TAIWAN Law and Practice Contributed by: Sarah Wu, Lee & Li Attorneys-at-Law
Movable Assets For security over movable assets, the mortgagor and the mortgagee are required to fill in certain forms set by the authority, and to submit them for registration. The required information for the registration application generally includes the name, type, brand, manufacturer, number of pieces, value and location of the mortgaged movable assets, as required by the authority. Share Pledge For companies issuing shares in scripless form, the pledge of such shares will be transferred through the book-entry system of the TDCC. For the creation and perfection of the pledge, the pledgor and the pledgee would be required to sign and execute a TDCC standard form and register it with the TDCC, instead of endorsing and delivering the actual shares. 5.3 Registration Process See 5.1 Types of Security Commonly Used . 5.4 Restrictions on Upstream Security There is no specific restriction on providing upstream security under Taiwanese law; howev- er, the issues of corporate benefit (see 5.6 Other Restrictions ) and the guarantee restriction (see 6.2 Restrictions ) are worth noting. 5.5 Financial Assistance In Taiwan, there is currently no prohibition on financial assistance. 5.6 Other Restrictions Pursuant to the Taiwan Company Act, a director must faithfully conduct the business of the com- pany, and also has a duty of care and a fiduciary duty to act as a good administrator for the ben- efit of the company. In the context of acquisition financing, a director voting for a grant of secu- rity in favour of the lenders should demonstrate
the benefit of such decision to the company, whether direct or indirect. This corporate benefit requirement is reviewed on a case-by-case basis to prevent the risk of a director being challenged in violation of their fiduciary duty. The perceived benefits should be recorded in the board meet- ing minutes. In practice, when there is any doubt about the corporate benefit of providing secu- rity, it is always advisable to obtain a unanimous shareholder resolution to mitigate the risk of any minority shareholder’s claims for damage. 5.7 General Principles of Enforcement Security will normally become enforceable in accordance with the terms set forth in the rel- evant security document. Subject to the dif- ferent types of security and the contractual arrangements provided in the security docu- ments, enforcement procedures may generally be implemented as follows. Public Auction A real estate mortgage is generally enforced through court auction in accordance with the Taiwan Compulsory Enforcement Act. The mort- gagee must obtain an execution title issued by the court prior to the court enforcement action. After the conclusion of the auction, the owner- ship of the real estate will be transferred to the winning bidder, and the unpaid loans should be satisfied by the mortgagee receiving proceeds derived from the sale of the real estate. Private Auction The pledgee or mortgagee may also sell the security (eg, mortgaged chattels or real estate) to a third party through a private auction, which does not require the involvement of a court nor the need for a public auction. However, the pledgee/mortgagee must seek to obtain a fair market value for the security and follow the cor- rect procedural steps to effect the sale. In this
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