Where a liability limited company has fully paid up their registered capital, it is generally accepted that the shareholders are not liable for any further losses. However, there are cases where civil lawsuits can be undertaken against the shareholders, otherwise known as piercing the corporate veil. Normally, Section 1096 of the Civil and Commercial Code stipulates that the liability of shareholders should not exceed the unpaid amount of their shares in the limited company. This means that shareholders are generally protected from incurring any liabilities should a company ever face legal action, making a Limited Company structure popular among investors.
However, there have been cases when plaintiffs have pursued shareholders through a civil lawsuit as a result of a breach of contract or tort liabilities, such as debt. This situation is colloquially referred to as “piercing the corporate veil” where courts disregard the limited liability protections afforded to shareholders and hold them personally liable for a company’s actions or debt. Though many shareholders would fight tooth and nail to contest such an action, there are mechanisms in place that facilitate this in Thai courts.
This was exactly the case in Constitutional Case #4-5/2562 of 10 April 2019 where the Constitutional Court ruled against an objection letter filed by shareholders against a ruling made against them under Section 44 of the Consumer Case Procedure Act B.E. 2551. The objection letter stated that Section 44 of the Act was contrary to Sections 26 and 37 of Thailand’s constitution with respect to the principle of proportionality and rule of law. The Court ruled against the objection letter as it deemed that Section 44 does not place unwarranted burdens or restrictions on any rights or freedoms of the company and its shareholders given that the Act equally applied to all business operators. Furthermore, the Court also stated that the Act was put in place to legally protect consumers, who are often in a more disadvantageous position than shareholders of a company.
How do Thai courts approach “piercing the corporate veil”?
As demonstrated during Constitutional Case #4-5/2562, Thai courts can invoke Section 44 and pierce a company’s corporate veil as they see fit. Generally, this is geared towards partners, shareholders, or any other person who holds decision-making power over a company’s operations, regardless of the shares they hold. On top of this, Thai courts also generally attribute the following conditions when determining whether a person is legally liable for corporate debts and other civil liabilities:
1. A civil case must be filed under the criteria of ‘consumer case[1]’ which encompassed civil cases that involve an entrepreneur and consumers;
2. The company is incorporated and has acted in bad faith or has behaved in a deceitful manner against consumers, which may include embezzlement of the juristic person’s property; and
3. The company holds insufficient assets to fulfill its obligation as per the complaint.
It is also worth noting that Section 44 places the burden on shareholders if it can be proven that they were involved in a company’s wrongdoing, whether it be tort or contractual. The Supreme Court also states that Section 44 of the Act only works as a rebuttable presumption of civil liability rather than a presumption of guilt under criminal law.
Pursuing cases that involve piercing the corporate veil can be complex and contingent on several conditions. For more information about pursuing civil actions against shareholders of a company, contact us at info@silklegal.com or using the contact form provided.
[1] Section 3 of the Act
