Thailand: Public Limited Company Act: A Comparison Of The Old And New Acts

The amendment was proposed by an assigned working group consisting of representatives from relevant government agencies and the private sector. These included the Ministry of Commerce, the Bank of Thailand, the Securities and Exchange Commission, the Stock Exchange of Thailand, the Association of Securities Companies, and the Federation of Thai Industries, among others. The main objectives of the amendment are: (1) to resolve problems connected with accumulated losses currently borne by a number of public companies as a consequence of the economic crisis, (2) to facilitate debt restructuring, and (3) to restore investors’ confidence in the Thai capital market.

The Ministry of Commerce will shortly issue Ministerial Regulations under two of the amended sections. As of this writing, details of the forthcoming Ministerial Regulations are not yet available.

Following is a comparison of the PLCA 1992 and the PLCA 2001 in six areas, as well as a brief discussion of the objectives followed by our comments.

Section 50 was amended to cancel the minimum par value requirement, which has been deemed to be an obstacle in resolving the problem of accumulated losses. The amendment is also intended to facilitate trading of securities, especially listed stocks, in the stock exchange.

Without the minimum par value requirement, a company can now reduce its registered capital to compensate for accumulated losses by means of lowering the value of its shares to less than existing par value. It should be noted that a public company is still required to have a par value for its shares. Therefore, it can lower its par value to the desired minimum, as long as it is above zero and each share has equal par value.

In addition, as a by-product of this amendment, it is expected that existing listed companies, particularly those with high share market prices, will take the opportunity to lower the par value of their shares by means of "stock splitting". This will consequently lower the market price of their shares, making them more affordable to small investors.

Section 54/1 was added to facilitate debt restructuring. The "set off" rule in this section has been a major hindrance in the debt restructuring process outside the Bankruptcy Act (see note below), particularly when creditors are willing to let a debtor company convert its debts into capital by issuing new shares to them as repayment. The set off rule prohibits both parties from setting off payment of shares against debt repayment. Even though in practice this rule has been circumvented by means of exchanging and/or endorsing checks or other instruments between the parties, the legitimacy of the transaction has been questioned.

A company and its creditors are allowed to set off their debts only under the following conditions:

• The debt-to-equity conversion scheme must be for debt restructuring purposes only and approved in a shareholders’ meeting by a vote of not less than three-fourths of the total votes of shareholders attending and entitled to vote.
• The company must comply with the rules and procedures prescribed in the relevant Ministerial Regulation which will soon be issued to ensure adequate disclosure of information and to prevent fraudulent debt-to-equity conversion.

 The amendment is aimed at providing a remedy for shareholders who believe they have been treated unfairly. The new provision will also give a company an option to manage its liquidity for corporate finance purposes.

This is considered a significant change. The old provision prohibited a public company from owning its shares or what is called "treasury stock". Section 66/1 of PLCA 2001 allows a public company to repurchase its shares for two purposes. However, Section 66/1 (a) is deemed impractical because the situation described rarely happens. The reason is that a company whose shares consist entirely of ordinary shares can not provide for different voting rights and right to receive dividends in its Articles of Association, while for a company with both ordinary and preference shares, Section 65 of PLCA 1992 prohibits any change to preferential rights accruing to preference shares already issued.

A more likely situation is described in Section 66/1 (b), which a company may resort to if it deems that its shares are underpriced and if it is carrying a small amount of debt and thus excessively liquid. By repurchasing some of its shares, shareholders’ equity and the book value of shares can be enhanced. In addition, since the new provision requires that repurchased shares carry no right to receive dividends, the existing shareholders will indirectly benefit from the repurchase through increased earnings per share (EPS).

• Treasury stocks shall not count to form a quorum, nor shall they carry voting rights or the right to receive dividends to prevent management from abusing this provision in order to control majority vote.
• Under accounting rules, treasury stocks are not regarded as assets but a reduction in equity, and purchase and resale of treasury stocks do not affect profit/loss.
• The new provision only gives a company an option to repurchase its shares. It is not a requirement.
• The repurchased shares can be used to support an Employee Stock Option Plan (ESOP).
• The new provision does not require a resolution of the shareholders, therefore, share repurchase can be done merely with the approval of the Board of Directors (unless required otherwise by the relevant Ministerial Regulation).

• Holding period of treasury stocks is not more than 3 years.
• A company determines the price of shares to be repurchased.

A listed company can repurchase up to 10 percent of its total issued shares through the main board of the Stock Exchange of Thailand.

 This means that public companies can now issue preference shares with a voting right less than that of ordinary shares (for example, one vote for one ordinary share; one vote for ten preference shares). However, it should be noted that owing to official interpretation of the new provision, public companies are still prohibited from issuing preference shares, either with no voting right or with a voting right higher than that of ordinary shares.

As Section 65 of the PLCA 1992 prohibits change in any right accruing to preference shares already issued, this new provision will be applicable only to preference shares issued after the effective date of PLCA 2001.

 The amendment is intended to help many public companies suffering from huge amounts of accumulated losses. The old provision prohibited them from using their statutory reserve funds, in particular the premium reserve fund, which could have been used to compensate for their accumulated losses and enable them to adjust the shareholders’ equity to reflect its true value. The only way they could delete such accumulated losses was through the reduction of registered capital – a very time-consuming procedure, particularly the two-month waiting period for creditor objections.

The new provision has repealed such prohibition in order to help distressed public companies in resolving their financial problems. A public company is now allowed to use its statutory reserve funds to compensate for its accumulated losses. However, the company must compensate for accumulated losses strictly in the following order:

1. Other Reserve Funds
2. Legal Reserve Fund
3. Premium Reserve Fund

Unless one fund is exhausted, the company cannot use the next one. After all of the above items have been exhausted and there still remains some accumulated loss, then the company can delete such loss only through reduction of registered capital.

The purpose of amending Section 139 is the same as that of the preceding provision. Usually, if a public company wants to reduce its share capital to less than one-fourth of its total capital, the reduction can only be accomplished by reducing the registered capital twice. As previously mentioned, such process could be very time consuming. In view of the urgency under the current situation, it was deemed necessary to remove the restriction on reduction of share capital in the previous provision.

The new provision allows a public company suffering from losses to reduce its registered capital to less than one-fourth of the total capital only if the company has already exhausted all its reserve funds stated in Section 119 without wiping out all its losses. However, the procedures and requirements for reducing registered capital remain the same, i.e., a resolution of the shareholders with a vote of not less than three-fourths of the total shareholders attending and entitled to vote and a two-month waiting period for creditor objections.