TAIWAN Law and Practice Contributed by: Derrick Yang, Judy Lo and Yu-Ting Su, Lee and Li Attorneys-at-Law
7.5 Multi-Jurisdictional and Multi-Regulator Co-Ordination Co-ordinating multi-jurisdictional merger control, FDI and sectoral reviews presents several challenges, as each competent authority may have different review processes, criteria and timelines, and may impose varying conditions or reach divergent conclusions regarding the transaction. As applicable regulatory approvals from all relevant jurisdictions are typically conditions precedent that cannot be unilaterally waived, transaction documents often include provisions allowing markets or busi - ness functions that fail to secure necessary regula - tory approvals (or are subject to onerous conditions or remedies) to be carved out or excluded; alternatively, the parties may agree to proceed with staged clos - ing in those jurisdictions where approvals are already secured. These approaches help mitigate delays or blockages that could impede closing. However, such exceptions generally do not apply to markets or busi - ness functions that are material to the overall deal; in those cases, the parties may need to renegotiate the best way to proceed. Additional mechanisms to manage this risk may include implementing a longstop date or break fee, depending on the parties’ risk tolerance and the stra - tegic importance of the affected jurisdictions.
the competent authorities (where applicable), espe - cially when these approvals are uncontroversial and mandatory for completion of the transaction. 7.3 Risk Allocation Mechanisms Regulatory and litigation risks are allocated between buyers and sellers based on factors such as the indus - try involved, the level of regulatory scrutiny, the com - plexity or difficulty of obtaining requisite approvals across different sectors, the parties’ bargaining power and risk appetite, etc. For example, in practice, break fee arrangements may be seen in cross-border public transactions or auc - tion deals with Taiwan elements and are usually set at 1% to 5% of the purchase price; however, they are less common in deals where the buyer is private equity-backed. Reverse break fees are relatively com - mon and are typically 1.5 to two times the amount of the break fee. 7.4 Interim Operating Covenants and Gun- Jumping Risk Interim operating covenants are widely used in local deals. Typically, these covenants require the seller to operate the business in the ordinary course between signing and closing, and restrict non-regular business activities, such as entering into new business partner - ships, engaging in joint product development, enter - ing into other material contracts, or making significant capital expenditures, without the buyer’s prior con - sent. The scope of these covenants, including which actions require notification or approval, is usually negotiated on a case-by-case basis. Buyers typically have the right to be informed about the target’s key operational and financial status between signing and closing (eg, through regular reports); however, direct discussions with manage - ment or employees regarding their employment terms or retention are usually restricted during this period, as such interactions can be sensitive. This careful bal - ance helps protect the business’s stability while pro - viding the buyer with necessary visibility throughout the interim period.
8. M&A Litigation and Disputes – Substantive Deal Issues
8.1 Frequency and Types of M&A Litigation In Taiwan, litigation arising from M&A transactions is relatively uncommon. This is primarily because most disputes are resolved through arbitration or settle - ment, which offers advantages in terms of confiden - tiality and procedural efficiency. When litigation does arise, it typically concerns the parties’ internal decision-making processes, their management’s fiduciary duties, and minority share - holders’ claims. These may include challenges to the validity of the shareholders’ or board resolution approving the deal, whether board members exer - cised due care in evaluating the transaction, or the
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