Shareholder disputes and corporate disputes are issues that commonly arise, particularly in companies with multiple groups of shareholders or with foreign investors. In Thailand, our dispute resolution lawyer’s team at Herrera and Partners H&P, have represented a large number of clients in this type of litigation works, especially in structures under Thailand Foreign Business Act. Conflicts often stem from disagreements regarding control over the company, management of the company, and corporate benefits, for example:
- Conflicts over control of the company, such as disputes relating to voting rights and management control, including the appointment of directors or the determination of company policies.
- Breach of directors’ duties under Section 1169 of the Civil and Commercial Code. In conducting business or acting on behalf of the company, directors have a duty to act in the best interests of the company with honesty and due care. If a director acts with a conflict of interest or seeks personal gain, such conduct may constitute a breach of duty. Where a director performs duties in a manner that causes damage to the company, the director may be liable both civilly and criminally.
Misconduct by directors is a common issue in litigation, as directors have the authority to manage the company on behalf of shareholders.
- Minority shareholder issues, where minority shareholders may be restricted in accessing information or participating in management, such as the failure to declare dividends without reasonable cause or actions affecting the value of shares.
- Disputes concerning meetings and resolutions of the company, such as improper convening of meetings, lack of quorum, or resolutions passed in violation of the company’s regulations, which may render such resolutions unlawful.
- Disputes relating to shares and shareholder agreements, such as disputes over share transfers or breaches of shareholder agreements.
In addition to the above issues, with regard to foreign investors, investors may sometimes misunderstand that their investment automatically grants them shareholder status and voting rights in meetings or authority in company management. Under Thai law, the legal authority to manage the company, determine its direction, or initiate legal proceedings rests with the directors, or to initiate legal proceedings, shareholders may proceed in cases where directors fail to act and such failure may harm the company. In this regard it is important that the foreign investor receive a comprehensive legal advice from day one to avoid legal risks in the ventures in Thailand. In our law firm in Thailand H&P, our litigation team realizes the importance of securing the foreign investor interests in corporate structures under Foreign Business Act, Board of Investment, Amity Treaty and FBL.
To prevent such issues, the key matter lies at the stage of company formation. It is crucial to establish a proper structure, clear internal agreements, and ensure that the incorporation process and resolutions are conducted lawfully. Particular attention should be given to key points such as voting rights, voting thresholds, and matters requiring special approval.
In cases where disputes arise, it is necessary to determine the source of damage. If the damage is caused by a director’s wrongful act or conduct detrimental to the company, the company may bring a claim for damages against the director. If the company refuses to take action, any shareholder may initiate such claim under Section 1169 of the Civil and Commercial Code.
Where damage arises from a shareholders’ resolution, a petition may be filed to revoke an unlawful resolution. Even a minority shareholder has the right, as a shareholder, to challenge such resolution. Under Section 1195 of the Civil and Commercial Code, any director or shareholder may apply to the court to revoke an irregular resolution of a general meeting, provided that the application is filed within one month from the date of such resolution.
In severe cases where the company is no longer able to continue its business, such as where the company does not commence operations within one year from registration, suspends operations for a full year, continuously incurs losses with no reasonable prospect of recovery, the number of shareholders is reduced to only one, or other grounds as prescribed by law, a shareholder may petition the court to order the dissolution of the company under Section 1237 of the Civil and Commercial Code.
Alternatively, dispute resolution may be pursued through alternative dispute resolution mechanisms. In cases involving foreign investors, arbitration or mediation may be appropriate options due to their more flexible procedures. However, such mechanisms must be agreed upon in advance in a contract, and once an arbitral award is rendered, it must be submitted to the court for enforcement in order to have legal effect.
If you want to receive legal advice regarding a shareholding or corporate dispute under Thai Law, please contact our litigation team in Bangkok at info@herrera-partners.com
