The contents of Tsar & Tsai Lex News are not legal opinions and shall not be taken as legal advice on any particular issue or case. If the reader has any suggestions or questions, please do not hesitate to contact us.

Tsar & Tsai Lex News is aimed at providing the readers and clients

  1. important recent changes in the laws and regulations in Taiwan,
  2. practical views and interpretations on the laws,
  3. important legal news and case developments, and
  4. information on recent activities of Tsar & Tsai Law Firm. If you have any comments or questions, please feel free to contact us (Tel: 886-2-6638-6999; e-mail: Law@TsarTsai.com.tw ).

Editors: Edgar Chen / George Shih

The Legislative Yuan passed the Citizen Judge Law

On July 22, 2020, the Legislative Yuan passed the Citizen Judge Law, which was promulgated by the Presidential Order on August 12, 2020.  Most provisions of the Law shall become effective beginning 2023, but the citizen participation of trials in criminal cases of the first instance District Court jurisdiction prosecuted by the public prosecutor involving crimes with a minimum penalty of ten year imprisonment shall not become effective until 2026.

The citizen participation of criminal trial is applicable to cases of the first instance District Court jurisdiction prosecuted by the public prosecutor which involve crimes with a minimum penalty of ten year imprisonment or intentional offense resulting in death, excluding juvenile criminal cases and offenses under Narcotics Hazard Prevention Act (Art. 5).  Eligible citizen judges must be a ROC national of age 23 or more who has resided for at least four months continuously in the district court jurisdiction where the case is pending, and who has not been deprived of citizen’s rights or subject to any criminal sentence, is not an interested party or related person or a person of legal profession such as judge, prosecutor, lawyer, etc. (Art. 12-15); nor shall there exist any other negative qualifications prescribed by law.  After the completion of oral argument in a citizen judge court, the professional judges and citizen judges shall jointly discuss and finally review the finding of facts, the application of laws and the sentencing (Art. 2).  The guilty verdict shall be made with the consent of a two-third majority of the total number of professional judges and citizen judges.  The sentencing matter shall be decided by a simple majority of the total number of professional judges and citizen judges, provided, however, that the issuance of a death penalty sentence requires the consent of a two-thirds majority of all the judges (Art.83).  (Rebecca Lin Esq.)

The Ministry of Economic Affairs (“MOEA”) published the proposed amendment to the Measures Governing Investment Permits to the People of Mainland China.

MOEA published the proposed amendment to the Measures Governing Investment Permits to the People of Mainland China on August 17, 2020, aiming to revise the criteria of determining the Mainland Chinese investment.  The method of calculation of the 30% shareholding of Mainland Chinese capital will be changed to base upon“shareholding of each level” and no longer upon “aggregate shareholding”.  In other words, if a shareholder of any level in the investment applicant’s ownership chain has Mainland Chinese capital of more than 30% or otherwise substantially controlled by a Mainland Chinese enterprise, such shareholder shall be deemed a Mainland Chinese enterprise and its entire shareholding in the investment applicant shall be deemed Mainland Chinese capital.  In addition to board of directors and the equivalent that are currently covered in determining the existence of substantial control by Mainland Chinese enterprise, other organizations having power to determine the operation direction of company will also be considered according to the proposed amendment.  Moreover, the current restriction of investments by the Mainland Chinese military will be expanded to cover the investments by the Mainland Chinese military, government, and political party.  In the event a company which was previously approved for investment is deemed a Mainland Chinese enterprise under the new measures, the items previously approved by the Investment Commission will not be affected, but the subsequent application for additional investment must be handled pursuant to the rules for Mainland Chinese enterprises. (Dennis Chen, Esq.)

The Financial Supervisory Commission (“FSC”) promulgated the “Regulations Governing Banks Conducting Financial Products and Services for High-net-worth Customers”

In order to expend the variety of services that banks may provide to high-net-worth customers, the MOEA promulgated the “Regulations Governing Banks Conducting Financial Products and Services for High-net-worth Customers” on August 5, 2020, to relax the regulations regarding the allowable investment products and sales procedure for banks to provide services to customers who have a minimum net worth of NTD100,000,000 or who has more than NTD30,000,000 disposable assets in the bank. (C.H. Chen, Esq.)

The Legislative Yuan passed the amendment to the Securities Investor and Futures Trader Protection Act, which became effective on August 1, 2020.

The highlights of the amendment include: (1) that the persons who manipulate securities and futures trades, make insider trading, and commit fraud in futures trading or other acts that disrupt the market trading order shall be unfit to serve as directors or supervisors, and the protection institution may institute an representative action or dismissal action against such persons based on the above; (2) that the directors and supervisors of emerging stock company shall be eligible defendants, having standing to be sued in a representative or dismissal action brought by the protection institution; (3) that the protection institution may institute legal actions against the retired directors or supervisors; (4) that the causes of petitioning for dismissals of directors or supervisors shall not be limited to those occurred during the term of office at the time the action is instituted, and that the prescriptive period for instituting a dismissal action shall be 2 years from the time the protection institution knows of the cause for dismissal, or 10 years from the time of occurrence of the cause; (5) that the person who has been dismissed as director or supervisor may not serve as director or supervisor of any exchange-listed, OTC-listed, or emerging stock company or as the representative of institutional director or supervisor to perform duties within three years from the date that the judgment or order of dismissal becomes final; and if such a person is already serving as a director or supervisor, he/she shall ipso facto be dismissed. (JuYa Lu, Esq.)

The National Communications Commission (“NCC”) interpreted the specific percentage that telecommunications enterprise shall report shareholding.

On July 13, 2020, NCC issued a letter interpretation No. 10940012180, indicating that a telecommunications enterprise who has established a PSTN using telecommunications resources or is deemed a telecommunications enterprise according to Paragraph 2 of Article 28 of the Telecommunications Management Act shall report to NCC in the event that more than 3% of its issued and outstanding shares with voting right or of its total capital is owned by a single shareholder, or that an increase or decrease of more than 1% of the shareholding or capital has taken place over or from the abovementioned 3% shareholding or capital.    In addition, on July 14, 2020, NCC further explained in its letter No. 10940012161 that a direct or indirect investment by a telecommunications enterprise of 3% or more in the total outstanding voting shares or capital of another telecommunications enterprise shall apply with the competent authority for approval. (Spencer Lee, Esq.)

The Supreme Court held that where a company substantively deprived minority shareholders of their voting rights via a shareholders’ resolution by reason of operational needs, the company must prove the justifiability and proportionality of such resolution.

The Supreme Court held in its judgment No. 108-Tai-Shang-Zhi-1234 that: “Shareholders exercise their rights over the company through participation and voting in shareholders’ meetings.  Unless otherwise restricted by law or by articles of organization, such right to vote is an inherent right of the shareholders and may not be deprived of via a shareholders’ resolution or any other means.  If a resolution of capital reduction is adopted due to the company’s operational needs and such a reduction of capital results in minority shareholders’ lost of voting rights, the company must prove that such a resolution is justifiable, namely the resolution is necessary for the company’s operation; and that the benefit obtained by the company from the resolution is far greater than the benefit lost by the affected shareholders from their right to vote, so as to conform with the principle of proportionality.

The fact of the case is as follows: The defendant company resolved at a special shareholders’ meeting to conduct a capital reduction. Said resolution reads: “The total number shares of this company will be reduced from 300,000 to 10.  The shares owned by any current shareholders who are unable to combine their shares to 1 share after the capital reduction will be purchased in cash by a specific person that the chairman of the board is hereby authorized to arrange at a price in proportion to the par value”.  After the defendant company conducted the capital reduction, no shareholder held 1 share or more except for a corporate shareholder.  The five plaintiffs (who were minority shareholders of the defendant company) were unable to piece together 1 share and as a result could not excise their voting rights pursuant to the Company Act.  The Supreme Court held that said resolution of capital reduction virtually deprived all shareholders of their voting rights except for voting right of the corporate shareholder; and thus, the defendant must demonstrate that said resolution was justifiable.  The purposes of the capital deduction announced by the defendant when the resolution was made were as follows: Given that the company has surplus funds, the surplus is to be returned to the shareholders in cash for promoting the company’s operational performance, improving its financial structure, protecting the interest of the Taiwanese shareholders (since there are some of Mainland Chinese shareholders), and carrying out corporate management and governance, etc.  However, the Act regarding the Exercise of Shareholders’ Rights for Shareholders in Mainland China of a Company in Taiwan provides that the shares of Mainland Chinese shareholders shall not be counted in the total number of issued shares, and shall have no voting rights; that the Mainland Chinese shareholders shall not inherit or transfer their shares or change records in the shareholders’ roster, and shall have no right to subscribe new shares before the unification of the nation.  Therefore, it appears unlikely that the Mainland Chinese shareholders of the company could affect the company’s business strategy or the interests of Taiwanese shareholders.  Moreover, it is not unquestionable if the defendant company’s capital reduction could promote its operational performance, improve its financial structure, or carry out the corporate management and governance since that the capital reduction was not made to cover the defendant’s accumulated deficit, and that the defendant became the only shareholder after the capital reduction.  Doubts remain.  Is the announced purpose of the capital reduction consistent with the facts?  Is the resolution in question necessary for the company’s operations?  Is the benefit obtain by the defendant company from the resolution far greater than the benefit that the shareholders is deprived of as a result of the lost of voting rights? (Hannah Chang, Esq.)

The worker’s seniority, the nature of the job position held by the worker, or the transfer thereof should be determined from a holistic point of view, taking into account the circumstances of all entities within the business group, rather than considering only the specific corporate entity that signed the labor contract with the worker

Labor contracts for temporary, short-term, seasonal or specific works and for non-continuous works may be made fixed term contracts.  Other than that, labor contracts should be non-fixed term contracts.  The Supreme Court’s view is that the “continuous work” under a non-fixed term labor contract shall mean that, in relation to the business and operational need of the employer, the worker’s job duties are of a continuous nature, rather than just a temporary, short-term, or seasonal in nature or only for a particular purpose.  Therefore, whether a job duty is of a continuous nature shall depend upon whether the employer has a continuous need thereof, judging in accordance with the relevant laws and regulations as well as from the actual works engaged by the worker when making such a determination, and not be bound by formality of the written labor contract terms.  In addition, in practice there are business groups comprised of various corporate entities whose worker would sign a labor contract only with one entity in the group.  When the group’s parent entity has the power to make HR decisions, including instructing, supervising or transferring the worker among the various entities within the group, and the worker may not reject to the parent company’s direction, it would be required that the worker’s seniority, the nature of the job position held by the worker, or the transfer of the worker be determined from a holistic point of view, taking into account the totality of circumstances of the all entities in the group, rather than considering only the specific corporate entity that signed the labor contract with the worker. (Max Lee, Esq.)

A Dispute over the Right to Vote in Shareholders’ Meeting

Hannah Chang, Esq.

A listed company re-elected its directors at this year’s general meeting of shareholders.  When shareholders and solicitors of proxies registered for attendance, the company claimed that more than 50% of its shares had no voting rights pursuant to Paragraph 14 and 15, Article 27 of the Business Mergers and Acquisitions Act and other related regulations.  Dispute arose when the company then refused to distribute voting slips and ballots to some shareholders and solicitors.  This article discusses three legal issues related to this dispute.

The first issue is whether the management of a company may block certain shareholders from exercising of their voting rights at the shareholders’ meeting; namely, does the company have the right to preliminarily examine whether there exists a voting right in association with a particular share and whether the ballot is valid at the shareholders’ meeting?  In corporate practice, it is common for companies to exclude shareholders from voting based upon Article 22 of the Regulations Governing the Use of Proxies for Attendance at Shareholder Meetings of Publicly Listed Companies (the “Proxy Regulations”).  Article 22 of the Proxy Regulations provides: “In the event any of the following circumstances exists when proxy is used, the represented votes shall not be counted: . . . 9. where the solicitor’s voting act is inconsistent with the content stated in the soliciting literature or advertisement, or with the content of the principal shareholder’s authorization; . . . If an event referred to in paragraph 1 should occur that a vote shall not be counted, the publicly listed company shall conduct a re-count.”  Taiwan Hsinchu District Court held in its judgment No. 105-Su-Zhi-633:”Company A (i.e., the solicitor of proxies) failed to allocate its votes to the candidates named on the written solicitation of proxy…  In other words, the solicitor’s voting action in the election of directors was inconsistent with the content stated in the proxy solicitation and in the advertisement… Therefore, it was proper for the defendant company to assert that Company A’s voting action in the election of director violated the Proxy Regulations, and that the voting right of all 142,726,780 shares represented by Company A, including the votes cast to candidate __ __ Lin, should be excluded.”  Additionally, Taiwan Hsinchu District Court’s held in judgment No. 101-Su-Zhi-559: “According to the minutes of the defendant’s shareholders’ meeting in question, the resolution at issue was passed with the following footnote: (Note: the initial counting of the votes on the date of the meeting indicated that the number of the total affirmative votes was 319,438,063, representing 42.98% of the total voting right in attendance, so that the resolution was not passed.  However, the votes cast by certain solicitors were thereafter found to be inconsistent with the content of the solicitation materials or advertisement or with the principal’s instruction in the proxy, this company excluded the voting rights of those solicitors and conducted a re-count the next date pursuant to Article 22 of the Proxy Regulations.  The re-count resulted in affirmative votes of 53.55% of the total voting right in attendance, and hence the resolution was passed).  Since said defendant’s action was properly made pursuant to Paragraph 3, Article 22 of the Proxy Regulations, the plaintiff’s allegation that the method of adopting said resolutions had violated the law and regulation or the company’s Articles of Incorporation is without merit.”  Accordingly, the company may exclude voting rights at the shareholders’ meeting if the voting right is not exercised pursuant to Article 22 of the Proxy Regulations, and should conduct a re-count if an event giving rise to a necessity of re-count is discovered.  If an affected shareholder questions the validity of the exclusion of voting right, such shareholder must petition to the court to declare the resolution in question void or to vacate the resolution or to declare the exclusion of voting right by the shareholder’s meeting at issue invalid.  Nonetheless, some scholars and authorities have taken the view that the laws and regulations involving exclusion of voting rights, such as the Business Mergers and Acquisitions Act, should be interpreted, and the issues thereunder determined, by the competent authority or the courts rather than by private companies themselves.

Given the disputes over such shareholders’ meeting, the Ministry of Economic Affairs (“MOEA”) denied the company’s application for the amended registration regarding the election of directors.  Some shareholders of “market faction” submitted an application to the MOEA for convening a special shareholders’ meeting to re-elect directors based upon Paragraph 4, Article 173 of the Company Act.  The application was approved by the MOEA.

What is the legal effect of the MOEA’s rejection of the company’s application for amended registration of directors/supervisors re-election?  In practice, the general view is that the amended registration of directors/supervisors may only be a defense against third parties, and that the agency relationship between the elected directors/supervisors and the company are not affected by the failure of registration.  Therefore, even though the validity of the procedure of convening the shareholders’ meeting or the method of a adopting the resolution regarding the directors/supervisors re-election is challenged by some shareholders and the MOEA has rejected the company’s application for amended registration of directors/supervisors re-election, the challenged resolution adopted by the shareholders’ meeting remains valid until a court ruling revokes such resolution, meaning the agency relationship between the elected directors/supervisors and the company is still valid.

Are there any required elements that limit the MOEA’s discretion in approving a company to convene a special shareholders’ meeting in accordance with Article 173, Paragraph 4 of the Company Act?  Paragraph 4, Article 173 of the Company Act provides: “When the board of directors fails or cannot convene a shareholders’ meeting on account of share transfer or any other causes, the shareholder(s) holding 3% or more of the total number of outstanding shares of the company may, after obtaining an approval from the competent authority, convene a shareholders’ meeting.”  According to the MOEA’s administrative interpretation letter No. Jing-Shang-Shih-10002335540 (cited by Taipei High Administrative Court judgment No. 107-Su-Zhi-#121), “The words ‘share transfer or any other causes’ in Paragraph 4, Article 173 refer to any material causes such as all of the directors were discharged on account of transferring their total shares.  The term ‘any other causes’ shall also be something equivalent to a ‘share transfer’ in terms of materiality, such as the all directors have resigned, all directors have been unable to perform their duties due to an order of injunction by court, the meeting of the board could not be held because there was only one remaining director, etc.”  In addition, the Supreme Administrative Court indicated in judgment No. 102-Pan-Zhi-#678: “The competent authority (i.e., the MOEA) should, in accordance with Paragraph 4, Article 173 of the Company Act, investigate and determine whether the applying shareholder [for convening a shareholders’ meeting] actually holds the above-mentioned required percentage of the shares to apply for convening a shareholders’ meeting on their own, then consider the legislative purpose of  minority shareholders’ application to convene the shareholders’ meeting on their own, the reason on which the applicants (shareholders) apply for convening a shareholders’ meeting on their own, and the impacts to the interest of shareholders in a whole, to the operations of the company, and to the domestic economic order, as well as any other factors, in order to make an adequate and lawful determination.  If the competent authority fails to observe its duties to investigate the facts and evidence, or fails to exercise its discretion on this issue, its administrative dispositions would be unlawful, and may be revoked by the Administrative Court.”  Therefore, there are indeed certain limitation on the administrative discretion of the competent authority in approving a special shareholders’ meeting.  Although minority shareholders may apply with the competent authority for convening a special shareholders’ meeting according to this Article, the court has the ultimate power to interpret what elements constitute “any other causes” referred to in Paragraph 4 Article 173 of the Company Act and whether the competent authority has fulfilled its obligation to investigate the facts and evidence in determining this matter.

[Firm News]

  • Tsar & Tsai was selected by the “Worldwide Financial Advisor Awards Magazine 2020” as the “Capital Markets Law Firm of the Year – Taiwan”.
  • Janice Lin, Esq. was named by the IFLR Asia Best Lawyers 2020 as the “Lawyer for Project Finance in Taiwan”.
  • Tsar & Tsai was named by the Legal 500 Asia Pacific 2021 as “Taiwan Top-Tier Firm” in the fields of “Capital Markets”, “Corporate and M&A”, “Dispute Resolution”, “Intellectual Property”, “Labour and Employment”, “Tax” and “TMT”.
  • BP agrees to sell its petrochemicals business to INEOS, the deal value thereof being around USD 5 billion. Tsar & Tsai served as Taiwanese counsel to BP in the transaction. (Janice Lin, Esq. / Anthony Hsieh, Esq.)
  • On July 15, 2020, Max Lee, Esq. attended the “Fin-tech Development Seminars” hosted by the FSC.
  • Josh Fan, Esq. was invited by the Taiwan Corporate Government Association to be the lecturer of the “Corporate Laws – Trade Secret “.
  • On August 25, 2020, Tsar & Tsai sponsored the “2020 International Investment Forum” in Taipei hosted by the Taiwan Merger & Acquisition and Private Equity Council; James Cheng, Esq. was invited to be one of the keynote speakers on “Taiwan’s Investment and Acquisition in United States”.