TAIWAN Law and Practice Contributed by: Lihuei Mao (Grace), Derrick Yang, Yu-Ting Su and Rose Huang, Lee and Li Attorneys-at-Law
6.11 Commonly Litigated Provisions Litigation is uncommon for private equity transactions, as the parties will usually try to resolve disputes in a more expedited manner to avoid a protracted litiga - tion timeline and burden on costs. If the parties can - not resolve the dispute via commercial negotiation, private equity funds tend to opt for arbitration over court litigation, considering arbitration is a non-public procedure with higher confidentiality and flexibility. In Taiwan, disputes could arise from consideration mechanics, valuation gap between the parties, scope and limitations on warranties, indemnities, or dissent- ing shareholders exercising the appraisal rights for share buyback. Public-to-private deals involving private equity- backed bidders have become increasingly common in Taiwan in recent years. Such take-privates are often initiated by tender offers. The target company will, within 15 days after receiving the tender offer from the bidder: • establish a special review committee to review the fairness and reasonableness of the tender offer conditions; • report to the FSC; and • announce the tender offer and the comments of the board and special review committee to the shareholders. 7. Takeovers 7.1 Public-to-Private The board of the target company has a fiduciary duty to its shareholders. Therefore, it is rare for the target company to enter into an agreement with the bidder on the tender offer, as such agreement often obligates the board to support the tender offer. An agreement signed between the bidder and the target company would be subject to mandatory disclosure prior to the launch of the tender offer.
spilling liability basket, liability cap, matters disclosed and/or claims arising from the buyer’s acts or omis - sions. When the management team also sell their stakes in the target company, the management will usually provide operation-related representations and warran - ties. To ensure a consistent standard in the transac - tion documents, the private equity fund’s limitation on liability is generally extended to the management team. In addition, directors’ and officers’ insurance is a common risk management tool used to insulate the management team from financial losses. When the buyer is backed by private equity, the buyer will request comprehensive warranties and indemni - ties to align with their prior deals and risk tolerance. Nonetheless, the terms will usually be open to nego - tiation in each case. While a general disclosure of the data room is accept - able for affirmative disclosures in representations and warranties, it is typically not allowed for nega - tive disclosures, as the scope of exception could be too broad or vague. In practice, negative disclosures against, or as exceptions or qualifiers to, the represen - tations and warranties should be made specifically. Overall, limitations on liability for warranties or indem - nities in Taiwan generally follow the practices in the US or EU market, given that US or EU-based private equity funds have played an important role in the past private equity activities. 6.10 Other Protections in Acquisition Documentation Warranty and indemnity insurance is also preferred in private equity transactions. In addition to the gen - eral fundamental and business warranties and repre - sentations, tax liability insurance can be procured to address potential tax liabilities identified during the due diligence process or associated with the general business operations of the target company. On the other hand, an escrow or retention would be rarely seen in private equity exit transactions as it might defeat the purpose of exit.
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