TAIWAN Law and Practice Contributed by: Sarah Wu, Lee & Li Attorneys-at-Law
6. Guarantees 6.1 Types of Guarantees
respect, the parties would usually agree under the relevant security agreement that the pledg- ee/mortgagee is authorised to sell the security to a third party on enforcement. Title Transfer The Taiwan Civil Code provides that if the agreement of title transfer has been duly reg- istered with the authority at the time the secu- rity becomes enforceable, thereby making such agreement public and known to third parties, the ownership of the mortgaged property may be transferred to the mortgagee if the mortgagor or the debtor fails to pay or defaults, enabling the By entering into an assignment agreement with the borrower, the ownership of the security or pledges of personal property may be transferred to the lender, thus enabling the lender to enforce the security or become a contracting party itself. Where the security is created by way of assign- ment (eg, assignment of insurance or material contracts), the enforcement action can be con- ducted without going through court proceedings because the assignee is entitled to exercise and enforce the rights upon assignment. Time-wise, the assignment will take effect once the assign- ment agreement is duly executed by the parties thereto and the relevant notice of assignment is delivered to the counterparty of the project doc- ument. In practice, the assignor and assignee should agree that the assignor can still exercise its rights prior to notification of the occurrence of an event of default, as if it is still the party to the assigned contract, but if notified that an event of default has occurred and is continuing, the assignee may exercise its rights under the assigned contracts. mortgagee to enforce such security. Assignment of Contractual Rights
Guarantees are commonly used in Taiwan for credit enhancement in acquisition financing. In terms of documentation, banks are used to adopting the template facility agreements pub- lished by APLMA, in which the standard clauses for a guarantee are typical to the guarantee pro- visions in the Taiwanese market. In addition, the Taiwan Civil Code allows for joint and several guarantees, pursuant to which the guarantor will be jointly and severally liable with the borrower as primary obligor and not merely as surety for the due and punctual payment of all the obligations of the borrower. To strengthen the lender’s right, the guarantor would usually be required to waive all rights of process and other rights under Article 745 of the Taiwan Civil Code, such that the lender may claim on the guarantee without having to exhaust its rights against the borrower. 6.2 Restrictions Under the Taiwan Company Act, unless other- wise permitted by relevant laws and regulations (such as a bank is permitted under the Banking Act) or its Articles of Incorporation (AoI), a Tai- wanese company may not act as a guarantor. If the AoI place any restrictions on the proposed guarantor, an amendment would be required pri- or to such company acceding as an additional guarantor. If a public company wishes to act as a guarantor, it must also comply with its internal regulations, such as the Rules for Endorsements and Guarantee. The Taiwanese courts have recently ruled that if a company provides its assets as security for others (eg, a chattel mortgage over equipment), the provision, by its nature, is not different from
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