During the past several months, the use of nominee corporations to circumvent Thailand's foreign-ownership laws has come to the forefront, particularly with the majority-interest sale of Shin Corp to Singapore's government-owned Temasek.

Traditionally, Thai governments have specifically reserved certain industries and business activities for Thai citizens. The Temasek purchase of Shin Corp and the extensive use of exotically named nominee corporations highlighted how many powerful "overseas" players have apparently circumvented the Thai legislation's intent with impunity.

Although Temasek allegedly used corporations to circumvent Thai foreign-ownership laws, The Nation has learned that other foreign companies have in the past decade or more used similar nominee structures to "confiscate" assets from their Thai "joint-venture" partners.

In these situations, foreign companies, some of which are controlled by government-controlled entities, have relied on Thailand's liberal interpretation of a nominee company's real substance to unfairly seize "joint-venture" assets from Thai partners.

Foreign companies using nominee companies in these situations are not committing victimless crimes. In many cases, they are using the lax enforcement of Thai law to confiscate and "legally" purloin assets from Thai shareholders without just compensation.

The foreign companies initially entered Thailand by contacting local partners to help them introduce their products to the Thai market. The Foreign Business Act requires that any wholesale/retail business should be 51-per-cent owned by Thais. The products distributed have included auto parts, automobiles, prescription drugs, cosmetics, alcohol, tobacco products and many other consumer products.

Initially, at the onset of the "joint venture", the local owner owned 51 per cent of the entity as required by Thai law, with the balance being held by the foreign product-manufacturer or product licensee. However, in most situations, the local partner would own 100 per cent of the local company and would receive an exclusive contract to sell the product. This document would be a one-year contract that would be renewable annually.

The local "partner" funded the products' introduction to the Thai market with extensive advertising and promotional campaigns. The foreign partner shipped the product into Thailand and billed the venture for the goods.

During the past decade, numerous Thai distributors have complained to The Nation that once they built up significant product-sales volume, the foreign product manufacturer would suddenly announce that they were not going to renew the distribution contract. One distributor complained that his contract had been automatically renewed annually for more than a decade.

More importantly, the local distributor had often spent large sums of money over the years at the product-manufacturer's behest in a seemingly unending quest to boost sales volumes. Revenues were routinely ploughed back into the venture to increase warehousing and distribution channels and to build market awareness.

As soon as the product gained a foothold in the Thai market, many of these foreign companies would suddenly pull the plug and not renew the annual contract. Often, through their local lawyers, they would cite numerous non-performance breaches by the local partners.

Undoubtedly, most local partners realised the precariousness of their contractual situations. However, many of these Thai businessmen did not have the courage to amend the original contracts, especially when sales continued to grow.

We all realise that Thai businessmen are adults and should not be crying over spilt milk: a contract is a contract. However, we must also remember that in most cases, these same Thai businessmen would not have received the original distribution rights if they had refused to sign the annual "renewable" one-year contracts.

To add insult to injury, one distributor told The Nation that after refusing to renew the one-year contract, the manufacturer immediately set up an array of nominee companies, first to circumvent the foreign-ownership laws and then as a secondary measure to shield the parent from any legal liabilities that might arise from any subsequent lawsuits. "They capitalised these Thai limited-liability 'shell' entities with the minimum amount of paid-in capital allowable," one aggrieved distributor said.

In the most egregious situations, not only did foreign companies - some of which are state-controlled - use nominee corporations to circumvent Thai foreign-ownership rules, but they also used them to flagrantly protect themselves from any subsequent damages that might be awarded for "confiscating" a Thai company's hard-earned assets without just compensation.