Legal pitfalls for acquisition of land by taking over an existing company
It’s a piece of cake if you exercise your prudence!

“Hell hath no fury than a government scorned”. The new policy of the Land Department to investigate every company with foreign shareholders and director applying for the ownership of land makes many foreigners suspicious about their future in Pattaya. Our article is not written with the aim to panic the property market which is the bread and butter for all of us. Only the truth shall set us free from all dilemmas. Nobody can deny the rights of foreigners to have the access to the truth.

As we said in our previous article, the directive of the Land Department is not literally applicable to companies already owning land before this directive. The government will not use the xenophobic policy to crack down these existing companies.

The blind implementation of the law and policy will definitely create a huge catastrophic impact to the Thai economy than the tsunami in the south. Even we cannot expect the whole country to abolish the restriction for foreign ownership. There are two sides of a coin of “Pros” and “Cons”. As the independent country, Thai people inherit land from blood of their ancestors. The United Nation regards land as natural resources which must be fairly allocated with the participation of indigenous people. In Cuba, the draconian implementation of the “Agrarian Law” was due to the clash between the indigenous and multinational benefits which will not happen in Pattaya. However, we believe that Pattaya can be the tolerant zoning area for implementation of law. We need a competent lobbyist to convince the government. However, the development in Pattaya must be more sustainable in accordance with the King”s doctrine of “Self Sufficiency Economy”. Pattaya should not follow the step of Costa del Sol or Miami. We should focus on the “boom of happiness”.

The alternative legal method to purchase land can be by taking over the shares and directorship which is not involved with the Land Office. Therefore, there is not any transfer tax and government fee to be paid at the Land Office. You may sign the “Contract for Purchase and Sale of Shares and Assets”. The change of shareholders and director can be made at the Commercial Registration Office in Chonburi by your lawyer within one day.

However, we will talk about the issues which may become the pitfalls for you if you ignore to exercise your prudence:-

1)      You should instruct your lawyer and accountant to conduct a due diligence to check the whole corporate files with the Commercial Registration Office of the Ministry of Commerce to ascertain if the whole corporate structure is properly set up. The irregularities in the amendment or change in the files should be carefully verified. If there were many transfers of shares before dealing with you, it can be a problem once the previous shareholders come out to nullify the transfer. Your lawyer should prepare the corporate file with the English translation.

2)      You should instruct your lawyer to check the structure of the ownership or freehold right of the land belonging to the company. The title search should be made at the Land Office to verify the lien, encumbrance, mortgage or restriction.

3)      The person dealing with you should be the authorized director of the company with the 49% shares. The identity of the Thai shareholders who hold 51% should be verified by their ID cards and House Register Book. These Thai shareholders should sign all share transfer deeds with two witnesses in presence of your lawyer. A lawyer of the seller should be the witness with the stamp. You should take photos of all shareholders once they sign the share transfer deed in order that they will not deny their signatures in the future. In Pattaya, everything can happen beyond expectation. The forensic science to check the signature is not really up to the standard of your expectation.

4)      You should instruct your lawyer and accountant to check all financial statements or balance sheets with the tax records of the company. If there are any tax liabilities hidden in the company, you will definitely assume. Please ensure there are not any tax liabilities. Some companies have pending liabilities for withholding nearly one million. You should check the monthly and annual tax returns.

5)      You should instruct your lawyer to check if the company has ever entered into any juristic acts (contracts) or committed any tort or wrongful acts with any third parties, for in stance, the company may ever sign any contract or is in breach of contract with a third party to sell the land. It will be the liabilities you will definitely assume once you become the shareholders and director. There is not any way to check these hidden liabilities. Some owners in Pattaya sold to 10 persons at the same time. You can ask only for the written declaration which is warranty or representation in the Contract for Purchase and Sale of Shares and Assets that the company is clear from previous contractual and tortuous liabilities. This is the most dangerous issue exposing you for the hidden liabilities.

6)      The authorized director should sign a letter of indemnity that he or she shall not claim for a loan he may make to the company. Many companies record in their accounts that the directors or shareholders gave loan to the company.

7)      The payment for the price of shares and land should be made by a bank draft or cashier cheque payable to all directors of the company in exchange of the new corporate documents with your name and the Land Title Deed (Cha Nod) and House Register Book (Tabien Ban).

8)      You have to ensure that the house is empty for your occupation before making your final payment.

In this situation, you have to be more sophisticated. Some people may say that they just want to make everything easy and simple. “It”s my retirement”.

However, please bear in mind that your retirement is not your retardment.