mechanism to protect shareholders who object to the proposed amalgamation or merger (the “Opposing Shareholders”). Specifically, the company must arrange for the purchase of shares from the
Opposing Shareholders at a mutually agreed price. If no agreement can be reached, the price will be determined by an independent appraiser who must be free from any conflicts of interest or direct or indirect benefits related to the shares being appraised, its shareholders or the Opposing Shareholders.
The amendments also set a clear timeline for this process. If the Opposing Shareholders fail to sell their shares within 14 days from the date of receiving the purchase offer, the company may proceed with the amalgamation or merger, and such Opposing Shareholders will be deemed shareholders of the newly consolidated entity.
Public / Listed Company
Pursuant to the Public Limited Companies Act B.E. 2535 (A.D. 1992) (the "PLCA"), business consolidation between public companies was historically limited to, and remains restricted to, the amalgamation scheme. Under this scheme, the amalgamating entities are dissolved, and a new entity is formed, which must take the form of a public company (irrespective of whether the amalgamation is between a private company and a public company or between public companies). In addition, for companies listed on the Stock Exchange of Thailand (the “SET”), SET regulations require the securities of the newly amalgamated entity to be re-listed. These securities must also meet the relevant qualifications prescribed under the SET regulations governing the listing of securities.
Similar to the provisions under the CCC, the PLCA includes mechanisms to protect the rights of Opposing Shareholders. If Opposing Shareholders disapprove of the amalgamation, the company must arrange for another shareholder to purchase their shares. The purchase price must be equivalent to the last trading price of the shares on the SET prior to the resolution approving the amalgamation. If no trading price is available, the value must be determined by an independent appraiser jointly appointed by the amalgamating companies. If the Opposing Shareholders fail to sell their shares within 14 days of receiving the purchase offer, the company may proceed with the amalgamation, and such Opposing Shareholders will be deemed to have become shareholders of the newly amalgamated entity. This mechanism provides Opposing Shareholders with a clear exit option while enabling the corporate restructuring process to progress efficiently.
Key Considerations
Although the merger and amalgamation schemes are relatively straightforward, there are certain key considerations that might impact the structuring of the consolidation or become critical factors when contemplating a merger or amalgamation.
Rights and Obligations
Upon completion of an amalgamation or merger, all assets, liabilities, rights, obligations, and responsibilities of the amalgamating or merging companies will seamlessly transfer by operation of law. In the case of a merger, these are assumed by the surviving entity, whereas in an amalgamation, they vest in the newly formed entity.
Notwithstanding the foregoing, specific provisions or obligations in agreements entered into by the amalgamating or merging entities may require them to obtain consent from relevant counterparties prior to proceeding with the amalgamation or merger. Additionally, certain actions and/or notifications may be required by relevant authorities or commercial banks to inform them of the amalgamation or merger or to update the corporate registration particulars contained in certain licences or official documents, particularly under the amalgamation scheme where a new entity is formed.
Employment
Although the rights and obligations of the amalgamating or merging companies are automatically transferred to the amalgamated or merged company, Section 13 of the Labour Protection Act B.E. 2541 (A.D. 1998) (as amended) specifically requires that the employees' consent be obtained prior to such a transfer.
Creditors’ Objection Period
Under both the CCC and the PLCA, a company must notify its creditors of a resolution to merge or amalgamate with another company within 14 days from the date of the shareholders' meeting and publish the resolution in a widely circulated newspaper within the same period. In both cases, creditors are granted a specified period to object, and the merger and/or amalgamation cannot proceed if objections are raised by the creditors until the company either settles the debt or provides security for it. However, the PLCA allows creditors two months from the date of receiving the notice to object, while the CCC grants only one month and requires that the notice be sent to creditors whose names are listed in the company’s records.
Tax Incentives
The key benefit of amalgamation is the available tax exemptions, including corporate income tax, VAT, specific business tax and stamp duty, which will significantly reduce the cost of the transaction.
It is worth noting that while the legal requirements under the CCC for both amalgamation and merger are almost identical, these two schemes are categorised separately from a tax perspective under the Revenue Code of Thailand. According to the ruling No. GorKor 0702/1112 dated 21 February 2024 by the Revenue Department, a merger under the CCC is not considered an amalgamation but rather an entire business transfer. This raises certain issues regarding corporate registration and tax exemptions. Under the Revenue Code, specific requirements must be met for an entire business transfer to qualify for tax exemptions. For example, the transferor must register its dissolution and commence the liquidation process within the same accounting period in which the entire business transfer occurs. However, from a registration perspective, it is still unclear whether a merger should be registered in the same manner as an amalgamation (where all rights and liabilities are automatically transferred by operation of law) or whether it should follow the tax perspective, requiring the dissolution of the merging entities to qualify for tax exemptions.
This document is solely intended to provide an update on recent developments in Thailand legislation and
is not purported to provide a legal opinion, nor a legal advice to any person.