By Wei-Han Kuo & Hsuan-Hong Chen, Partner & Senior Associate of Formosan Brothers, Attorneys-at-Law

Before the COVID-19 pandemic broke out, in order to fulfill its promise of judicial reform to its people, the Taiwan government promulgated the “Commercial Cases Adjudication Act” (hereinafter the “Act;” the enforcement date will be announced by the Judicial Yuan), which provides dispute resolution procedures for the matters that would be considered as large claims (over NT$100 mil.) and commercial matters that require professional expertise and/or with higher complexity. These cases are used to be applied to common civil proceedings and will be treated independently. The Act provides several special procedures to meet the purpose of resolving disputes expediently and professionally which is different from the civil procedure.

A case regarding “major controversy over the effectiveness of the resolution at shareholders’ meeting due to the company handle its own shareholder services” has emerged during the COVID-19 pandemic under control. It leads to the concern of businesses in Taiwan that “whether the effectiveness of the resolutions at shareholders’ meeting would be pending forever.” Hence, under the newly promulgated Act, resolving such disputes more efficiently and professionally becomes an important issue among large corporations and business owners. In the following paragraphs, we will use the controversy over the resolutions at shareholders’ meeting as an example to point out some important features of the Act.

‍

I. The Act applies to disputes arising from a public company’s shareholders’ meeting.

With respect to the incident of a public company’s which handles its own shareholder service and the company revokes certain shareholders’ right in the election of directors, the Act should apply because it involves the “effectiveness of a resolution at shareholders’ meeting”. Pursuant to the Act, it is mandatory that this type of dispute should be represented by a counsel and assign the counsel as the agent for all related litigations and non-litigation procedures.

‍

II. The Shareholders may apply for an injunction maintaining a temporary status quo in accordance with the law.  

Since a company’s resolution at shareholders’ meeting involves the company’s business direction, amendment of the articles of incorporation, recognition of the financial reports, and senior personnel decisions, all of which are matters of significant impact on the company. If there is doubt regarding the effectiveness of the resolution, it may result in irreversible damage to the company’s operation when such a resolution be recognized. As such, the shareholders whose voting right was revoked shall be allowed to apply for an injunction to suspend the enforcement of the shareholders’ resolution by the description of prevention of severe damage or to avoid urgent risks of the company. When applying the injunction, the court may assess an amount for the security depending on the circumstances. In principle, the court shall allow the company to state its opinions before rendering its ruling in order to protect procedural justice.

‍

III. Mediation is required prior to litigation.

To resolve disputes quickly, reduce conflicts between the shareholders and company supporters, and maximize the commercial interests of both sides, the parties should try their best to utilize alternative dispute resolution to resolve the disputes prior to the litigation. However, if the competent authority believes that the resolution at shareholders’ meeting constitutes a major violation of the law and renders a provisional disposition itself, then it is very unlikely that such a dispute would be resolved by mediation. In such a case, it is most likely that the court needs to determine the effectiveness of such resolution after the initiation of action.

‍

IV. The shareholder filing the action may inquire the information related to the handling of shareholder service of the company.

If the shareholder services is handled by company itself, the information related to calling the meeting, voting rights revocation, voting and ballot counting procedure, meeting hosting and conducting is in the hands of the original chairman of the board and related person. The related person who hold such related information shall provide actively in accordance with the law, or the shareholder filing the action can also ask for such information. If related person of the company refuses to provide any explanation to the inquired information or related evidence without justification, the court may deem the fact inquired or evidence provided by the shareholder as fact depending on the circumstances.

‍

V. Commercial investigation officer may assist in investigation and expert witnesses may assist in providing professional opinions.

If the case involves the mishandling of shareholder services which results in disputes over shareholders’ voting rights, such an incident requires in-depth professional knowledge in corporate governance and operation, the judge may consult with a commercial investigation officer and give the parties opportunities to understand the situation and state their opinions at appropriate times to clarify relevant key issues of the disputes. As to whether the shareholders’ meeting procedure and the ad hoc resolution to revoke certain shareholders’ voting rights is legal, one may also invite scholars and expert practitioners in related fields to provide their professional opinions as witnesses so that the judge may render a more just, reasonable, and prompt judgment.

‍

VI. Confidentiality and evidence preservation

If the dispute in the shareholders’ resolution involves the company’s trade secrets, the company shall state its reasons for the court to decide whether the refusal to provide such information is justifiable or necessary. If the court deems that the company’s trade secrets shall be disclosed to the other party, the company may also file a motion to order the party who learns of such trade secrets to keep them confidential. If the shareholders who file the action discovered that the evidence of the disputed shareholders’ meeting may disappear over time, resulting in the loss of evidence, such a shareholder is allowed to file a motion to preserve the evidence so that the evidence may be preserved and to be used until hearing of the case, also it can be used as a basis for the judgment.

‍

Through the above procedure different from common civil procedures, commercial disputes of public companies may be completely resolved professionally, timely, and applying means that respect the business interests of both parties. As to whether the controversy over the effectiveness of the resolutions of shareholders’ meeting may have a perfect ending, one shall still rely on the common civil procedures to find remedies for relevant rights before the enforcement of the Commercial Cases Adjudication Act. With respect to the administrative disposition made by the competent authorities, the company shall also promptly file petitions or administrative actions to remedy its rights in the future.

(This article was published in the Expert’s Commentaries column of the Commercial Times.  https://view.ctee.com.tw/legal/22179.html )

‍