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Much time and effort are often spent in M&A negotiations in terms of what matters are covered by the seller’s representations and warranties (Warranties), and whether and to what extent the reservation is made “to the knowledge of the seller” and “in a material respect”. It is also often a matter of contention as to when a breach of the Warranties can be found, how long it can indemnify the seller (time limit), and how much it can indemnify the seller (maximum amount).

Warranty & indemnity insurance (W&I Insurance) is an insurance product intended to cover any economic loss suffered by a purchaser or a seller resulting from a breach of the Warranties. Generally, there is a (i) seller’s policy whose coverage is like a back-to-back with the seller’s liability under the sale and purchase agreement; and (ii) buyer’s policy whose coverage is broader and extends beyond the limitations of liability provided in the sale and purchase agreement.

The biggest beneﬁt from the seller’s point of view seems to be that it minimizes the risk of being claimed by the purchaser after completion of the transaction and may enable a clean exit from its investment. This is particularly signiﬁcant when a seller is a PE fund that wishes to distribute exit returns promptly. In some cases, it may not be possible to agree on risk allocation, and negotiations may be disrupted; then W&I Insurance comes into play. Another major advantage is the possibility to obtain a considerable amount of insurance proceeds regardless of the creditworthiness of the seller.

The scope of insurance disclaimers adhere to the principle that ‘known risks’ are excluded and should be covered by a speciﬁc indemnity set out in the sale and purchase agreement. The maximum amount of insurance claim depends on the agreement with the insurance company, but it is rare to set 100% of the total purchase price. Generally, the deductible retention and de minimis is about 1.0% and 0.1% of the purchase price, respectively. Basically, the larger the deductible, the smaller the premium.

The period of insurance depends on the agreement with the insurance company. However, for breaches of fundamental Warranties, including tax matters, the period is often around seven years, and for a breach of other Warranties, around two to three years, while taking into account the prescription period in respect of tax liabilities of the relevant jurisdiction.

M&A transactions in Thailand are similar to M&A transactions in other jurisdictions in respect of the need to conduct an initial antitrust review at the early stage of a transaction since the 2017 Trade Competition Act of Thailand (TCA) came into existence. There are two key aspects: (1) pre-merger approval ﬁling and post-merger notiﬁcation ﬁling under merger control regime, and (2) cartel risks during and after the due diligence process. As TCA and its enforcement are relatively new, some operators might not yet have a full grasp of what TCA requires on these two fronts, particularly the cartel risks.

Merger Filing

The TCA captures corporate amalgamation, share acquisition and business/asset acquisition. TCA prescribes three doors for a prospective merger to go through. If the merger would result in a creation or an enlargement of a dominant operator, the parties must file a pre-merger approval application with the Trade Competition Commission of Thailand (TCCT). If the merger would cause a material reduction of competition, the acquirer or resultant entity must ﬁle a post-merger notiﬁcation report to the TCCT. Each requirement has its own statutory timeline that may have a signiﬁcant impact on the transaction timeframe and legal costs. If the merger falls under neither of the two categories above, the parties would not be required to make any ﬁling. Cartel Risks

Besides merger ﬁling requirements, the parties should be cautious of cartel risks arising from an exchange of certain information during the due diligence period. The risks might materialize if the transaction does not proceed as expected, as both sides, or at least one, would leave the negotiating table with sensitive commercial information of the other party, which could be used to create a cartel. Even a lawful benchmarking activity could inevitably lead to a costly, although defensible, investigation. It should be stressed that the TCCT and its ofﬁcers would generally look for common pricing strategies and trade conduct as a sign of a possible cartel, and any amendment of practices by one or both sides to the prospective or failed M&A transaction could lead to a suspicion. Therefore, the merging parties must ensure that both sides are aware of the risks and institute necessary contractual provisions to deter a use of such sensitive information, to protect conﬁdentiality, and to employ appropriate measures such as Chinese walls to safeguard information between business units.

Mr. Wongsakrit Khajangson, Mr. Panupan Udomsuvannakul, Ms. Tantigar Hutamai, Mr. Kanchana Suchato

Introduction

Digital assets (including cryptocurrency and digital tokens), currently governed by the Emergency Decree on Digital Asset Business B.E. 2561, have been adopted widely in Thailand both as a means of payment (“MOP”) for goods and services, and investments. The dramatic growth of the use of digital assets has been a concern for the Thai authorities, particularly the use of digital assets as a MOP. From the authorities’ point of view, the use of digital assets for such purpose may lead to various negative impacts, including cyber espionage and money laundering. Thus, on 18 March 2022, the Thai Securities and Exchange Commission issued a new Notification of the Capital Market Supervisory Board to regulate such matters (the “New Regulation”), which came into effect on 1 April 2022.

Overview of the Regulation

From the New Regulation’s effective date, regulated digital asset business operators under the law will be prohibited from undertaking the activities of operating and facilitating the use of digital assets as a ‘MOP’ (the “Prohibited Activities”). The operators that engaged in Prohibited Activities must have ceased such activities before 30 April 2022.

Prohibited Activities include:

advertisements, solicitation, or expressions of readiness to provide services to accept digital assets as MOP;
providing systems or tools that facilitate the use digital assets as a MOP;
providing digital-asset wallet services for the use of digital assets as a MOP;
providing services of transferring Thai Baht from customers’ accounts to account of others;
providing services of transferring digital assets from customers’ account to the account of others that are not the customer’s account for the use of digital assets as a MOP; and
any other services having the characteristics of supporting the use of digital assets as a MOP.

If a digital asset operator discovers that their clients use their digital asset accounts for payments of goods and services, they must notify the customer of the misuse and violation of the terms of services of the operator. If such action continues, the digital asset operator must take actions against such customer (e.g., temporarily suspend services, cancel the services).

The enactment of the New Regulation requires a dramatic change in the relationship between digital asset business operators and their clients. Investors exploring operations in Thailand should be aware of how the New Regulations may impact their operations.

1 - Mr. Wongsakrit Khajangson, Partner
2 - Mr. Panupan Udomsuvannakul, Counsel
3 - Ms. Tantigar Hutamai, Senior Associate
4 - Mr. Kanchana Suchato, Associate

Chandler MHM
17th & 36th Floors, Sathorn Square Office Tower
98 North Sathorn Road, Silom, Bangrak
Bangkok 10500, Thailand

W: www.chandlermhm.com

Almost two decades from the ﬁrst introduction of the concept of environmental, social and governance (ESG), ESG issues have now become one of the core values of not only project owners, but also ﬁnancial institutions across the globe. In considering, whether to ﬁnance the development of a project, ﬁnancial institutions normally scrutinize a project from various perspectives to ensure the project’s viability and, if required, impose measures to be implemented by the project in order to minimize the negative impacts of the project on the surrounding environment. In this connection, it is helpful that ﬁnancial institutions have internationally recognized guidelines to refer to.

The Equator Principles (EP) are intended to provide a minimum standard of due diligence in supporting responsible decision-making when assessing risk. They are designed to be a ﬁnancial institution’s benchmark for determining, assessing, and managing the environmental and social issues related to projects. Equator Principles adopting ﬁnancial institutions (EPFIs) are committed to follow certain requirements and comply with ongoing reporting obligations of their project lending activities and resulting outcomes. The adoption to EP is completely voluntary and open to those who meet the relevant adoption requirements.

EP applies to ﬁve types of projects across all industries. Those ﬁve projects are: project ﬁnance advisory services, project ﬁnance, project-related corporate loans, bridge loans, project-related reﬁnance, and project-related acquisition ﬁnance. In order to comply with EP, EPFIs must implement ten EPs through their internal environmental and social risk management policies, procedures and standards. Commencing from the point at which the ﬁnancing of a project is proposed, the EPFI will review and categorise the project based on the magnitude of the potential environmental and social risks and impact. The assessment will be in accordance with the International Finance Corporation (IFC)’s environmental and social (E&S) categorisation process. Accordingly, the level of each of E&S assessment process, applicable E&S standards, E&S management systems, EP action plan, stakeholder engagement, grievance mechanism, independent review, covenants, independent monitoring, reporting and transparency required for each project will depend on its categorisation.

Currently, 129 financial institutions from 39 countries have ofﬁcially adopted EPs. On 31 January 2022, The Siam Commercial Bank Public Company Limited (SCB), one of Thailand’s leading commercial banks announced that it had become a signatory of the Equator Principles. This marks the ﬁrst ﬁnancial institution of Thailand adopting EP and is therefore a signiﬁcant step towards the adoption of ESG by Thailand’s ﬁnancial institutional sector.

Financial institutions around the world have been reminded of the importance and practicality of promotion of ESG through EP adoption. Given the recent announcement by SCB, it will be interesting to see whether other Thai ﬁnancial institutions will follow suit. To that end, we hope to see EP becoming an increasingly important component of project ﬁnancing by Thai ﬁnancial institutions in Thailand and elsewhere, therefore bringing about more sustainable and responsible lending practices.

Jessada Sawatdipong
Co-managing partner
E: jessada.s@mhm-global.com

Sarunporn Chaianant
Senior Associate
E: sarunporn.c@mhm-global.com

Chandler MHM
17th and 36th Floors
Sathorn Square Office Tower
98 North Sathorn Road, Silom
Bangrak, Bangkok 10500, Thailand
W: www.chandlermhm.com

The Benefit of Warranty & Indemnity Insurance (W&I)

Impact of Thai Antitrust law on M&A Transactions

Cryptocurrency Controls and Prospective Regulations on Digital Assets in Thailand

Equator Principles: The Gold Standard in Sustainable Project Finance

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