Foreign Investment- A tightening of shareholding rules?

Foreign Investment – A tightening of shareholding rules?

January 16 2012 Categories: Doing Business In Thailand, Thailand Business, Thailand Foreign Business Act No comments yet

This morning in the Bangkok Post was an interesting article about the tightening of insurance shareholding rules by Sorachon Boonsong a Thai lawyer. In substance, Khun Sorachon comment on a ruling from the Council of State dated of 14 September 2009 in relation to the new shareholding requirements of the amended Life and Non Life Assurance Act.

The Council of State Ruling

Pursuant to the new amended disposition, foreign shareholding in an insurance company must be less than 25% and Thai Shareholders must hold more than 75% of the total number of voting shares sold. The Council of State was requested what “voting shares sold” means?

According to most legal dictionaries voting shares means: “a voting share (also called Common stock or Ordinary share) is a share of stock giving the stockholder the right to vote on matters of corporate policy and the composition of the members of the board of directors”.

Voting shares are opposed to non-voting shares that simply entitles the holder to dividends if any.

Based on this definition you would think that voting shares sold would mean shares with a right of vote and therefore that Thai shareholders should be required to hold 75% of the shares having a voting right in any insurance companies.

However that was not to be the decision of the Council of State which concluded that “voting shares sold” is deemed to be synonymous to “voting rights”.

What is the fuss about you may ask?

The fuss is that while the Life and Non Life Insurance requirements in terms of foreign ownership is already more strict than the Foreign Business Act by setting a 25% foreign ownership shareholding, the Council of State ruling (even if not binding) made it even more tougher by pointing the finger at preferred shares structures.

Because what the Council of States ruling really means is that foreign shareholder may not hold more than 25% of the voting rights of any insurance company, which rules out preference shares with prefered voting rights structures.

The average foreign investor may think that this issue does not concern him as he does not after all intend to invest into an insurance company but this is wrong. Because that was what the previous attempt to amend the Foreign Business Act (“FBA”) was all about, that is to say to end “preference shares” structure by adding an new paragraph to Section 4 of the FBA as follows: “(iv) of which half or more of the total voting power are controlled or held or exercised by a foreign natural person or juristic person whether in application of the law, or of the articles of association said juristic person or through an agreement.”

This kind of ruling is a matter of concern for all foreign investors because it is one more sign that the government is trying to regulate foreign investment more toughly that it already is, and it may also be a sign that we are due for another attempt to modify the FBA foreign definition. Now this is bad especially if you look at the economical growth figures for Thailand. According to the Asian Development Bank most recent survey also published in this morning Bangkok Post, developing Asian economies will post an average growth of 6.4% in 2010 while Thailand will only post a growth of 3.2% thanks I guess to Thai politicians and their Thai political crisis.

With an economy less attractive that its neighbors Thailand should do its best to attract foreign investment and not try to make it more complicated.

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

Originally posted 2009-09-23 04:15:46.

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