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Published on January 25, 2008

Chanchai Boonritchaisri, senior director of the central bank's Legal and Litigation Department, said the new law was aimed at creating good governance among the directors of financial institutions by encouraging them to be more cautious in their management, in order to avoid financial losses. It will eventually help strengthen Thailand's financial institutions and banking system.

Shareholders and depositors will need only to suffer losses before taking legal action, without the need to prove any fault on the part of management. However, the losses must be a consequence of directors failing to follow Bank of Thailand regulations, and the onus will be on the directors to prove their innocence.

Shareholders will be allowed a more active role in changing management if they suffer losses, and depositors will be able to sue when their deposits are not returned.

"The law will contribute to improving financial institutions and the financial system," Chanchai said.

At present, shareholders and depositors can file lawsuits against directors only when they can establish their guilt and prove wrongdoing.

Chanchai believes a supporting legal system will develop automatically. Entities like non-governmental organisations could be formed to represent people suffering damage, he said.

The new law stipulates that any financial institution with a bottom line in the red must call a shareholders' meeting and inform them of management performance when capital is lower than 50 per cent of paid-up capital and again when it drops below 25 per cent of paid-up capital.

Directors will be required to inform these meetings of not only performance, but also any plans to revitalise the institutions, he said.

The new law will also make it legal for individual retail investors or institutions to hold as much as 10 per cent of a financial institution. The current ceiling is 5 per cent.

However, individual investors must report to the central bank if their shareholding in a financial institution rises above 5 per cent, and they must seek approval if they wish to increase their stake above 10 per cent.

Chanchai said this relaxation paved the way for holding companies to own stakes in their subsidiaries.

Anoma Srisukkasem

The Nation