1. What are the key topics that boards should focus on to ensure proper discharge of their duties as directors, as their businesses return to work following a lockdown?
Apart from a board of director’s general fiduciary and best interest duties, the board should also monitor and comply with the various (current and future) lockdown and disease control measures, and other orders as announced by relevant public authorities.
2. Should boards adopt particular governance practices in this context?
Yes. If there are specific corporate governance requirements as announced by supervisory authorities, the board of directors shall follow such requirements, including any updates.
3. To what extent are boards being encouraged to take into account corporate purpose and values in the context of COVID-19 and a return to work?
Under the Thai Civil and Commercial Code, directors must apply the “diligence of a careful businessman in operating the business.” The director, as an agent of the company, is liable for any damage resulting from their negligence or omission, or from an act done without or in excess of authority.
Therefore, the board of directors should adhere to its fiduciary and best interest duties whereby the corporate purpose and values shall be considered together with the factual circumstances and the development of the COVID-19 situation. This is to protect the interests of the company and for the director to avoid the possibility of facing tortious claims in the future.
4. Your company is facing liquidity issues as a result of COVID-19:
a. What are the repercussions for continuing to operate your company?
No. In Thailand, there are bankruptcies and court-supervised rehabilitations under the Thai Bankruptcy Act.
For bankruptcies, only a creditor may file a Bankruptcy petition against a debtor (company). However, it may do so only where the debtor is:
- indebted to one or several creditors for an amount not less than THB1 million (USD32,000) (for an ordinary person) or THB2 million (USD64,000) (for a business entity); and
- the debt is a definite amount regardless of whether it becomes due for payment immediately or in the future.
For court-supervised rehabilitations, either the creditor or the debtor (company) can file a petition for the reorganisation of the debtor’s business. However, they may do so only where the debtor is:
- indebted to one or more creditors in the amount not less than THB10 million (USD322,000); and
- the debt is a definite amount regardless of whether it becomes due for payment immediately or in the future. Further, there must be reasonable grounds and prospects for the reorganisation of the business of the debtor.
b. Do you have to file for insolvency if your company cannot pay all its debts as they fall due?
We recommend directors consider implementing the following measures:
- Consider whether the actions being taken are in accordance with a director’s duties under:
- a director’s duty to “apply the diligence of a careful businessman”;
- a director’s fiduciary duties; and
- a director’s duty to act in the company’s best interests.
- Properly document decisions made, the reasons for them and the factual circumstances surrounding said decision.
- Hold and carefully document board meetings and carefully follow board resolution approval processes.
- Actively engage with key internal and external stakeholders (e.g. suppliers, banks and landlords) to understand the state of the company.
c. Are there any steps that should be taken to minimise the risk of your actions as director being challenged?
A mechanism like that of winding up in the common-law sense exists in Thailand. Where a company has become unable to repay its debts when due, a creditor may petition the court to initiate bankruptcy proceedings against the company. If approved by the court, this triggers a process whereby the assets of the company are liquidated to repay the debts owed.