TAIWAN Law and Practice Contributed by: Sarah Wu, Lee & Li Attorneys-at-Law
Shares Security interest is commonly created over shares in certificated and scripless form by entering into a share pledge agreement between the pledgor and the pledgee. A public company in Taiwan is obliged to issue the former type of shares to its shareholders, whereas a Taiwan- incorporated private company may freely deter- mine whether it will issue share certificates in certificated or scripless form to its shareholders. For the creation of security over shares in cer- tificated form, a written agreement must be executed, and the certificates of the pledged shares should be duly endorsed by the pledgor and delivered to the pledgee. In general, as the certificates of the shares are endorsed and delivered to the pledgee, the pledge of shares will become valid and form a binding effect on the parties. Nevertheless, as the company whose shares are pledged in the share pledging arrangement ought to register the pledge on its shareholders’ roster, it should also be notified of the creation of the pledge. Neither the pledgor nor the pledgee may claim against the company without said notice being provided. The pledge of shares in scripless form is exe- cuted differently, as the shares are transferred through the book-entry system of the Taiwan Depository and Clearing Corporation (TDCC). In addition, in rare cases, the pledgor and pledgee may choose a foreign governing law, such as New York or English law, for the share pledge contemplated by the parties, as long as the crea- tion and perfection of the pledge are executed in a manner compliant with the procedures and requirements described above to ensure its validity and enforceability under the laws of Tai- wan. For other requirements for the pledge of shares in scripless form, see 5.2 Form Require- ments .
Inventory As mentioned above, the concept of “floating charge” is not recognised under Taiwanese law. Since the fluctuation of the inventory value would affect the validity of the pledge over the original inventory value identified, security over inventory is not commonly used in Taiwan. Bank Accounts The accounts of the borrower or security pro- viders (or, more precisely described, the cash deposits maintained in the relevant bank account) are usually required to be pledged to control the fund flows. In terms of formality, the pledgee and pledgor must enter into an account pledge agreement that identifies the name of the account, the account number and the bank with which the account is maintained; such pledge will not become enforceable against the account bank until the account bank is notified of its cre- ation. Because Taiwanese law does not recognise “floating charge” , any fluctuation of the account balance would affect the validity of the pledge over the original cash deposit identified in such account. In other words, the pledge would not cover any cash deposited after creating the pledge of the account, given that a float- ing charge is not a recognised security interest under Taiwanese law. In this regard, pledgors in Taiwan would normally be required to periodi- cally confirm with the pledgees that the updated balance in the bank account is under pledge, to ensure that the security interest has included the cash deposited after the creation of the pledge. Receivables Security interests over receivables are com- monly created by a pledge or assignment agree- ment in Taiwan. For instance, the assignment of receivables is effected between the assignor
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