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OTHER NEWS & LEGAL ARTICLES
Fine Arts, Art Collectors & Law in Thailand and Asean

05 Aug Fine Arts, Art Collectors & Law in Thailand and Asean

The 21st century is a golden period for the flourishment and expansion of the fine arts not only in Thailand but in South East Asia as a whole. Even though the artistic element of Thai architecture as seen in Buddhist temples and pagodas is widely known (Unesco has added 3 Thai locations to the World Heritage List: Ban Chiang Archaeological Site, Ayutthaya and Sukhothai), Thailand is still a few steps behind other countries in Asia in terms of the art business.

For example, leading positions in the continent are headed almost exclusively by renowned Hong Kong collectors such as William Lim, Adrian Cheng, Joseph Lau and Alan Lau. There are, however, indications of change, as collectors in other regions are emerging such as the Indonesian Budi Tek or the Japanese Shoichiro Fukutake among others.

Despite negative forecast for 2016, since 2010 China has become the world’s leading art marketplace, with other regional hubs growing rapidly in Indonesia (+39%) and Singapore (+22%). There is a growing awareness and interest focused on traditional Chinese, Japanese and Korean ceramic pieces and antiques, as well as an expanding amount of Asian collectors targeting more contemporary art such as Jean-Michel Basquiat art pieces. In China new regulations are being implemented since March 2016 and the necessity of a basic global legal framework for the art business look a must for the professionals of the art world.

According to the Unesco Declaration of 17 October 2003, the international community recognizes the importance of the protection of cultural heritage and reaffirms its commitment to fight to ensure that such cultural heritage may be transmitted to the succeeding generations. Indeed, in my opinion it is impressive that the artistic heritage found in South East Asia has survived the phenomenon of colonialism and decades of cruel war in the continent, and nowadays is one of the most valuable assets for countries in Indochina (For example: Cambodia), reflecting the necessity of cultural diversity for humankind just as biodiversity is for nature.

On a business related note, it is indeed astonishing how the art market is maturing in the Asean region. We can notice how ‘the big two’ auction houses, being Sotheby’s and Christie’s, are maneuvering fiercely with the goal of gaining a strategic foothold in the promising Asian Art market by setting up different business models of legal entities such as Education centers, representative offices, art institutes, salesrooms and art consultants in key cities such as Manila, Jakarta, Kuala Lumpur and Bangkok.

Asean market is the one of the best performing markets for fine arts as the modern and contemporary art market experienced a growth of 28% in sales during 2015. Indeed, it is not a secret that private collectors are maintaining discourse with curators and art merchants, such as the Thai collector Mr. Tira Vanichtheeranont in Bangkok, with the goal of setting up small museums and art institutes across the region. Recently, the Tourism Authority of Thailand openly asserted that main Thai cities need to promote the establishment of museums in order to attract less low budget tourists and catch the attention of more sophisticated or high end tourists.

Evidently, not everything is glamorous in the world of fine arts. The lack of professionalism and credentials are two main weak points for the art sector in the emerging South East Asian market. Evidence of this is the relative abundance of low profile agents and “dealers” with small knowledge or no knowledge of fine arts, often found fighting for commissions that they do not really control or have direct access to.

Many transactions in the art business collapse due to the presence of “middle men” that sell master pieces as they might also sell yachts, luxury villas, diamonds or gold bars. Pablo Picasso said “Art is a lie that makes us realize truth”, which is proving increasingly relevant in a market saturated with unprofessional practices causing falsifications and problems related to the authenticity of pieces.

This is why it is vital to work with professional lawyers and qualified curators with expertise in fine art. Specialized lawyers and curators must work together in conducting comprehensive due diligences prior to the acquisition of pieces by art collectors or museums. It is with this in mind that I would argue that the know-how and know who are as essential as legal expertise and art knowledge in completing such a job.

For example, the curator can draft a price analysis of a piece that is relevant for the collector in order to avoid speculative transactions, even if prices in art differ substantially from other assets, the purchase of collections of art also involves an emotional element that can affect the prospect of the transaction.

As the signature of an artist can change during his or her life, technical analysis by microscope may not be binding and the Certificate of Authenticity (COA) is not necessarily decisive. In my professional experience as a lawyer and art collector I would argue that the main document to take into consideration is the Provenance (from the French word “provenir” that means “to come from”), that is the most important document to assess the genuineness of a piece as it represents the entire life and existence of the piece by including detailed information (dimensions, medium and title) related to the piece, the different owners who possessed the piece, the different museums or art galleries where the piece was exhibited, lot number in catalogs, specific mentions to the piece in books, films and art literature, Catalogues raisonnés, sales or customs receipts acknowledging the piece or appraisals from experts (real experts on the particular artist) or well-known authorities known to have possessed the piece.

Obviously all these documentation comprising the provenance must be original, not a photocopy, and the details have to be confirmed by consultants, both a curator and lawyer, double checking every single detail related to veracity of the referred name, surname and auction house or art gallery.

In order to protect the interests of the collector, lawyers who conduct due diligences on the piece must minimize the risk of litigation, potential disputes or purchase on doubtful pieces. On the scope of work of this due diligence, it is necessary to secure compliance by not giving any chance to trade with stolen art (For example: Protocol to the Convention for the Protection of Cultural Property in the Event of Armed Conflict. The Hague, 14 May 1954 and the Second Protocol to the Hague Convention of 1954 for the Protection of Cultural Property in the Event of Armed Conflict. The Hague, 26 March 1999) or any misconduct or criminal and fraudulent behavior by knowing the client (For Example: Money laundering through art).

In fact I can see that, even if nowadays the big law firms in Thailand have no remote idea about this business, in the future lawyers will involve more on litigation and court proceedings related to art forgery and restitution and recovery of art pieces, sculptures and heritage representing a big variety of institutions such as museums, governments, embassies, insurance companies, art investment funds, patronage, foundations and families. We already have witness this outside of Asia with legal proceedings involved art pieces of Leonardo Da Vinci, Botticelli or Chagall and many other international court cases after the end of the Second World War.

In addition to this, hereby the art lawyer must take in account: jurisdiction and international taxation. For example: a piece purchased from an art gallery in Paris by an Asian collector will carry with it duties and import tariffs that are not present if the same piece was bought in a free trade port, such as Singapore.

The legal work does not finish at this, and it is advisable to work with a legal professional or law firm on issues such as those following:

-Purchase agreement

-Intellectual Property issues

-Insurance (theft or natural disaster)

-Transportation (Export-import)

-Heritage and wills

-Tax planning

To conclude, I would like to point out that the forecast for art business in the South East Asian region is overall very positive and is full of opportunities in the public and private sector for those willing to look. In my opinion, the current trend shows that over time the public sector will increasingly become involved in private sector projects involving art. As a result, legal professionals will have to acquire more familiarity with documentation related to art, and long term private collectors will set up and manage their own highly profitable boutique museums.

At the same time I believe that many new players will burst into the Asian art scene, as fine art can be a more profitable investment than banking and financial service (volatility of art is much lower than US and international equities and commodities). In fact recent statistics show that 72% of the art collectors acquired art guided with an investment perspective. This has to be dully assimilated by the wealth management firms and the investment banks in Asia. The outlook is very promising and I have no doubt that lawyers will play an important role on the future of art business in South East Asia.

Jose Herrera

Partner at Jus Laws & Consult in Bangkok

Legal comments on the Land and Building Tax Act in Thailand

11 Oct Legal comments on the Land and Building Tax Act in Thailand

Last 7th of June 2016, the draft of the Land and Building Tax Act was approved by the Thai government. This Act will become effective in January 2017 and will be replace the existing and old Building and Land Tax Act B.E. 2475 (1932) and the Local Development Tax B.E. 2508 (1965).

The new tax regulation emerge in a political context of fast implementation of very ambitious infrastructure projects such as the 20 megaprojects announced by the Cabinet including transportations hubs, new BTS lines, upgrade of existing airports and implementation of railway systems. Under the new regulation it is considered that the price of the land will increase due to the proximity of some of these infrastructure projects.

The Taxpayer will be Individual or juristic person who own land or building or Individual or juristic person who are in possession or pedal possession on land or building which belongs to the state. The taxable Property will be Land, Building and Condominium

The Tax base is assessed on the total value of land and building by calculating from the appraised value of land, building and condominium as well as the depreciation rate which specified by the Treasury Department.

Tax rate

The purpose of use Rate
For agriculture  
 – Value ≤ 50 M
 – Value › 50-100 M 0.05%
 – Value › 100 M 0.10%
For residential  
 – The first residence which the value ≤ 50 M
 – The first residence which the value › 50 -100 M 0.05%
 – The first residence which the value › 100 M 0.10%
 – The second residence which the value ≤ 5 M 0.03%
 – The second residence which the value › 5 -10 M 0.05%
 – The second residence which the value › 10 -20 M 0.10%
 – The second residence which the value › 30 -50 M 0.20%
 – The second residence which the value › 50 -100 M 0.25%
 – The second residence which the value › 100 M 0.30%
For commercial or industry  
 – Value ≤ 20 M 0.3%
 – Value › 20-50 M 0.5%
 – Value › 50-100 M 0.7%
 – Value › 100-1,000 M 0.9%
 – Value › 1,000-3,000 M 1.2%
 – Value › 3,000 M 1.5%
Unused properties  
 1st – 3rd year 1%
 4th – 6th year 2%
 ≥ 7th year 3%

 

According to the Thai Government the law is targeting land speculators and the Finance Minister has confirmed that the new law will help to generate THB 64,3 billion in the first fiscal year. In the private sector the opinions are quite different, on one hand some well know developers such as SET-listed developer Pruksa have confirmed that the new regulation will implement the sale of many land plots and in contrast on the other hand international real estate consultants such as Knight Frank denied that the tax will affect at all the price of the land in Bangkok’s prime locations.

We do not believe that the REITS with assets on retail, office or factories will perceive much the effects of the new regulation but perhaps the Hotel Property Funds will suffer the consequences of this new tax in a difficult context of oversupply of rooms due to AirBnB business model implementation in cities such as Bangkok or Phuket.

Phorn Patimon, Senior Associate at Juslaws & Consult

Jose Herrera, Partner at Juslaws & Consult

Bankruptcy Procedures in Thailand

13 Jul Bankruptcy Procedures in Thailand

Thailand has reformed its Bankruptcy Law following the model of the US Bankruptcy Law in 1998 after the Asian Financial Crisis. The new Bankruptcy Act provided restructuring proceedings which require judges with special expertise. Consequently, the Establishment of the Bankruptcy Court and Procedure for Bankruptcy Cases Act took effect in 1999. Today the Central Bankruptcy Court has jurisdiction over all bankruptcy cases, civil cases related to bankruptcy cases as well as criminal cases related to bankruptcy cases.Although the law provides that Regional Bankruptcy Courts may be established, until today there is only the Central Bankruptcy Court which has jurisdiction over cases related to bankruptcy. Therefore civil courts in other provinces may transfer a case to the Central Bankruptcy Court if the case is related to bankruptcy.

The following laws might become particularly relevant and apply in cases related to bankruptcy:

  • The Bankruptcy Act in its amended version
  • The Act for the Establishment and Procedure for Bankruptcy Courts in its amended version
  • Ministerial Rules and Regulations on Bankruptcy Cases
  • The Civil Procedure Code in its amended version.

Bankruptcy Procedures take place in the bankruptcy court of first instance and in the Appeal Instance. The court of first instance is the Central Bankruptcy Court while the appeal body is the Supreme Court. An appeal against a judgement or order of the Central Bankruptcy Court can be submitted within one month after pronouncement to the Central Bankruptcy Court which will transfer the appeal to the Supreme Court. The Central Bankruptcy Court shall proceed and pronounce a decision in an expedited manner. If a party is in default of appearing in court special rules apply to the disadvantage of the absent party.

Bankruptcy is defined as an involuntary state which allows for the distribution of the assets of a debtor among his creditors according to statutory procedure. A creditor can start bankruptcy proceedings against a debtor who is regarded insolvent and owes more than 2 million Baht in the case of a company or more than 1 million Baht in the case of an individual. The law contains a list of cases when a debtor is regarded insolvent, for example if the debtor commits certain acts to avoid paying his debts or if he informs any of his creditors that he cannot pay his debts.

In bankruptcy the claims of secured creditors will treated with priority in the following way: proceeds from the sale of securities will be treated separately and given to the secured creditors first.

Unsecured claims and expenses are classified into categories and will be satisfied in a certain order as stipulated by the law. If the bankruptcy estate is not sufficient for all claims of all creditors within a category of claims, the claims will be satisfied “pari passu” (equally) within each category.

However, one way for the insolvent debtor to avoid being adjudicated as bankrupt is composition, a kind of agreement between debtor and his creditors sanctioned by a court order. After being declared bankrupt a bankrupt person may be discharged from bankruptcy if he fulfils certain conditions such as paying a certain quota of his debts and not being dishonest.

In the case that the debtor is a juristic person special rules apply. In such a case the liquidator of the juristic person can submit a bankruptcy motion apart from the creditors.

Another way for the insolvent debtor to avoid bankruptcy is restructuring. Restructuring is a proceeding under the court’s supervision which prevents the creditors from immediately distributing the debtor’s assets which normally lead to the liquidation of the debtor in the case that the debtor is a company. The Restructuring or Reorganization allows the company in financial distress to continue business operations and the creditors might profit from the continued operations as they might be gradually paid and recover more than in the case of liquidation.

According to Chapter 3/1 of the Bankruptcy Act the Restructuring takes place in the following way:

1. The debtors, creditor(s) (in the case where owed more than 10 million Baht) or a government authority files a petition for restructuring.

2. If the court approves the application the debtor is temporarily protected against claims of the creditors. The court will only approve the application if there is a reasonable perspective that the debtor’s business can be successfully organized.

3. The creditors propose a so called Plan Preparer, a person who drafts a Rehabilitation Plan.

4. The court approves the Plan Preparer and appoints him.

5. After the appointment of the Plan Preparer the creditors have 1 month time to submit their claims.

6. The Plan Preparer drafts the Rehabilitation Plan within three months with two possible extensions of one month each.

7. The plan is sent to the creditors and other related parties. The receiver calls a meeting of the creditors, and the creditors discuss the plan and propose amendments. A party can submit proposed revisions to the plan at least three days in advance of the meeting.

8. The creditors approve the Rehabilitation Plan by way of a special resolution reached in a prescribed procedure. For this purpose the creditors will be classified as follows:

  1. Secured creditors with minimum secured debt of 15% of total debts
  2. Other secured creditors
  3. Unsecured creditors
  4. Preferred creditors

The above classes of creditors are relevant for the passing of a special resolution for the approval on the Rehabilitation Plan, plan revision, removal of Plan Administrator and appointment of the creditors’ committee for plan implementation. The creation of classes and new majorities for passing special resolutions is one of the major changes of the bankruptcy law reform of 1997-1999.

Furthermore there are certain creditors who are deemed to have accepted the plan such as:

  • Creditors whose claims are paid in full within 15 days
  • Creditors who will be paid under existing contracts
  • Creditors according to Sec. 130 bis

9. The Rehabilitation Plan is submitted to the court.

10. The court approves the Rehabilitation Plan.

11. The time frame for implementation of an approved and binding Rehabilitation Plan is 5 years. A one year extension is possible but only two times.

12. The court finally decides that the Rehabilitation Plan was successful. The business is then rehabilitated. Otherwise bankruptcy proceedings will begin.

The court has the power to annul juristic acts which are prejudice to creditors upon petition of the Plan Preparer or a Receiver. The Receiver is a government official who has an administrative and supervisory role before and during the implementation of the Rehabilitation Plan and in certain cases also fulfils the function of the Plan Preparer or Plan Administrator.

The plan must contain the following items:

  • Reasons why the debtor is to be restructured
  • Assets, liabilities, obligations
  • General principles and methods applying to the restructuring
  • Rules regarding secured creditors and guarantors
  • Liquidity issues during the implementation of the Rehabilitation Plan
  • Measures regarding assignment of claims or assumption of debt
  • Name, qualification, letter of consent and compensation of the Plan Administrator
  • Conditions for appointment and release of Plan Administrator
  • Time frame for implementation of the Rehabilitation Plan not exceeding five years
  • Measures regarding certain assets and contractual rights of the debtor

The creditors have the right to appoint a committee of creditors to monitor the implementation of the plan according to the rules of the bankruptcy law.

Procedure for Thai company registration

The Company Limited’s registration is divided into 2 steps:

1). Registering the Memorandum of Association

Company promoters are responsible for registering the company with the Ministry of Commerce (MOC). The promoters must be individuals (not juristic persons). They must be available to sign documentation during the registration process. There must be a minimum of 3 promoters for a private limited company and at least 15 promoters for a public limited company.

The promoters of a private limited company must be 12 years of age or older for a public limited company, the promoters must be 20 years of age or older.

Each promoter of a private limited company is required to be among the company’s initial shareholders immediately after the company’s registration and is required to hold a minimum of one share upon the company’s registration. They are generally free to transfer those shares to existing shareholders or third parties, thereafter, if they wish. It is not required for the individuals serving as promoters to reside in Thailand.

The promoters of a public limited company must also be among the company’s initial shareholders immediately after the company’s registration. All promoters must subscribe for shares, which must be paid up in an aggregate amount equal to not less than five percent of the registered capital. Said shares may not be transferred before the expiration of 2 years from the date of the company’s registration, unless specifically approved at a meeting of shareholders. Nevertheless, it is required that one-half of the individuals serving as promoters have their domicile in the Kingdom of Thailand.

Promoters’ potential legal liability is generally limited to the par value of the shares they will hold after registration is completed. The promoters are also responsible for paying expenses associated with the company’s registration. After registration, however, the company may choose to reimburse the promoters for those expenses.

 

2). Registering the establishment of the Company Limited

Private Limited Company

The registration of the company can be accomplished on the same day as the registration of the Memorandum of Association provided that:

All registered shares have been subscribed for a statutory meeting is held to transact the business with the presence of all promoters and subscribers, and all promoters and subscribers have approved the transacted business. The promoters have handed over the business to the directors and the payment of at least 25% of the total shares has been paid by the shareholders. The company can apply for and obtain the company’s tax ID card and register the Employer account under the Social Security Act with the MOC on the same day as the registration of the Company. However, if the company does not wish to apply for the company’s tax ID card or register the Employer account under the Social Security Act with the MOC on the same day as the registration of the Company, it can apply for the company’s tax ID card and register the Employer account with the Revenue Department and the Social Security Office respectively later.

 

Public Limited Company

A Public Company Limited is required to register its Memorandum of Association with the MOC first, and, thus the company’s registration cannot be done on the same day, as is the case for a private limited company. After the Memorandum of Association has been registered, the promoters must offer shares for sale to the public or to any person in accordance with the law on securities and stock exchange.

The promoters must submit to the Registrar a copy of the documents relating to the offer of shares for sale to the public, which shall be prepared and submitted to authorities under the law on securities and stock exchange, within 15 days of the date of submission to such authorities, in accordance with the rules, procedures and conditions prescribed by the Registrar.

The promoters shall convene the statutory meeting when the number of subscribed shares reaches the number specified in the prospectus or a public meeting, which must be not less than fifty percent of the number of shares specified in the Memorandum of Association, within 2 months of the date on which the number of subscribed shares reached the specified number but not later than 6 months from the date on which the Memorandum of Association was registered.

In the event it is impossible to call the statutory meeting within the specified time, if the promoters of the company wish to proceed further, they must apply for an extension of the period by providing the reason for the delay to the Registrar not less than 7 days in advance of the expiry date of such period. If the Registrar deems it expedient, an extension of between one and three months from the date ending such period may be granted.

If the statutory meeting could not be concluded within the period, the Memorandum of Association shall become invalid upon the lapse of such period and, within 14 days from the date on which the Memorandum of Association become invalid, the promoters shall return the payment for share subscription to the share subscribers.

After having received the payment on shares up to the number of all subscribed shares, the Board of Directors must apply to register the company within 3 months of the date of conclusion of the statutory meeting. The application must provide the following particulars:

  1. The paid-up capital, the total amount of which must be specified
  2. The total number of shares sold
  3. The names, dates of birth, nationalities, and addresses of the directors
  4. The names and number of directors authorized to affix signatures on behalf of the company and any power limitations on directors that have been specified in the Articles of Association
  5. The location of the head office and branch offices (if any).

The company cannot apply for and obtain the company’s tax ID card and register the Employer account under the Social Security Act with the MOC like a private limited company. Consequently, the company must apply for the company’s tax ID card with the Revenue Department and register the Employer account with the Social Security Office directly.

If the registered company falls under the definition of “foreign” (as defined in the Foreign Business Act (FBA)), after registration of the company, it will normally be required to obtain Cabinet approval, a Foreign Business License, or a Foreign Business Certificate, as the case may be, prior to commencing operations.

For a private limited company, all documents associated with the company’s registration must be submitted to the Registrar of the Department of Business Development of the MOC or, if the company’s location is to be situated outside of Bangkok, it must be submitted to the Office of Provincial Business Development in the province in which the company’s business will be situated. For a public limited company, all documents associated with the company’s registration must be submitted to the Registrar of the Department of Business Development of the MOC at the Central Registration office, Bangkok only, regardless of company’s location.

All documents associated with the registration of the company’s tax ID card (in cases where the company does not apply for the company’s tax ID card with the MOC when registering the Company) and VAT certificate must be submitted to the Filing Office of the Revenue Department in Bangkok or, if the company’s location is to be situated outside of Bangkok, to the Provincial Revenue Office where the company’s location will be situated. However, the Company either locates in Bangkok or outside of Bangkok can also apply for the company’s tax ID card and VAT certificate through the website of the Revenue Department.

All documents associated with the registration of the Employer account under the Social Security Act (in cases where the company does not apply for the Employer account under the Social Security Act when registering the Company) must be submitted to the Filing Office of the Social Security Office in Bangkok or, if the company’s office is to be located outside of Bangkok, to the Provincial Social Security Office in the province in which the company’s business will be situated.

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