1. What are the typical ownership structures for project companies in your jurisdiction? Does this vary based on the industry sector?
Typically, a private limited company will be established for the sole purpose of carrying out a specific project, and the ownership structure (foreign shareholders to Thai shareholders) will vary based on the business activities to be carried out by the project company and the applicable legal and regulatory framework.
In this regard, a company registered in Thailand is considered foreign under the Foreign Business Act B.E. 2542 (1999), as amended ("FBA"), if at least half of its shares are held by non-Thai natural or juristic persons. Such a company is restricted from operating certain businesses without a foreign business license ("FBL") or a foreign business certificate ("FBC").
It should be noted that "service business," which is broadly interpreted as an activity that involves the performance of any valuable action, deed or effort to satisfy a requirement or fulfil a demand or the sale of intangible products (e.g. time, energy or expertise) for the benefit of customers, falls within the scope of restricted activities under the FBA and therefore require an FBL or FBC before commencement of the business operations.
In general, approval for an FBL is not readily granted unless the authorities are convinced that granting approval will benefit the country's economy. The FBL application process is time-consuming and requires extensive information. In our experience the preparation of the FBL application and supporting documents can take up to eight weeks because of onerous disclosure requirements, and the FBL application process itself can take up to six months.
Foreign companies under the FBA are also prohibited from owning land in Thailand unless permitted otherwise by a specific investment incentive scheme according to applicable laws.
2. Are there are any corporate governance laws or accounting practices that foreign investors in a project company should be aware of?
Limited companies are required by law to conform its conduct to the general principles of corporate laws (e.g., principle of good faith with the objectives of the entity, duty to act to the best interest of the shareholders, separate legal personality of the corporation and delegated management).
As for specific accounting requirements, companies are required to maintain accounting records and file audited financial statements with the Ministry of Commerce annually.
Currently, the accounting and financial reporting standards used in Thailand are the Thai Financial Reporting Standards which were developed and materially based upon the principles of the International Financial Reporting Standards.
3. If applicable, what forms of credit support from sponsors or host governments are typically provided?
Corporate project sponsors will normally be required by the lenders to provide credit support to the project company in case of cost overrun and cash deficiency in the form of a capital increase or subordinated loan to the project company.
General credit support from the government is rarely provided, while subsidies from the government are sometimes given in public-private partnership projects for specific trigger events, such as termination of a project due to a reason not attributable to the project company or the private investors. The government will consider the possibility, types, and extent of support in relation to each project on a case-by-case basis.
4. What types of security interests are available (and suitable) for a project financing in your jurisdiction?
Currently, pledges, mortgages and business security are the only valid security interests recognized by Thai law.
Other contractual arrangements may be made by the parties as quasi-security, such as assignment of rights and guarantee. These arrangements are contractually enforceable between the parties, but they will not create any priority over other unsecured creditors under Thai law. Debts that are secured by contractual security arrangements will be treated as unsecured debts.
Combinations of the recognized security interests and quasi-security are typically employed to encumber the project assets in favour of the project lenders as much as possible.
5. How are the above security interests perfected?
Recognized security interests:
Pledge
Pledges can be created over moveable property. To create a valid pledge, physical delivery of the pledged property to the pledgee is required. Shares can be pledged by delivering the share certificates to the pledgee and recording the pledge in a registry book maintained by the company. However, for listed shares, the share certificates do not need to be physically delivered. Rather, a pledge can be created through the book-entry system maintained by the Thailand Securities Depository Company Limited, the registrar for shares listed on the Stock Exchange of Thailand.
Pledges are automatically discharged when the pledged property is physically returned to the pledgor.
Mortgage
A mortgage can be created over immovable property (such as land and buildings) and certain types of movable property such as machinery, ships or vessels weighing at least five tons, floating houses or rafts and beasts of burden (such as elephants, horses, and buffaloes).
To create a mortgage, it is necessary to execute a mortgage agreement in an official form and register it with the competent officers (such as the Land Office in the case of a land mortgage). The parties may add their own terms and conditions by way of a supplemental agreement. The mortgage agreement and its supplement must be executed before an official at the competent office when they are presented for registration.
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Originally published by The Legal 500.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
