The irregular shareholders’ resolution of the Thai Co., Ltd.

The irregular general meeting is no convenient short-cut for foreign investments in Thailand

It is the street-wisdom of (foreign) investors, that formalities are not so important for company issues in Thailand, as long as the shareholders and directors do not fight against each other. Any negligence and mistake in a shareholders’ resolution do not damage its validity if neither the shareholders nor its director swiftly starts a formal court proceeding on this topic. As a result, all the shareholders’ resolutions can be made just on paper, avoiding the hassle of a real shareholders meeting with invitation letters, room reservation and appearance in person or by proxy on that date and venue. Not.

The law does not at all stipulate that any illegality is healed by a formal registration at the Ministry of Commerce. Under Section 1195 Civil & Commercial Code of Thailand, if a general meeting has been summoned or held or passed a resolution contrary to the provisions of the Thai legislation for the general meeting or contrary to the regulations of the company, the court shall, on application of any director or shareholder, cancel the resolution of such irregular general meeting, provided that the application is entered within one month as from the date of the resolution.

It is the conventional thinking to overvalue the benefits from such legislation and to underestimate its imminent danger:

  • There are shareholders resolutions which are void forever and the court can be involved in this case even some years later.
  • Foreign investors encounter that shareholders meetings are held without their knowledge and resolutions are made without their participation.

Under Section 1107 para 5 CCC, the provisions of Section 1195 CCC apply mutatis mutandis to the statutory meeting of the company.

The irregular shareholders’ resolution

A shareholders resolution can be irregular for various reasons. Possible causes of a defect can be classified as follows:

Case #1. The general meeting has been summoned contrary to the company’s bylaws or the law. Most typical cases are that the shareholders are not invited to the general meeting under Section 1175 CCC. However, another case would be that a shareholder summons a meeting instead of a director, although the requirements of Section 1174 para 2 CCC are not fulfilled.

Case #2. The general meeting is held contrary to the company’s bylaws or contrary to the law. For example, the general meeting could take place although the quorum of Section 1178 CCC is not reached.

Case #3. The general meeting is not held at all. It is just feigned and faked on paper, without a real meeting.

Case #4. A shareholders’ resolution is passed contrary to the company’s bylaws or contrary to the law. A shareholders resolution could be made without taking preference shares properly into consideration. The resolution can be done on a topic not mentioned in the invitation to the shareholders. Or the votes may be counted based on an oral proxy (Section 1187 CCC) or a proper proxy is rejected without reason.

Case #5. A resolution has not been done in reality. It is just feigned and faked on the minutes of the shareholders’ meeting.

Case #6. The shareholders’ resolution is passed contrary to legal requirements other than the company’s bylaws or contrary to section 1171 – 1194 CCC. As an example, the capital reduction is resolved for more than one-fourth of its total amount (Section 1225 CCC).

Section 1195 CCC deals only with the cases #1, #2 and #4, but not about cases #3, #5 and #6.


Cancellation of an irregular shareholders’ resolution

Under Section 1195 CCC a resolution of the shareholders is valid, if not revoked by a court. However, such cancellation needs

  • the application by any shareholder or director and
  • such application has to be made within one month as from the date of the resolution.

The law does not take into account when and whether the absent shareholder obtains knowledge of the general meeting and its resolutions and when such resolutions are registered at the Ministry of Commerce.

Cases 3, 5 and 6 do not fall under Section 1195 CCC. Each and every party can at any time assert a claim based on the voidness of the resolution. There is no protected good faith in a shareholders resolution which has been properly registered in the company’s register. The case can be brought to court after the one month period has been elapsed.

Implications for the corporate structure

Section 1195 CCC is not at all conceived to protect minority shareholders. It is not exceptional that foreign investors are surprised by shareholders’ resolutions which have been concluded on an irregular general meeting without their knowledge, under disrespect of attendance requirements and a preference share structure and typically with an adverse outcome for the foreigner.

On the other side, lots of resolutions are made based on the incorrect assumption that they will be valid and final after a month has elapsed. The truth is that the invalidity remains forever and this misconception may come to light at the worst possible time.

Criminal liability risks

For some time already, complains about irregularities are not at all ignored by the authorities. Instead, an investigation is started, the full scope of documentation has to be provided, and any suspicious findings are shared with the police.

The application and the registration of wrong statements are punished under Thailand’s Criminal Code as follows:

  • Section 137 Penal Code: Whoever, giving any false information to any official, and is likely to cause injury to any person or the public, shall be punished with imprisonment not exceeding six months (or fined, or both).
  • Section 267 Penal Code: Whoever causes officials in the execution of their duty to make any false entry in the public or official document for the aims to be used as evidence, shall be imprisoned up to three years (or fined, or both).

Convicted foreigners will typically lose their residence permit and might be blacklisted in Thailand.

It is good advice to carefully consider the risk profile of a Thai company and to provide it with sophisticated risk management to avoid a rude awakening after the initial euphoria.

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