TAIWAN Law and Practice Contributed by: Eddie Chan, Derrick Yang, Winnie Lin and Yuan-Yuan Lo, Lee and Li Attorneys-at-Law
11. Duties of Directors 11.1 Principal Directors’ Duties
11.3 Board’s Role Under Taiwanese law, directors are required to act in the best interests of the corporation in M&A transac- tions and to exercise the diligence expected from a prudent manager. Therefore, the board is expected to actively participate in the negotiation of M&A trans- actions to seek the best terms of a transaction, as opposed to passively endorsing or opposing the deal. There have been lawsuits filed by minority sharehold- ers against companies to challenge the board’s deci- sion to recommend an M&A transaction. In recent years, some Taiwanese courts have adopted the busi- ness judgement rule from US case law in adjudicat- ing cases involving claims of breach of fiduciary duty. This rule is used to assess whether directors’ business decisions in the context of mergers and acquisitions are in the best interests of the corporation. Some courts have posited that directors may be relieved of liability if they meet the following conditions: • the director has no personal interest in the transac- tion; • the director reasonably believes that they have all the information necessary to make the decision; and • the director reasonably believes that their judge- ment aligns with the best interests of the company. 11.4 Independent Outside Advice Under the M&A Act, a public company is required to establish an ad hoc committee prior to the resolution of any M&A transaction by the board of directors. This committee is tasked with evaluating the fairness and reasonableness of the proposed plan and transaction. To fulfil this responsibility, the committee must engage an independent expert to provide a fairness opinion as to the consideration involved. Moreover, it is customary for the board of directors to seek financial and legal advice from external experts in M&A transactions. This practice ensures that the board of directors is well informed and able to make decisions that are in the best interests of the company and its stakeholders.
Directors must fulfil their fiduciary duties, which include the duty of loyalty and the duty of care in a business combination. They must act in the compa- ny’s best interests and make decisions on whether to approve a deal on an informed basis. Directors have a duty to indemnify the company for any loss arising from a breach of these fiduciary duties. The board of directors must fulfil their duty of care by complying with pertinent laws, the company’s articles of incorpo- ration and shareholders’ resolutions. Directors who fail to fulfil their duties, thereby causing loss or damage to the company, are liable for damages if they approved the resolution that led to such loss. In Taiwan, directors owe a duty of loyalty solely to the company. Shareholders can bring a derivative action on behalf of the company if the directors’ breach of this duty results in harm to the corporation. However, recent amendments to the Taiwan Company Act have begun to incorporate the public interest into corporate governance goals. Consequently, whether directors owe duties to stakeholders remains the subject of ongoing scrutiny. 11.2 Special or Ad Hoc Committees The M&A Act requires public companies to form special or ad hoc committees to facilitate business combinations. These committees are tasked with evaluating the fairness and reasonableness of the proposed merger or acquisition plan and transaction. The findings of such evaluations are then reported to the board of directors and the shareholders’ meeting for further review. Where a public company has already established an audit committee under the Securities and Exchange Act, the audit committee will undertake the duties typ- ically assigned to the special committee. Furthermore, if directors have a conflict of interest with respect to business combinations, the Securities and Exchange Act requires that the audit committee’s approval be obtained before the matter is submitted to the board of directors for resolution.
269 CHAMBERS.COM
Powered by FlippingBook