Taiwan - Opinions And Views in Practice / Legal News Update November 2019.
Legal News & Analysis - Asia Pacific - Taiwan - Regulatory & Compliance - Banking & Finance
9 December, 2019
The Financial Supervisory Commission (“FSC”) promulgated the “Regulations for Reporting Acquisition of Shares pursuant to Paragraph 1 of Article 43-1 of Securities and Exchange Act” (the “Regulations”). The Regulations shall also be applicable mutatis mutandis to the circumstances prescribed in Paragraph 14 of Article 27 of Business Mergers and Acquisitions Act.
On October 7, 2019, the FSC promulgated the Regulations to replace the “Directions for Filing Reports on Acquisition of Shares in accordance with Paragraph 1 of Article 43-1 of the Securities and Exchange Act.” According to the Regulations, any person who individually or jointly acquires more that ten percent of the total issued equity shares of a publicly traded company shall file a report with the competent authority and make a public announcement in that regard, and send a copy of the report to the company whose shares has been acquired and to the relevant entities. The Regulations also provides that: (1) reporting period: the report shall be filed within 10 days from the time of the acquisition of the shares; (2) manners of public announcement: in the event the acquirer of the shares is a publicly traded company, it shall transmit the information required to be reported through the Market Observation Post System (“MOPS”) within 10 days from the time of acquisition; and if the acquirer is not a publicly traded company, it shall serve the information required to be reported to the company whose shares has been acquired within 8 days from the time of acquisition and the company whose shares has been acquired shall transmit the information required to be reported through the MOPS within 2 days from being so served.
On October 9, 2019, the FSC issued a letter interpretation further indicating that the aforementioned new reporting requirements shall be applicable mutatis mutandis to the circumstances prescribed in Paragraph 14 of Article 27 of Business Mergers and Acquisitions Act. (Michael Hsu, Esq.)
The FSC promulgated the “Guidelines for Securities and Futures Industry to Apply for Trial Business Operation.” (the “Guidelines”)
For encouraging innovation of the securities and futures industry in providing innovative financial products and services to enhance compatibility and consumers rights, the FSC promulgated the Guidelines on October 3, 2019. According to the Guidelines, the trial business itmes that the securities and futures industry may apply for include the following:
(1) the business items which a securities or futures business may operate under the current laws and regulations;
(2) the trial business items of which the transaction or operation models have not been applied for by another securities or futures business or have been applied for but not yet officially operated;
(3) the trial business items that are the same as the innovation experiment matters already approved under the Financial Technology Development and Innovative Experimentation Act, namely, if a financial business item is permitted by the FSC to enter innovative experimentation, other securities or futures businesses may still apply for operating such items as trial business provided that it is not prohibited by any applicable laws or regulations;
(4) no application for trial business shall be made for items prohibited by laws or regulations, and as to those matter, application shall be made pursuant to Article 25 of the Financial Technology Development and Innovative Experimentation Act, and the trial business item shall be operated only after acquiring permissions from the FSC and other relevant authorities for exemption from the prohibition of laws or regulations. (Yijia Chao)
The Minister of Economic Affairs (“MOEA”) amended Article 2 of the Regulations Governing the Application for Business Registration.
This amendment requires that the applicant preparing the application documents for business registration in the electroic form shall prefix with electronic signature recognized by the central competent authority of the competent authority where the applicant’s business situates, and transmit the electronic documents via the software, format, type and manner designated by the competent authorities. (Alex Yin, Esq.)
The FSC amended the “Regulations Governing Internal Operating Systems and Procedures for the Outsourcing of Financial Institution Operation” (the “Regulations”)
The FSC amended the Regulations on September 30, 2019, adding regulations regarding cloud service outsourcing for banks, and permitting a financial institution to outsource debt collection operations to a wholely owned asset management subsidiary.
The amendments concerning the cloud service outsourcing include:
(1) Supervision of cloud service outsourcing: financial institutions are required to evaluate the impacts of outsourcing of operation. If the impact of outsourcing an operation is martial or if an operation is outsourced to an overseas contractor, an application for “review and approval” by the authority is required . If the impact of outsourcing is not deemed martial, financial institutions need merely to report the outsourcing of operation to the authority with simplified forms for future reference.
(2) Financial institutions should adopt appropriate measures to disperse the outsourced tasks and avoid outsourcing multiple operations to a single contractor based upon their respective business needs and risk tolerance capabilities.
(3) In principle, customer information should be stored in Taiwan. If the customer information is to be stored in an overseas location, the standards of information protection under the laws and regulations of such location shall not be lower than the standards in Taiwan. Other than those have been approved, backup data for critical customer information must be kept domestically and an emergency response plan must be established.
(4) When a foreign bank in Taiwan engages its parent organization abroad to outsource operation to the private cloud service built by the parent organization, namely no third party contractor is involved, a simplified reporting procedure to the authority may be used for future reference or rectification. (5) Financial institutions bear the final responsibility to supervise cloud service contractors, and therefore, must ensure that they as well as the relevant authorities obtain the right to access the outsourcing operation information and the power of onsite investigation. (Yijia Chao)
The FSC revised the standards and principles for determining the “be used immediately and from which revenue may be derived” requirements regarding real estate investments by insurance enterprise.
The FSC issued a letter interpretation (Ref. No.: Jin-Guan-Bao-Cai–Zhi No. 10804945921) on August 23, 2019, revising the standards and principles for determining the “be used immediately and from which revenue may be derived” requirement set forth in Paragraph 1 of Article 146-2 of the Insurance Act concerning the real estate investments by insurance enterprise. The FSC indicated in said letter that “the real estates that meet the “be used immediately and from which revenue may be derived” requirement shall be those real estates which have been developed to a usable stage and have already been used, and from which a reasonable rate of investment return may be generated”. Thus, a vacant land used as a parking lot or for rental advertisement purpose, or a lot housing a construction without a lawfully assigned street address, is not deemed to have met the requirement of “be used immediately and from which revenue may be derived”. As for the “reasonable rate of investment return”, the FSC added two exceptions to the existing standards regarding real estate leasing ratio and annual rate of return, to wit:
(1) the minimum rate of annual investment return from the real estates needed by long term care industry may be based upon the basic interest rate;
(2) the minimum rate of annual investment return from the real estates where more than 50% area of holding is leased to seniors over 65 years of age may be based upon the basic interest rate. (Linda Huang)
The Supreme Court held that the remuneration set by a publicly traded company for its executive or managerial officers without an evaluation by its remuneration committee is not necessarily invalid.
The Supreme Court in a recent decision (Case Ref. 108-Tai-Shang-Zhi-No.538) held that Article 14-6 of the Securities and Exchange Act was an enforcement provision rather than a validity provision, and should not turn on the applicability of Article 71 of the Civil Code. As a result, when a company whose stock is listed on the stock exchange or traded over-the-counter violates the provision by bypassing the remuneration committee when making remuneration decisions for its directors, supervisors, or managerial officers, the validity of such remuneration decisions would not necessarily be invalid, but that the competent authority could decide at its discretion whether an administrative action should be made in the regard. (Alex Yin, Esq.)
In a contributory negligence situation, courts may reduce or waive the damages without an applications or assertion by the party.
The Supreme Court in a recent decision (Case Ref. 108-Tai-Shang-Zhi-No.1479) held that the court could reduce or waive the damages if the injured party negligently contributed in causing or aggravating the injury. The purpose of which is to find a balance of equity and fairness between the perpetrator and the victim. Courts may reduce or waive the damages against the defendant by authority, without the applications or assertion by the defense. (Alex Yin, Esq.)
The Minister of Justice (“MOJ”) issued a letter interpretation regarding the evidence-perpetuating measures implemented by prosecutors or police when conducting search and seizure.
The MOJ indicated in its letter interpretation (Fa-Jian-Tze No. 10804536830) dated September 23, 2019 that the evidence perpetuation measures during search and seizure prescribed in Article 144 of the Code of Criminal Procedure should be interpreted to include all necessary measures for perpetuating evidence. Therefore, these measures should also include reasonable restriction or prohibition of audio-recording, video-recording, using communications equipment with transmission function or publicly transmitting audio-visual data by the defendants, suspects, victims, witnesses or other people at the scene until the end of the search and seizure process. (Alex Yin, Esq.)
The FSC issued a letter interpretation regarding Paragraph 2 of Article 30 of the Financial Holding Company Act.
On August 27, 2019, the FSC issued a letter interpretation to indicate that Paragraph 2 of Article 30 of the Financial Holding Company Act should be applicable to the wholly owned subsidiaries of a subsidiary wholly owned by a financial holding company. (Michael Hsu, Esq.)
On August 21, 2019, the Securities Investment Trust & Consulting Association (SITCA) issued a letter regarding the restrictions on Securities Investment Trust Enterprises (SITEs) and Securities Investment Consulting Enterprises (SICEs).
SITCA’s letter stated that several articles in the newly amended Company Act should not be applicable to SITEs and SICEs. First, they shall not issue certain types of preferred stock, e.g., the golden share. Second, they shall not hold the shareholders’ meeting via video conference. Third, the directors shall not exercise their voting rights by written consents. Fourth, a notice of calling a meeting of the board of directors shall be given to each director no less than 7 days prior to the scheduled meeting date. Fifth, the allowable total amount of private placement of convertible bonds and bonds with warrants shall not exceed the balance of the company’s total assets in hands less total liabilities. Sixth, the board of directors shall comprise at least 3 directors. Seventh, they shall issue the stocks at a price not less than the par value thereof. (Michael Hsu, Esq.)
On August 23, 2019, the Ministry of Finance (“MOF”) issued a letter interpretation regarding Subparagraph 8, Paragraph 1 of Article 17 of the Estate and Gift Tax Act.
The MOF indicated that, the surviving spouse is the taxpayer for the decedent’s income earned during the year of death and the previous years. The income tax attributed to the decedent and paid after the decedent’s death by the surviving spouse may be deducted from the gross estate pursuant to Subparagraph 8, Paragraph 1 of Article 17 of the Estate and Gift Tax Act. (Michael Hsu, Esq.)
On August 23, 2019, the Ministry of Economic Affairs (“MOEA”) issued a letter interpretation regarding the provisions of quorum and electoral threshold in Articles of Incorporation (“AOI”).
The MOEA’s interpretation indicates that, for the purpose of keeping the legal stability, the quorum or electoral threshold set forth in a company’s AOI for shareholders or board resolutions which is higer than the required quorum or electroral threshold prescribed in the Company Act may remain applicable after May 8, 2019 if such quorum or electoral threshold was set forth in the AOL between February 23, 2011 and May 8, 2019. For a company who is established or amends its AOI after May 8, 2019, a higher quorum or electoral threshold may be set forth in the AOI only when the Company Act expressly permits such a higher quorum or electoral threshold. (Michael Hsu, Esq.)
On October 2, 2019, the MOEA issued a letter interpretation regarding the issuance of restricted stocks for employees by non-publicly traded companies.
The MOEA’s interpretation stated four points. First, based upon Paragraph 9 of Article 267 of the Company Act, a non-publicly traded company may issue restricted stocks for its employees. Second, Paragraph 1 of Article 140 of the Company Act provides that a non-public traded company shall not issue stocks at a price lower than the par value; and since the par value shall not be zero, a non-publicly traded company may not issue no par value restricted stocks for employees . Third, the subscription price of the restricted stocks for employees shall be the same as the issuance price. Fourth, pursuant to Paragraph 1 of Article 167 of the Company Act, a non-publicly traded company may not redeem or buy back the restricted stocks for employees, nor may it accept the pledging of restricted stocks for employees as colleteral. (Michael Hsu, Esq.)
The Fair Trade Commission (“FTC”) rejected the proposed merger of Cashbox Partyworld Co. Ltd. and Holiday Co. Ltd.
The FTC rejected the merger application of Cashbox Partyworld Co. Ltd. and Holiday Co. Ltd., indicating that the two companies were the first two major competing enterprises (“the Big Two”) in the KTV/MTV market and the competition between the Big Two in the KTV/MTV market would be eliminated as a result of the proposed merger. Having considered the public interest factors, including the consumer’s service-choosing capability and the compatibility of other market players, the significant harm to the competitive mechanism of the market, the heightened incentive and ability by the Big Two to increase prices, the inability by the consumers and other competitors to counteract effectively against the proposed merger, and listened to the concerns voiced by upstream record companies, karaoke products agencies, music copyright collective management organizations, and consumer advocacy groups, etc. about the proposed merger, the FTC ruled on August 21, 2019 to reject this merger application. (Alex Yin, Esq.)
For further information, please contact:
C. Y. Huang, Partner, Tsar & Tsai Law Firm