DIRECTOR’S LIABILITY: NEW LAW OFFERS BETTER PROTECTION
The new law on criminal liability of company directors took effect on Feb 12, 2017. But the shock waves continue to reverberate through the Thai corporate world, among local companies and subsidiaries of multinationals alike.
Company directors cannot help asking themselves: Is this new law increasing my chances of going to jail? Is my directorship naturally more exposed to criminal liabilities under Thai law? As a company director, am I targeted by the new law? People are worried that the new law imposes criminal liability, a jail term or a fine, on directors who are held personally accountable for any illegality committed by their company.
The new law is officially called the “Act Amending Provisions of Laws Related to Criminal Liability of Representatives of Legal Entities, 2017 (the “Directors’ Liability Amendment Act”). It is a straightforward law, but its effects sweep across a wide spectrum of businesses in Thailand, from banks to telecoms to energy, retail and manufacturing — almost every company that has directors.
The Act amends and replaces provisions concerning directors’ liability in 76 Thai corporate laws, governing 76 types of businesses.
Among the 76 laws are such imperative pieces of economic legislation as the Act on Offences Committed by Limited Companies, the Revenue Code, the Immigration Act, the Condominium Act, the Consumer Protection Act, the Building Control Act, the Chit Funds Act, the Provident Fund Act, the Social Security Act, the Renewable Energy Act, the Environmental Act, the Life Insurance Act and the General Insurance Act. Others are the Government Pension Funds Act, the Anti-Money Laundering Act, the Engineers Act, the Architects Act, the Accounting Act, the Land Allocation Act, the Mass Rapid Transit Authority Act, the Telecommunication Business Act, the Electronic Transactions Act, the Energy Business Act, the Financial Institutions Business Act, the Act on Places of Entertainment, the Medical Equipment Act and many more.
To be fair to the current administration, which pushed through the change and has been criticised for being too harsh on businesses, its intention was well-meaning. In fact, the new law makes life more difficult for the prosecution, which now has to prove the guilt of the director, whereas under the old laws, prosecutors only had to prove that you were a company director, and left the rest to the operation of the antiquated laws to hold you liable.
The old legal paradigm not only assumed a director’s guilt, it forced the director to prove his or her innocence. The new law has undone that and shifted the burden of proof back to the government. This is the key positive element of the Directors’ Liability Amendment Act: it is more difficult to put company directors in jail.
The root of the new law dates back to 2012 when the Constitutional Court ruled that Section 54 of the Act on Direct Sales and Marketing, 2002 (the “Direct Sales Act”) was unconstitutional, void and unenforceable as per Section 6 of the Constitution of 2007. This was because it ran contrary to the second paragraph of Section 39 of that constitution, which says: “In a criminal case, an assumption must be made that the accused or defendant is not guilty.”
The 2007 Constitution, just as every permanent constitution since 1956, lays down a general criminal law principle that “in a criminal case, it must be presumed that the defendant is innocent”. The director is presumed innocent until the public prosecutor proves otherwise.
In contrast, Section 54 of the Direct Sales Act presumes the director is guilty until he proves himself to be innocent: “In the case that the wrongdoer penalised by this Act is a legal entity, the managing director, manager or any person responsible for the operation of that legal entity must receive the same penalty prescribed by the law for such wrongdoing, unless they can prove that they have no part in the wrongdoing of the legal entity.”
The burden of proof was arbitrarily placed on the defendant director and the prosecutor did not have to prove the director did anything wrong; evidence that the defendant was a director of the company was sufficient. The role as director could land him or her in jail.
In ruling the Direct Sales Act was void and unenforceable, the Constitutional Court cited the UN Universal Declaration of Human Rights, Article 11(1) which says: “Everyone charged with a penal offence has the right to be presumed innocent until proved guilty accordingly in a public trial at which he has had all the guarantees necessary for his defence.” It is this UN rule the 2007 Constitution was based on.
The Constitutional Court ruled in similar fashion against a similar section in each of four other laws: Section 74 of the Copyrights Act, Section 78 of the Telecommunication Business Act, Section 28/4 of the Act on Places of Entertainment Act and Section 72/5 of the Fertiliser Act.
Instead of waiting for the Constitutional Court to rule on the unconstitutionality of all 76 laws, the government enacted the Directors’ Liability Amendment Act to amend the relevant section in each of the 76 laws to make them constitutional, legalised and compliant with the 2007 Constitution. Of course the 2007 Constitution has been replaced by the interim charter, and the general criminal law principle contained in the 2007 document is expected to be included in the next constitution and every thereafter.