TAIWAN Law and Practice Contributed by: Ken-Ying Tseng, Vivian Cheng, Julia Kuei-Fang Yung and Gail Chang, Lee and Li Attorneys-at-Law
8.3 Business Judgement Rule The business judgement rule is a legal doctrine that helps to guard a company’s board of directors and the board is presumed to act within the standards of fiduciary duty that directors owe to shareholders. Such concept is not expressly provided by Taiwan law, but recognised in certain court precedents. There have not been many court precedents address - ing directors’ duties in M&A transactions. However, it is generally understood that a court would uphold the decisions of the board of directors unless the plaintiff can prove that the director acted in negligence or bad faith, or the plaintiff can prove that the director had a conflict of interest which may affect their decision. 8.4 Independent Outside Advice It is common for the board of directors of a compa - ny in M&A transactions to obtain financial and legal advice from outside experts. In addition, pursuant to the M&A Act, before the board of directors resolves any M&A transaction, a public company shall form a special committee to review the fairness and reasona - bleness of the plan and transaction. The special com - mittee must engage an independent expert to issue a fairness opinion on the consideration. In the case of a tender offer, when the offeror files the tender offer with the FSC, they must engage an independent expert to issue a fairness opinion on the consideration, which opinion should be included in the tender offer prospectus. 8.5 Conflicts of Interest Conflict of interest issues in M&A transactions have been subject of disputes and scrutinised by regula - tors in the relevant approval process. For instance, a case was filed by minority shareholders (the appli - cant) in relation to a cash-out merger in 2014. The merger was a management buyout where four direc - tors of the target holding approximately 69% shares of the target are also directors and shareholders of the buyer. The minority shareholders argued that the management stood on both sides of the transaction and did not fully disclose their personal interests. The minority shareholders claimed that the merger was not duly approved at the board meeting and share -
holders’ meeting as the management did not abstain from voting. The Taipei District Court and Taiwan High Court upheld the decision made at the target’s board meeting and shareholders’ meeting and held that the management did not have a conflict of interest since they would not obtain special rights or waiver of obligations as a result of the cash-out merger. However, the Supreme Court remanded the case and held that the protec - tion of minority shareholders is crucial in a cash-out merger and a director who has a personal interest in such transaction shall declare the essential contents of such personal interests and the reason why they believe that the transaction is advisable or not advis - able at the relevant board meeting and the sharehold - ers’ meeting. Hostile bids are permissible. There are very few hos - tile bids and most of them have failed. Hostile bids are not common because they are usually met with fierce defensive actions. This results in an uncertain outcome, delays and increased costs to complete the transaction compared to a recommended bid. In addi - tion, past hostile bids have had bad press and the competent authority was unhappy with the resulting stock turbulence. 9.2 Directors’ Use of Defensive Measures Following the announcement of a tender offer, the target company’s board of directors shall review the terms of a tender offer and publicly announce whether they support it or object to it within 15 days of receiving the offer. In particular, the board of direc - tors should review the offeror’s identity and financial status, the fairness of the offer’s terms and conditions, and whether the offeror’s source of funds is credible. The target company must set up a review committee consisting of three independent members to assess the tender offer and provide its recommendation to shareholders within the 15-day period. If the target company has independent directors, the independent 9. Defensive Measures 9.1 Hostile Tender Offers
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