Case Update - 05 October 2016

SHARE AND ASSET ACQUISITION

 

Transfer of Employees, Protection of IP/know-how developed by the Employees ,Protection of Customer Relationships and Foreign Business Operation

 

There are no specified laws and regulations for share deal acquisitions or asset deal acquisitions in Thailand. The transfer of shares and/or assets, depending on the choice made by the parties, shall be in accordance with general relevant provisions in the Civil and Commercial Code (“CCC”) and the relating company’s articles of association. For the other related matters, such as labour & employment, IP and foreign business operation, it may be specified in other Acts which particularly govern the said matters; and/or in relevant agreements between the parties.

 

The following are the statutory provisions which relate to the share and asset deal acquisition, transfer of employees, protection of IP/know-how developed by the employees and protection of customer relationships:

 

Share Acquisition

Section 1129 of the CCC states that:

 

“Shares are transferrable without the assent of the company unless, in case of shares entered in a name certificate, it is otherwise provided in the regulations of the company.

 

The transfer of shares entered in a name certificate is void unless made in writing and signed by the transferor, and the transferee, whose signatures shall be certified by one witness at least. The instrument must state the numbers of the shares to which it refers.

 

Such transfer is invalid against the company and third persons until the fact of transfer and the name, and address of the transferee are entered in the register of shareholders.”

 

Asset Acquisition

Section 453 of the CCC states that:

 

“Sale is a contract whereby a person, called the seller, transfers to another person, called the buyer, the ownership of property, and the buyer agrees to pay to the seller a price for it.”

 

It should be noted that, in case of the sale of immovable property and/or certain machinery, the sale is required to be made in writing and registered by the competent official; otherwise it will be void according to Section 456 of the CCC.

 

Employees

Section 13 of the Labour Protection Act B.E. 2541 states that:

 

“Whereas there is a change of Employer in any business due to a transfer, inheritance or in any other cases, or whereas an Employer is a juristic person and a change, transfer or merger with another juristic person is registered, all rights due to an Employee from a previous Employer shall continue to be due to the Employee, and the new Employer shall assume all rights and duties relating to such Employee.”

 

According to the above particular provision, the new employer will have to assume all the rights and liabilities of the former employer towards the transferred employees prior to the transfer. These include, among others, the same basic salary, continuation of years of service, annual leave entitlement, gratuities and provident fund scheme, as well as financial assistance and bonus payments. Should this approach be adopted, the new employer will end up having two sets of benefits available for two groups of employees, namely one for the existing staff of the new employer and the other for the transferred employees. This could create discrimination among the new and old employees, which may lead to serious conflicts between and among employees and the management on the grounds of unfair treatment. The transfer of employment between different entities by virtue of Section 13 of the 1998 Act is extremely difficult to transact due to the facts that different entities have different work rules and benefits applicable for their respective employees.

 

In order to get around the obstacles already mentioned, the transfer of employment may be affected by virtue of Section 577 of the CCC, which provides:

 

“The employer may transfer his/her right to a third person with the consent of the employee.”

 

This approach requires consent from all the employees concerned. Once the consent is given, the strict rules of the new employer to assume the rights and liabilities of the former employer under Section 13 of the 1998 Act will not be apply.  The employees to be transferred will have to negotiate and discuss with the new employer concerning the conditions of employment, including all the benefits to be offered. Should the agreement be reached, the employees to be transferred will have to adhere to the new working regulations already issued/to be issued by the new employer. This option may be transacted by execution of a tripartite MOU between the former employer, the new employer and the transferred employees.

 

However, if the employee does not agree to such transfer, the former employer may adopt the following alternatives:

 

(a) retain him/her as employee; or

(b) terminate his /her employment.

 

If alternative (b) is adopted, the former employer (not the new employer) will be obligated to provide severance pay to the terminated employee by virtue of Section 118 of the Labour Protection Act 1998 (the “LPA”).

 

IP/Know-how Developed by Employees : Ownership and Transfer

 

Normally the ownership of IP/know-how will belong to the person who creates/develops it, e.g. the employees; unless it is agreed otherwise by the parties to the contract. If the ownership of the IP/know-how developed by the employees belongs to the selling company, it may be transferred by written documentation (for IP rights which are not required to be registered with the Department of Intellectual Property (“DIP”) according to the law, such as copyright); or by registration with the DIP (for the type of IP rights which is required by law to be registered with the DIP, such as patents and trademarks).

 

Regarding the ownership of IP/know-how regarding designs which are developed by employees (“Design”):

 

  • Thai laws specify as to who will have the ownership of such Design. However, the employer and employee may otherwise agree in writing.
  • The ownership of the Design may belong to the employee if the Design falls under the meaning of ‘copyright work’ in the Copyright Act B.E. 2537. In this regard, if the employer wishes to have the ownership in the Design, the employer and employee may agree to transfer the ownership of such Design from the employee to the employer in the employment agreement; or in a new agreement in case there is no employment agreement already existing between them.
  • In contrast, the ownership of the Design may belong to the employer if the Design falls under the patent for designs under the Patent Act B.E. 2522. Nevertheless, if the name in the patent is the employee’s name, the employer has to apply for the transfer of such Design from the employee to the employer, which is required by law to be registered with the Department of Intellectual Property (“DIP”).

 

The following are provisions relating to the ownership and the transfer of ownership of IP rights, which may be concerned:

 

(i) Patent

Section 10 of the Patent Act B.E. 2522 states that:

 

“The inventor shall have the right to apply for a patent and to be named as such in the patent.

 

The right to apply for a patent may be assigned or transferred by succession.The assignment of the right to apply for a patent must be made in writing and shall require the signatures of the assignor and assignee.”

 

Section 11 of the Patent Act B.E. 2522 states that:

 

“The right to apply for a patent for an invention made in the execution of an employment contract, or a contract for performing a certain work, shall belong to the employer or the person having commissioned the work, unless otherwise provided in the contract.

 

The provision of the first paragraph shall apply in the circumstance where an employment contract does not require an employee to exercise any inventive activity, but the employee has made the invention using any means, data or report that his/her employment has put at his/her disposal.”

 

(ii) Trademark

Section 48 of the Trademark Act B.E. 2534 states that:

 

“The right to a pending trademark application may be assigned or transferred by succession.

 

The assignment of the right to an application under the first paragraph shall be notified to the Registrar prior to registration by the assignor or assignee.

 

In the event of the death of the applicant, any heir of the administrator of the estate shall, prior to registration, notify the Registrar in order to give effect to the right to inherit the application.

 

The transfer or inheritance of rights to trademark applications under paragraph one shall be in accordance with the rules and procedures prescribed in the Ministerial Regulations.”

 

Section 49 of the Trademark Act B.E. 2534 states that:

 

“The right to registered trademark may be assigned or transferred by succession with or without the business being concerned in the goods for which the trademark is registered.

 

The assignment or transference by succession of the registered trademark, as referred to in the first paragraph, may be for the whole or partial type(s) goods.”

 

(iii) Copyright

Section 9 of the Copyright Act B.E. 2537 states that:

 

“Copyright in the work created by the author in the course of employment vests upon the author unless it has been otherwise agreed in writing, provided that the employer is entitled to communicate such work to the general public in accordance with the purpose of the employment.”

 

Protection of Customer Relationships

 

  • There is no specific law governing the protection of customer relationships in Thailand. Nevertheless, Thai law recognises the non-competition and non-solicitation clauses specified in employment agreements, subject to the conditions that it must be fair and reasonable for the particular circumstances (i.e. it must not cause the person whose right or freedom is restricted to assume a burden more onerous than what can normally be expected); otherwise the court is empowered to interpret and apply such clause(s) as it deems fair and appropriate to the circumstances, according to the Unfair Contract Terms Act of 1997 and the LPA. Notwithstanding the recognition and enforceability of the non-competition clause, and solicitation clause as mentioned above, it is quite difficult in practice to successfully prevent the employee from joining the employer’s competitor or from inducing other key personnel to terminate his/her employment with the current employee; the employers are normally granted damages for breach of restrictive covenant by the court instead. It should be noted that, from our experience, the amount of damages in this type of case is likely to be nominal. This is because, according to Section 222 of the CCC, the amount of damages granted by the court is subject to the employer’s ability to prove to the court’s satisfaction that they are the amount of actual damages which the employer has suffered as a result of its employee’s breach; which is very difficult to prove. For example, the cost for the recruitment of the new staff to replace the employee is normally granted by the court; whereas consequential loss or loss of business profit is unlikely to recover due to uncertainty.

 

  • In case of the asset deal acquisition, and where the purchaser would like to replace the seller in any particular contracts with the seller’s customers, this may be transacted by assignment of rights and obligations under such particular agreements, or novation.

 

Foreign Business Operation

 

Share Acquisition may cause the company to be regarded as Foreigner, the result of which is that the company cannot continue to engage in the current business operation unless the Foreign Business License is obtained. In addition, in case the company owns land or engages in the real estate business, the company is required to dispose of the land and to cease the real estate business operation.

 

Foreigner

 

Foreign Business Act AD 1999 (“FBA”) prohibits “Foreigner” (as defined in Section 4 of the FBA) from participating in specified business activities and required certificates or licenses to be obtained before engaging in such business activities.

 

“Foreigner” is defined in Section 4 of the FBA as follows:

 

“Foreigner” means

 

(1)      Natural person not of Thai nationality.

(2)      Juristic person not registered in Thailand.

(3)      Juristic person registered in Thailand having the following characteristics:

 

(a)      Having half or more of the juristic person’s capital shares held by  persons under (1) or (2) or a juristic person having the persons under (1) or (2) investing with a value of half or more of the total capital of the juristic person.

 

(b)      Limited partnership or registered ordinary partnership having the person under (1) as the managing partner or manager.

 

(4)      Juristic person registered in Thailand having half or more of its capital shares held by the person under (1), (2) or (3) or a juristic person having the persons under (1), (2) or (3) investing with the value of half or more of its total capital.

 

For the purpose of the definitions, the shares of a limited company represented by share certificates that are issued to bearers shall be deemed as the shares of foreigners unless otherwise provided by ministerial regulations.

 

xxxxx

 

(Note : This article is not to be treated as a legal opinion but rather only as a guide on,  Share and Asset Acquisition)

 

 

This article is prepared by Ms. Nilobon Tangprasit, Ms. Chanakarn Boonyasith and Ms. Siriwan Nopareporn

(September 2016)

 

 

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