The Supreme Court rendered the 107-Tai-Shang-518 Decision of August 15, 2019 (hereinafter, the “Decision”), holding that an offense of non-arm’s length transaction is preconditioned by material damage to the company as a result of the legal violation, and the amount of damage sustained by the company should be compared with the size of the company to determine the materiality of the damage.
According to the facts underlying the Decision, Appellants A and B were the chairman and finance manager of Company C, respectively. They purchased Company D’s shares from Individual E, who was not a party to this lawsuit, jointly in the name of Company C to compensate Individual E’s loss from his sale of Company C’s shares. This transaction was harmful to Company C and did not meet Company C’s normal business practice where the approval of the board should be obtained for any acquisition of securities for over NT$30 million. As a result, Company C sustained material damage. In addition, the Appellants affixed to an appropriation request the corporate seal and the authorized signatory’s seal of Company F, an overseas sub-subsidiary of Company C in the Cook Islands, without the consent of Individual G, the legal representative of Company F and used such seals to mobilize and utilize funds from the overseas accounts of such company for remittance to the account designated by Individual E to compensate Individual E’s loss from stock transaction. Since the Appellants embezzled Company F’s funds, both Company F and Company C were damaged. After investigation was conducted, the Appellants were indicted by the prosecutor.
According to the Decision, the offense of non-arm’s length transaction under Article 171, Paragraph 1, Subparagraph 2 of the Securities and Exchange Law is preconditioned by the results of the legal violation. Therefore, the offense is by nature an actual damage or result crime, and the materiality of the damage should be determined by comparing the damage amount sustained by the company and the size of the company (e.g., the annual business volume or assets of the company) to assess materiality. As for the calculation of the amount of damage sustained by a company, the time when an actor’s offense is successful should be the timing for the calculation. However, if the valuation of the property value associated with a complex risky transaction is involved, the profit or loss of the property should be calculated by a financial method, and the connections between the property impairment and the non-arm’s length transaction should be carefully examined in order to reflect the nature of an actual damage crime. In the guilty decision, not only should the specific facts concerning the constituting criteria of “material damage to the company” and the amount be specifically determined and specified but also the calculation basis and reasons should be expounded in order to impose criminal punishment.
It was further pointed out in this Decision that the huge gap between the time when the Appellants engaged in the non-arm’s length transaction and the timing of Company D’s two capital reductions calls into question the connections between the two. If they are connected, how can this serve as the basis for a finding unfavorable to the Appellants? In addition, can the entirety of the loss sustained by Company C be regarded as the share subscription payment recovered as a result of Company D’s capital reductions is deducted? The above issue is closely tied to the amount of damage sustained by Company C and should be further explored and clarified, but findings unfavorable to the Appellants were directly made in the original decision when the above issues had not been investigated and clarified. Therefore, the original decision was probably rash.