Derivative Claim in Thai Laws
The derivative action is a legal scheme that allows a company’s shareholders to file a lawsuit against directors who have caused damages to the company. Unlike the typical civil case, in which the case award goes to the plaintiff, in a derivative case, the case award shall be granted to the company.
Similar to the derivative claim in the US laws, the award compensation for the derivative claim under Thai law shall be granted to the company rather than the plaintiff (shareholders). Please see below the derivative litigation in the Civil and Commercial Code and Public Limited Companies Act.
1. Thai Civil and Commercial Code
The Thai Civil and Commercial Code (“CCC”), which is the main law governing private partnerships and private companies, provides the derivative litigation scheme that allows the shareholders to claim the directors for compensation caused by the directors, with a condition that the company refuses to claim such a claim as per the shareholders’ request.
In this provision, any shareholder may file a claim against the directors. There is no condition that the claiming shareholder must hold a particular amount of share capital in the company in order to qualify to take the action. In addition, the shareholder must first request the company to file a claim against the directors who caused damage to the company, and such a shareholder will be able to file a claim after the company refuses to file such a claim. There is no definition of “the company refuses to file a claim”; therefore, it could be reasonable for the shareholders to file a claim against the directors after a few weeks of submitting the request to the company, but the company does not file a claim against the directors.
In addition, this section 1169 of the CCC only allows the compensation claim. The plaintiff cannot claim to cancel any action that the directors have already performed, including a resolution that the board has already approved (Supreme Court Judgment No. 4605/2561).
2. Thai Public Limited Companies Act B.E. 2535 (1992)
Section 85 of the Public Limited Companies Act B.E. 2535 (1992) (“PLCA”) also provides the derivative litigation right to the shareholders, whereby the shareholders may file a claim against the directors who caused damage to the company. Section 85 of the PLCA states as follows:
Section 85. In conducting the business of the company, the directors shall comply with all laws, the objects and the articles of association of the company, and the resolutions of the meeting of shareholders in good faith and with care to preserve the interests of the company.
In the case where any director performs any act or does not perform any act, which fails to comply with paragraph one, the company or the shareholders, as the case may be, may proceed as follows:
- if such act or omission causes damage to the company, the company may claim compensation from such director.
In the case where the company fails to make such claim, any one or more shareholders holding shares amounting to not less than five percent of the total number of shares sold of the company may issue a written notice directing the company to make such a claim. If the company fails to take action as directed by the said shareholders, such shareholders may bring a suit to the court to claim compensation on behalf of the company;
- (2) if such act or omission is likely to cause damage to the company, any one or more shareholders holding shares amounting to not less than five percent of the total number of shares sold of the company may apply to the court to order that such act be settled.
In the case where the shareholders are the persons who proceed under paragraph two, they may also apply a court order for removal such director from office.
The shareholders who proceed under paragraph two and paragraph three shall hold shares of the company at the time such director performs or does not perform the act which causes damage to the company or which is likely to cause damage to the company, as the case may be.
The provision has more details than section 1169 of the CCC in many aspects, among other things, as follows:
- While section 1169 only covers the case that the director “causes damage to the company,” section 85 in PLCA requires that such damage would be a result of the director not following the laws, business objectives, articles of association, and resolutions of the shareholders’ meetings.
- The shareholders could file a derivative claim only if they could gather shares amounting to not less than five percent of the total number of shares sold by the company. Unlike section 1169 of the CCC, a shareholder who holds only a single share may file a derivative claim.
- Apart from claiming for compensation, the shareholders of public limited companies can also request the court to issue a cease and desist order from performing particular action of the directors.
- The shareholders may also request the court to remove the directors who caused damage to the company from the board of directors.
In summary, Thai legal provisions provide rights to ensure directors act in the best interests of the company. By enabling derivative claims for compensation, injunctions, and removal actions, these laws promote responsible governance and oversight. As corporate structures evolve, maintaining clear legal mechanisms like these remains essential for safeguarding company assets and upholding shareholder rights.