Directors' liability: impact of new law on public limited companies (Part III)

Directors' liability: impact of new law on public limited companies (Part III)

The Directors' Liability Amendment Act 2017, amending 76 other statutes and effective in February this year, does offer better protection -- if and only if you are a company director and executive of a private limited company.

Unfortunately for public limited companies, either listed on the Stock Exchange of Thailand or the Market for Alternative Investment, the new statute won't be of any value to you. Instead it could impose a tremendous burden on you in terms of how you do business, as it penalises directors and executives who "fail to fulfil their duties".

Section 85 of the Public Limited Companies Act 1992, which has not been amended and is not included in the 76 laws says: "Directors must fulfil their duties according to law." Section 89/7 of the Securities and Exchange Act 1992, also not among the 76 laws, similarly states: "In operating the business of the company, directors and executives must comply with all laws."

Also view:
- Part 1
- Part 2
- Part 3

Evidently, the two laws mentioned above impose the duty to comply with all laws on all directors of a public company. The link between them and the Directors' Liability Amendment Act 2017 is the 76 laws that the latter amends, which include such universal laws applicable to all public companies as the Revenue Code, Immigration Act, Accounting Act and specialised laws applying to banks and real estate companies, namely the Financial Institutions Business Act, Condominium Act and Land Allocation Act, respectively.

This suggests that if your company is listed and you violate any of the 76 laws that apply to your business, you as a director could be liable to criminal liability under the Directors' Liability Amendment Act for failing to carry out your duty "to comply with all laws".

While the Act affirms the presumption of innocence and shifts the burden of proof back to state prosecutors, it adds no particular benefit to public companies. Prosecutors are likely to find it convenient to prove you are a director of a company based on the registration records at the companies registrar and other documents appointing you as an executive. The state does not even have to prove you have the duty to abide by all laws -- it just has to cite Section 85 of the PLC Act and Section 89/7 of the SEC Act, and the court, being a legal expert itself, will be able to discern it under the legal doctrine of judicial notice.

What is left for prosecutors to prove beyond reasonable doubt will be the actual facts of your breach of regulatory requirements. Some breaches will be clear. These include a lack of necessary operating licences, real estate developers violating the building control code, banks lending to corporate borrowers beyond various mandatory ratios or granting a credit facility without proper loan security, life or general insurance companies breaking their industry's stipulated rules, or a listed company committing accounting fraud.

Public company directors and executives are criminally liable under the new law, on top of the criminal liability imposed by the SEC Act, a double exposure to legal risks.

Not all public companies face the double legal risks; only those governed by the 76 amended laws are exposed. To find out whether you are in the loop, go down the list of the laws revised by the new act and determine which law governs your business.

If you are a public company and can be classified as any of the following types of business, you could be affected: banks, life insurance, general insurance, real estate, construction, oil and gas and energy, mass transit, telecommunications, retail and wholesale, engineering consulting, architecture, accounting, shipping, airlines, places of entertainment, companies hiring foreign nationals, manufacturing, information technology, e-commerce, financial technology, internet, publishing, sugar production, provident fund management, private universities and medical equipment manufacturers (direct-sales companies are also in this group, though not covered by the 76 laws).

Risk mitigation -- reviewing your compliance efforts and improving your record keeping as we discussed in our previous article -- starts with a compilation in one place of all the regulatory requirements you and your company are obligated to abide by. Like it or not, the attempt adds to documentation and bureaucracy and could disrupt your profit-earning objectives. Nevertheless it is a fact of life for listed companies worldwide -- a global trend with no return. Significant compliance issues might have to be detailed in board meetings and minutes.

Regulatory training for your employees will help. More attention should be paid to the process of accumulating and rearranging documents that could turn into legal evidence at a future date. For example, if you are a bank, it is no longer sufficient to keep your records for three years as required by your regulator. You might need 10 years' worth of material to cover the statute of limitations for possible criminal liability as most statutory breaches carry that time bar.

Truth be known, the silver lining of all this is a Corporate Governance Code issued by the SET, the latest version of which was launched in coordination with the SEC and related organisations last month in March. The CG Code can come in handy in that it offers detailed guidelines on securities law compliance, although it does not address other relevant laws.

In your own attempts to bridge the gap, you could come up with a code of conduct for your directors, executives and employees, aimed at pre-empting non-compliance with other laws in general, which could feature anti-corruption and anti-competition components, the two areas of law that have grown in intensity both in Thailand and overseas.


Wirot Poonsuwan is a practising lawyer and can be contacted at wirotp@loxinfo.co.th

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