Article 43-1 (3) of the Securitiesand Exchange Act amended on February 6, 2002 (hereinafter the “Act”) provides,“[a]ny person who independently or jointly with another person(s) proposes toacquire a certain percentage of the total issued shares of a public company shallmake the acquisition by means of a public tender offer, unless certainconditions are satisfied.” As such, anyone who desires to acquire a certainpercentage of a public company, in principle, must do so through a publictender offer. If not through a public tender offer, according to Article 175 ofthe Act, such person shall be punished with imprisonment for not more thantwo years, detention, and/or a fine of not more than NT$1.8 million.

However, what percentage exactly is“a certain percentage” as referred to by Article 43-1 (3) of the Act? The Actitself does not specify, but authorizes the Financial Supervisory Commission toformulate relevant provisions. This type of provision is the so-called “blankcriminal provision.” The latter part of Article 43-1 (4) of the Act providesthat “…the ‘certain percentage’ and ‘conditions’ in connection with theacquisition of a certain percentage of the total issued shares of a publiccompany under the preceding paragraph shall be prescribed by the CompetentAuthority.” Based on this provision, the Financial Supervisory Commissionformulated the “Regulations Governing Public Tender Offers for Securities ofPublic Companies,” and Article 11(1) of which provides, “[a]ny person whoindividually or jointly with another person(s) intends to acquire within 50days shares accounting for 20 percent or more of the total issued shares of apublic company shall employ a public tender offer to do so.”

The applicant for interpretation bythe Constitutional Court believes that the connotation of “intend(ing) toacquire” and “intend(ing) to acquire within 50 days” in the aforementionedprovisions violates the principle of clarity of criminal code. In addition,this provision of the Act pertains to special criminal provision, but itauthorizes a competent authority to formulate the elements to “a certainpercentage” and “the certain conditions.” Such authorization violates theprinciple of clarity of authorization. Hence the applicant applied for aConstitutional Court interpretation.

On April 18, 2023, theConstitutional Court rendered the judgment 112-Xian-Pan-Zi No. 5, holding that theaforementioned provisions does not violate the principles of clarity ofcriminal code and principle of clarity of authorization, and is thereforeconstitutional. The reasons are summarized as follows:

1.Theobject of the punishment provided in Article 43-1(3) of the Act is mostlypeople who acquire large quantities of shares. In general, such people havehigher professional knowledge and capability than the common public in regardto the public acquisition of shares in the capital market.

2.Thephrase “intend(ing) to acquire,” if interpreted according to the context andpurpose of the phrase, may be understood as “contracting in advance to acquire”(i.e., agreeing in advance to acquire) the shares of a company. And it is notdifficult to understand that “intend(ing) to acquire within 50 days” means“intend(ing) to agree to acquire within 50 days.”

3.“A certain percentage” is under thediscretionary authority of the competent authority according to domesticcircumstances or actual transaction circumstances, considering thecircumstances under which someone may obtain significant influence on a companywhose shares are acquired or may have obtained the management right of acompany whose shares are acquired. Based on its professional assessment, thecompetent authority set the “certain percentage” to “20 percent or more,” whichis within the scope of authority of the competent authority. Those who acquirea large number of shares, based on their own or their professional team'sprofessional knowledge in the securities trading market, should be able toforesee that the phrase "certain percentage" in the above provisionincludes "20 percent or more."

4.Thelegislative purpose of Article 43-1(3) of the Act is to prevent market pricefluctuation of the stock being acquired in a large quantity. Article 43-1(4) ofthe same is to authorize a competent authority to set a certain percentage andthe conditions in response to the rapidly-changing securities market for promptadjustment in regulation. The competent authority in charge of the securitiesmarket knows the best about to what extent of quantity a stock is acquired willaffect the market price of the individual stock. Based on the complexity andprofessionalism of securities market activities, the securities market changesrapidly, and the competent authority has the need for flexible adjustments.

5.The“certain percentage” and “certain conditions” are for authorizing the competentauthority to set a threshold for public tender offers and exemptions thereof. Thepurpose and content of such authorization is clear and specific. In addition, peopleare able to foresee the possibility of being penalized for violating theprovision for public tender offer under such provision of the Act. Hence, itdoes not violate the principle of clarity of authorization.

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