I. Judicial Yuan’s Interpretation No. 770, dated November 30, 2018, indicates that parts of the current Business Mergers and Acquisitions Act (hereinafter the “Act”) have not yet reached an acceptable balance. In response to the amendment recommendations in Interpretation No. 770 and the voice from all sector of the community that called for M&A flexibility and the protection of shareholders’ rights, the Ministry of Economic Affairs announced the amendment draft for part of the Act on October 7, 2020, whose key points will be summarized below. In addition, regarding the part of the Interpretation No. 770 relating to the amendment recommendations of the current Act, please refer to the “Messages to Businesses and Shareholders from Interpretation No. 770.”

https://www.fblaw.com.tw/tw/news/legalnews?dbid=3593714177

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II. The announced amendment draft of the Act includes three parts: “strengthen the protection for shareholders’ rights,” “loosen the scope of application of the asymmetric M&A,” and “expand taxation measures”:

(I) Strengthen the protection for shareholders’ rights

1. Added that a company shall indicate that a director who has a personal interests in the M&A whose essential content of such interests of and the cause of approval or dissent to the resolution of M&A in the notice of the shareholders’ meeting.

2. Added that for a company that has its share certificates publicly issued, if its shareholder who is holding more than 10% of the issued shares is also a director of the company that will be merged or acquired, the company shall explain to the shareholders’ meeting the essential contents of such personal interest and the cause of approval or dissent to the resolution of M&A. The aforesaid disclosed information shall also be indicated in its notice of shareholders’ meeting.

3. Regarding the provision about Article 10 of the current Act which stipulates that to operate against the company, the written shareholders’ voting trust agreement must be submitted for registration by the company. The deadline for submission is amended from “five (5) days prior to the shareholders’ meeting” to “thirty (30) days prior to a general shareholders’ meeting, and fifteen (15) days prior to a special shareholders’ meeting.” In addition, although the provisions about Article 175-1 of the Company Act which provides the shareholders may reach a voting agreement in writing to jointly exercise their voting rights and voting trust agreement do not apply to a public company, but this amendment draft of the Act expressly provides that shareholders of a public company may enter into a voting trust agreement regarding M&A resolutions, and such provisions prevails over the Company Act. The aforesaid agreement shall be submitted to the company 60 days prior to a general shareholders’ meeting and 30 days prior to a special shareholders’ meeting.

4. The amendment draft added that shareholders who voted against a M&A may also exercise their appraisal rights.

(II) Loosen the scope of application of the asymmetric M&A (i.e., asymmetric merger, share exchange, or division)

Under the current Act, if a company participated in the M&A meets the two conditions of “the number of shares issued as a result of the M&A will not exceed more than twenty (20) percent of the total number of issued voting shares of the company” and “the total amount of cash or the total value of the assets delivered will not exceed more than two (2) percent of the net value of the company,” such M&A agreement may be adopted by a special resolution by the board of directors without the need of a resolution from the shareholders’ meeting. This amendment draft loosens the scope of application of such asymmetric M&A to only required to meet either one of the two aforesaid conditions.

(III) Expand taxation measures

1. Intangible assets acquired by a company in a M&A may be amortized evenly within a specific period based on its actual acquisition cost.

2. The consideration of shares obtained by individual shareholders of a startup company that has been merged, the income tax collection of the dividend calculated in accordance with the provisions of the Income Tax Act may be fully deferred to the fifth (5) year of the following year.

(Author: Teresa Pan, Partner)

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*References:

1. Announcement by the Ministry of Economic Affairs dated October 7, 2020 https://www.moea.gov.tw/Mns/populace/news/News.aspx?kind=2&menu_id=41&news_id=91723

2. Judicial Yuan’s Interpretation No. 770 (Judicial Yuan’s website)

https://cons.judicial.gov.tw/jcc/zh-tw/jep03/show?expno=770

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