TAIWAN Trends and Developments Contributed by: Sarah Wu and Andrea Chen, Lee & Li Attorneys-at-Law
a branch office in Taiwan if it decides to do busi- ness in the country. As a result, unless otherwise provided by the law, foreign entities may act as security interest holders. However, according to a ruling issued by the Ministry of Interior of Taiwan, a foreign company that wishes to obtain a real estate mortgage as security still needs to register and have a branch in Taiwan. Although there is no similar ruling in connection with chattel mortgages, the relevant competent authorities in charge of chattel mort- gages adopt the same approach as the Ministry of Interior and require a foreign company that wishes to obtain a chattel mortgage as security to register and have a branch in Taiwan. In respect of certain security provisions (eg, real estate mortgage, chattel mortgage, pledge of listed shares), the holder of such security inter- est should therefore be a Taiwanese entity or a branch of a foreign entity in Taiwan in order to overcome the registration hurdles. This is why, in practice, where a syndicated facility is arranged by a foreign bank to support an acquisition of a Taiwanese target that would, in turn, provide security in Taiwan, the Taiwan branch of the for- eign bank or of a Taiwanese bank (which is also a lender) will be appointed to act as the security agent for and on behalf of the syndicate lenders, with whom a joint and several creditors’ relation- ship will be established in accordance with the Further to the issue of security agents mentioned above, there are certain regulatory issues around the role of facility agent when a syndicated loan is denominated in New Taiwan dollars (TWD). Specifically, the Taiwan Banking Act states that, unless otherwise provided by law, any person Taiwan Civil Code. Facility agent role
or institution other than a bank (licensed in Tai- wan) is prohibited from conducting business in relation to accepting deposits, managing trust funds or public property under mandate, or han- dling domestic or foreign remittances or foreign exchange. Therefore, it is advisable for the facility agent role to be undertaken by a licensed bank (either a Taiwanese bank or the Taiwan branch of a for- eign bank) in a TWD-denominated syndicated loan, since the role of facility agent will inevitably involve the handling of New Taiwan dollars and other banking activities that require a licence, even though the relevant laws, regulations and precedents did not rule out the possibility of a foreign bank acting as a facility agent. Other- wise, certain contractual arrangements should at least be in place to avoid disputes. Foreign exchange control Foreign exchange issues could also be a main concern for relevant parties to an acquisition financing, especially when it comes to fund flows and the timeframe of the deal, which typically involves the conversion of investment funds denominated in a foreign currency to New Tai- wan dollars. New Taiwan dollars are not an internationally traded currency and the Taiwan government implements certain control of foreign exchange: all foreign exchange transactions must be exe- cuted by banks designated by the Central Bank of the Republic of China (CBC) and the Taiwan Financial Supervisory Commission (FSC), which is the authority for financial institutions and industries, in accordance with the Taiwan For- eign Exchange Regulation Act and related laws and regulations.
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