On September 27, 2024, the Securities and Exchange Commission of Thailand (SEC) issued a circular clarifying reporting obligations in relation to listed company securities held by the company’s directors, executives, auditors, or persons related to them (“Key Persons”).
The circular aimed to address growing concerns over transparency in shareholding, particularly when shares are used as loan collateral by company executives without sufficient public disclosure, which can lead to sudden share loss and executive departures, destabilizing the company. This circular is likely a stopgap measure, and a full overhaul of the reporting regulations may be needed.
The current reporting obligations came into effect on March 16, 2024, and were designed to simplify reporting procedures while still maintaining transparency in the capital markets. The rules allow the Key Persons to consolidate multiple transactions and report them only when certain thresholds are crossed — such as when the total transaction value reaches THB 3 million or when six months have passed since the last report. The rules were intended to reduce the number of minor reports and limit penalties for missed deadlines.
However, recent scandals have raised concerns about the reporting rules, particularly issues related to the enforcement of share collateral on executives’ or directors’ loans where the listed company may face a change of direction and management due to such forced sales. To ease these concerns, the SEC issued the new circular to reiterate the rules and lay out three key situations triggering a reporting duty:
- Force-Selling Due to Default: If shares are forcibly sold due to a loan default, this must be reported, and the transaction should be recorded with the Thailand Securities Depository (TSD).
- Transfer of Shares to Custodians: Under current rules, the transfer of shares to/from a custodian holding them on behalf of a beneficial owner does not have to be reported. However, the circular clarifies that where the custodian holds shares for the benefit of another person or entity, the transfer of the shares will constitute a change of ownership that must be reported. The SEC’s focus is on the intent behind the transfer, particularly when it involves shifting ownership or control.
- Endorsement of Share Certificates to Creditors: Endorsing physical share certificates to creditors is treated as a transfer of ownership, even if the transfer is conditional, such as upon the default of a loan, since it is a valid transfer method prescribed by law, thus triggering the reporting duty.
A failure to report these changes under the current rules carries a steep penalty of up to THB 500,000, and daily fines of up to THB 10,000 for continued violations. The SEC circular further emphasized that such failure could significantly damage the credibility of the listed company involved.
Another issue to consider is that when collateral placement is made under foreign laws, the method of a pledge may differ from Thai law, and could trigger reporting obligations at an earlier stage, subject to the details of the foreign laws.
