Before the Lunar New Year, there was a major change in the management of Taiwan Land Development Corporation (Stock Code 2841, hereinafter “TLDC”). On the evening of January 26, 2022, TLDC released material information that, due to the fact that the legal entity Hongsheng Investment Co., Ltd. (hereinafter as Hongsheng) changed its representative to Fujin Kuo, the former Chief Financial Officer of TLDC, the Chairperson of the Board, Yuyun Chiu, would be dismissed from her position. According to the news, Yuyun Chiu also issued an open letter on January 28 stating that Unicorn Marine Agency Co., Ltd. (hereinafter “UMA”) had appointed her as a representative on January 25. Therefore, even though Hongsheng dismissed her on January 26, it would not interrupt her office as a director, and hence her office as the chairperson of the board would not be affected by Hongsheng’s change of representative. The turmoil over the position of chairperson of TLDC has intensified. The legal dispute over the appointment of representatives by legal entity directors has surfaced again.

According to Paragraph 2 of Article 27 of the Company Act, “Where a government agency or a juristic person acts as a shareholder of a company, its authorized representative may also be elected as a director or supervisor of the company.” Paragraph 3 of the same provides, “Any of the authorized representatives of a company referred to in Paragraphs I and II of this Article may, owing to the change of his/her functional duties, be replaced by a person to be authorized by the company so as to fulfill the unexposed term of office of the predecessor.” In addition, the interpretation ruling Jing-Shang-Zi No. 09300580690 of the Ministry of Economic Affairs (“MOEA”) dated July 30, 2004 states, “According to this provision (referring to Paragraph 2 of Article 27 of the Company Act), when a representative is appointed to be elected as a director or supervisor, the elected one is such representative.” After reading TLDC’s public registration information and the material information announcement made on June 30, 2020 regarding the reelection of the directors, one can see that Hongsheng and UMA both appointed their respective representatives to be elected as directors in accordance with Paragraph 2 of Article 27 of the Company Act. On December 1, 2020, Hongsheng changed its representative to Yuyun Chiu in accordance with Paragraph 3 of Article 27 of the Company Act, and it was until January 26, 2022 that Hengsheng changed its representative to Fujin Kuo. Based on the above, on January 25, Yuyun Chiu was appointed as the representative of both Hongsheng and UMA at the same time. It is worth exploring the legal effect of the same person being appointed by different legal entity shareholders as their representative.

According to the MOEA’s interpretation ruling Shang No. 43432 dated December 10, 1968, “Paragraph 2 of Article 27 of the Company Act states that where a government agency or a legal entity is a shareholder of a company, its various authorized representatives may also be elected as directors or supervisors respectively. As to whether two or more legal entity shareholders may appoint the same natural person as their representative to be elected as a director or supervisor of a company, the Company Act does not specifically provide. However, if the instructions given by the two legal entities to the representative are conflicting, it would hinder the execution of their directorships, which is not desirable, and it would be an obstruction for the application of Article 197 of the Company Act.” Moreover, when explaining the situation of a legal entity director entrusting another legal entity director to attend the board of directors’ meeting, the MOEA’s interpretation ruling Jing-Shang-Zi No. 09800522520 dated February 19, 2009 directly indicated, “Two legal entity directors of a company limited by shares cannot appoint the same natural person to attend a board of directors’ meeting.” The MOEA’s stance seems to oppose two or more legal entity shareholders appointing the same person to attend the directors’ meeting. However, the legal basis still needs to be clarified.

The interpretation ruling of the MOEA above has indicated that the Company Act does not expressly provide in regard to the circumstance of two or more legal entity shareholders appointing the same person as their representative to be elected as a director of a company. However, from the perspective of a mandate relationship, the natural person who performs the duties of a director on behalf of the legal entity shareholder shall have the loyalty and exercise the due care of a good administrator in conducting the business operation of the company in accordance with Paragraph 1 of Article 23 of the Company Act. Even if the legal entity shareholder gives certain instructions to the natural person performing the duties of a director, the natural person should make his/her own judgment whether such instructions are beneficial to the company, rather than unconditionally follow the instructions of the legal entity shareholder.

The legal entity shareholder may also change its representative at any time in accordance with Paragraph 3 of Article 27 of the Company Act. This right to change its representative should be sufficient to ensure the execution of the will of the legal entity shareholder. Hence, even if two legal entity shareholders give different instructions to the representative, the representative shall perform his/her duties from the stance of the company, rather than acting any differently based on the legal entity shareholders’ instructions, neither shall his/her performance of a director’s duties be hindered by the different instructions received. If the MOEA disagrees with the aforesaid circumstance, it seems to be even more necessary that the MOEA clearly explains the relevant legal basis and legal effects of its disagreement.

With respect to whether TLDC’s chairperson, originally appointed by Hongsheng as its representative in the board and was elected as the chairperson, would change due to the fact that the legal entity shareholder Hongsheng decided to change its representative, according to the explanations in the MOEA’s interpretation ruling Shang No. 26434 dated August 20, 1979, the replacement representative cannot continue the original representative’s duties. The chairperson shall still be re-elected by the board in accordance with Article 208 of the Company Act. That is, the office of the chairperson cannot be replaced by a legal entity shareholder’s direct reappointment of its representative. However, this interpretation ruling only explains that Hongsheng cannot appoint a representative to replace the original chairperson’s office. However, in this case, not only Hongsheng changed its representative, its original representative, Yuyun Chiu, was appointed by UMA as its representative at the same time to perform the duties of a director and did not lose her office as a director. If, according to the interpretation ruling Jing-Shang-Zi No. 09300580690 of the MOEA dated July 30, 2004, when a representative is appointed to be elected as a director or supervisor in accordance with Paragraph 2 of Article 27 of the Company Act, the representative is the one to be elected as a director or supervisor, and if when two different legal entity shareholders appoint a representative at the same time, there is no relevant legal basis to allege invalidity of such an appointment, then the representative who has not lost his/her office of a director does not seem to lose his/her office of a chairperson.

The unresolved dispute over the chairpersonship of TLDC has caused the company’s operations to come to a standstill, and crises such as bounced checks and delisting follow. An interpretation ruling from the MOEA may not resolve the company’s operational dilemma, but if it helps settle the dispute between the factions in the company, it can bring TLDC back to the right track as soon as possible and protect the rights and interests of the company’s shareholders.

(This article was published in the Expert’s Commentary Column of the Commercial Times：https://view.ctee.com.tw/tax/38084.html）