The Financial Supervisory Commission (hereinafter, the “FSC”) promulgated the Regulations Governing the Acquisition and Disposal of Assets by Public Companies (hereinafter, the “Regulations”) via the Jin-Guan-Zheng-Fa-1070341072 Directive of November 26, 2018. Consisting of 36 articles in total, the Regulations came into effect on January 1, 2019. These amendments are highlighted below:
1. The application of the International Financial Reporting Standards (IFRS) is accommodated.
Since Taiwan is going to apply IFRS 16 Leases, the scope of right-of-use assets will be expanded by revising Articles 15 and 16 of the Regulations to ease the approval procedure for the acquisition or disposal of equipment or assets for business operation between public companies and their related parties and to exempt the requirement to assess the reasonableness of the trading cost for which such real estate right-of-use assets are acquired for business operation between companies. In addition, to accommodate the practical operation of real estate leases such as plants and factories, Article 17 of the Regulations as amended eases relevant requirements and allows a public company to use leasing transactions between non-related parties in neighboring areas in the past year as the referential basis to calculate and estimate the reasonableness of the trading price at the time when such public company obtains a real estate use-of-right asset from a related party. In addition, Article 4 of the Regulations as amended also specifically defines the scope of derivatives to accommodate the definition of financial instruments under IFSR 9.
2. The quality of information disclosure is improved, and information disclosure requirements for certain transactions are eased.
Article 4 of the Regulations as amended specifically defines the scope of professional investors and eases relevant requirements by allowing professional investors not to make a public announcement on the trading of specific securities. In addition, a construction enterprise’s sale of the real estate which is a construction project it has completed on its own is a required selling act of the company in the normal course of its business. Since the construction project of a larger construction enterprise is more likely to reach the announcement and reporting threshold due to the higher value of the project and to trigger frequent announcements, Article 31 of the Regulations as amended eases the announcement and reporting standard for such disposal transactions. In addition, in view of the requirement that the announcement and reporting standard for a subsidiary should be the same as that for its parent company and to fall in line with the standard added to Article 31, Paragraph 1 of the Regulations under which a paid-in capital should be announced and reported if it reaches NT$10 billion, Articles 34 and 35 of the Regulations as amended specifically provide for the announcement and reporting standard applicable to subsidiaries and the calculation method for companies whose shares do not have a par value or have a par value other than NT$10 with respect to the above announcement and reporting standard.
3. To clarify the responsibilities of external experts, Article 5 of the Regulations as amended specifically provides for the negative qualifications of external experts and clearly stipulates the assessment, audit and statement set forth in an appraisal report or opinion letter issued by an external expert.
4. Since financial enterprises requiring a special approval such as banks, insurance companies, bills finance companies, securities firms, futures commissioned merchants, and leveraged transaction merchants have followed respective laws and regulations applicable to their sectors for handling derivative trading business or trading derivatives, Article 2 of the Regulations as amended specifically excludes the application of the derivative trading requirements under Chapter II, Section 4 of the Regulations to such enterprises. In addition, it is specifically provided that for publicly offered financial enterprises such as banks, insurance companies, bills finance companies, and futures commissioned enterprises, relevant provisions of laws and regulations applicable to such sectors shall apply first.
5. To reduce compliance cost, Article 7 of the Regulations as amended specifically provides that if the board of directors of a public company adopts a resolution not to engage in derivative trading, such company may be exempt from formulating relevant handling procedures.
6. Articles 18 and 22 of the Regulations as amended and the removal of current Article 33-1 allow a public company which has set up an audit committee pursuant to the Securities and Exchange Law to have the audit committee or members of the audit committee who are independent directors to exercise the power of a supervisor.
7. To thoroughly implement the audit operation, Article 22 of the Regulations as amended specifically provides that a public company which has set up independent directors pursuant to law shall notify the independent directors, in writing, of major violations in derivative trading.