TAIWAN Law and Practice Contributed by: Eddie Chan, Derrick Yang, Winnie Lin and Yuan-Yuan Lo, Lee and Li Attorneys-at-Law
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 sole- ly 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 incor- porate the public interest into corporate govern- ance goals. Consequently, whether directors owe duties to stakeholders remains a 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 reasona- bleness of the proposed merger or acquisition plan and transaction. The findings of such evalu- ations are then reported to the board of directors and the shareholders’ meeting for further review. Where a public company has already estab- lished an audit committee under the Securi- ties and Exchange Act, the audit committee will undertake the duties typically assigned to the special committee. Furthermore, if directors have a conflict of interest with respect to busi- ness 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. 11.3 Board’s Role Under Taiwanese law, directors are required to act in the best interests of the corporation in M&A transactions and to exercise the diligence expected from a prudent manager. Therefore,
the board is expected to actively participate in the negotiation of M&A transactions to seek the best terms of a transaction, as opposed to pas- sively endorsing or opposing the deal. There have been lawsuits filed by minority share- holders against companies to challenge the board’s decision to recommend an M&A trans- action. In recent years, some Taiwanese courts have adopted the business judgement rule from US case law in adjudicating cases involv- ing claims of breach of fiduciary duty. This rule is used to assess whether directors’ business decisions in the context of mergers and acquisi- tions 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: (i) the director has no personal inter- est in the transaction, (ii) the director reasonably believes that they have all the information neces- sary to make the decision, and (iii) the director reasonably believes that their judgement 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 direc- tors 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.
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