TAIWAN Law and Practice Contributed by: Sarah Wu, Lee & Li Attorneys-at-Law
providing suretyship for others and acting as a guarantor and, therefore, will also be subject to the aforementioned restriction. Furthermore, representatives of a juridical person agreeing to be the guarantor of the obligation of the juridical person are liable only for the obligation of the juridical person occurring within the duration of their office. As such, the lender may, if applica- ble, ask the company to appoint a successor to act as a guarantor. 6.3 Requirement for Guarantee Fees There is no requirement for guarantee fees under Taiwanese law, nor is there any practice of arranging guarantee fees in Taiwan’s local market. The Taiwan Company Act has adopted equita- ble subordination rules by stipulating that if a controlling company has caused – directly or indirectly – its subordinate company to conduct any business contrary to normal business prac- tice or in a way that is not profitable, and if the controlling company has a claim upon said sub- ordinate company, then the controlling company may not claim for offsetting such claim against its indemnification liability, if any, to the subor- dinate company. 7. Lender Liability 7.1 Equitable Subordination Rules In addition, where the subordinate company enters into bankruptcy or composition proce- dures under the provisions of the Taiwan Bank- ruptcy Act, or enters into the process of reor- ganisation or special liquidation of its company in accordance with the Taiwan Company Act, the aforementioned claim, with or without the right to exclusion or priority, will be satisfied second
in the order of all other obligatory claims of the subordinate company. 7.2 Claw-Back Risk For borrowers becoming insolvent during the acquisition process, the Taiwan Bankruptcy Act expressly incorporates claw-back rules, provid- ing that the lenders could request the Taiwanese court to revoke a transaction conducted by the borrower before it declared bankruptcy. In addi- tion, the lender is entitled to revoke the following transactions conducted by the borrower: • the provision of security interest over existing debts within six months prior to the debtor’s declaration of bankruptcy, unless such provision of a security interest is based on a promise made six months before entering into bankruptcy; and • the prepayment of debt prior to its maturity within six months before the debtor’s declara- tion of bankruptcy. Stamp duty is imposed on certain documents, including receipts for monetary payments, deeds for the sale of movables, contracts for work for hire, and contracts for the sale, transfer or parti- tion of real property executed in Taiwan. Where a finance document in an acquisition financing deal bears characteristics of any of the aforesaid documents, it will be subject to stamp tax. 8.2 Withholding Tax/Qualifying Lender Concepts Where a lender is a domestic financial institution (eg, a Taiwanese bank or the Taiwanese branch of a foreign bank), the interest and fees payable on the loan extended by that lender are subject 8. Tax Issues 8.1 Stamp Taxes
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