Jenny Chen
Under the current Company Law, basically both a general shareholders’ meeting and a special shareholders’ meeting are convened by the board of directors. However, if the board of directors fails to or cannot convene a shareholders’ meeting to the extent that no shareholders’ meeting has been organized as required, the shareholders will be unable to participate in major decisions of the company via a shareholders’ meeting and to supervise the performance of the board of directors. As a result, the company’s operation is prone to problems and irregularities. Therefore, Article 173 of the Company law provides two remedies to minority shareholders as discussed below:
(1). Under Article 173, Paragraphs 1 and 2 of the Company Law, any or a plural number of shareholders of a company who have continuously held 3% or more of the total number of outstanding shares for a period of one year or a longer time may, by filing a written proposal setting forth the subjects for discussion and the reasons, request the board of directors to call a special shareholders’ meeting. If the board of directors fails to issue a notice on the convention of the meeting within 15 days upon such request, the shareholders may, after obtaining the approval of the competent authority, call the shareholders’ meeting on their own.
(2). Under Article 173, Paragraph 4 of the Company Law, when the board of directors fails to or cannot convene a shareholders’ meeting on account of share transfer or any other cause, the shareholder(s) holding 3% or more of the total number of outstanding shares of the company may, after obtaining the approval of the competent authority, convene a general shareholders’ meeting or a special shareholders’ meeting.
A comparison of the above two remedies seems to suggest that Article 173, Paragraph 4 of the Company Law does not have the requirement of continued shareholding for at least one year and the preliminary procedure of making a written request to the board of directors for convening the meeting and is thus looser than the remedy under Article 173, Paragraphs 1 and 2 of the Company Law. However, it should be noted that the most important criterion in Article 173, Paragraph 4 of the Company Law is that such remedy is available only “when the board of directors fails to or cannot convene a shareholders’ meeting on account of share transfer or any other cause.” This article seeks to clarify the causes that constitute “when the board of directors fails to or cannot convene a shareholders’ meeting on account of share transfer or any other cause” and summarize relevant practical opinions for reference.
Under current practical opinions, the circumstance of “when the board of directors fails to or cannot convene a shareholders’ meeting on account of share transfer or any other cause” is only limited to (1) the inability of the board of directors to call a shareholders’ meeting due to transfer of shares, or (2) the inability of the board of directors to call a shareholders’ meeting due to other reasons. If a board of directors does not call a shareholders’ meeting due to share transfer or other reasons, this does not constitute a cause for any minority shareholder’s convention of a shareholders’ meeting. Explanation is hereby provided as follows:
(1). Inability of a board of directors to call a shareholders’ meeting due to transfer of shares
Under Article 197, Paragraphs 1 and 3 of the Company Law, if a director of a publicly offered company transfers over one half of his/her shares during his/her tenure or during the period between his/her appointment as a director and his/her assuming office or during the period where share transfer is prohibited before a shareholder holders’ meeting is convened, such director certainly loses his/her qualifications as a director. If all of the board directors are disqualified as directors due to transfer of their shares, since there is no director left in the board of directors, the reason for not being able to call a shareholders’ meeting is certainly constituted. Even if there is still one director left in the board, calling a meeting basically still requires at least two directors according to the opinion reflected in a circular from the Ministry of Economic Affairs (Compare the Jing-Shang-09302202470 Circular of December 2, 2004 from the Ministry of Economic Affairs). Since only one remaining director cannot call a meeting, this also constitutes a reason for the inability of the board of directors to call a shareholders’ meeting.
(2). Inability of a board of directors to call a shareholders’ meeting since the directors are subject to other reasons
Since Article 173, Paragraph 4 of the Company Law treats the removal of all of the directors due to the transfer of all of their shares as a major special cause for minority shareholders to take such initiative, the so-called “any other cause” should be comparable to the circumstances of “share transfer by directors.” This applies only when all of the directors have resigned or are prevented from exercising their responsibilities by any court injunction, or when a board meeting cannot be convened since there is only one director left (Compare the Jing-Shang-10002335540 Circular of May 5, 2011 from the Ministry of Economic Affairs).
In addition, the “any other cause” should still be constituted if directors in fact cannot discharge their responsibilities as directors due to other reasons even though they do not transfer shares or resign or are not disqualified and are not prevented from discharging their responsibilities by any court injunction. Two examples are provided for discussion. In one example, 9 of the 11 directors and all supervisors of a company are ipso facto removed due to transfer of their shares with one of the remaining two directors detained for a criminal case. In this case, although the detained director is not disqualified as a director, he/she in fact can no longer discharge his/her responsibilities. The remaining director cannot call a board meeting. This circumstance meets the circumstances under Article 173, Paragraph 4 of the Company Law (Compare the Tai-Shang-(5)-Fa-220160 Circular of October 24, 1990 from the Ministry of Economic Affairs). In the second example, part of a company’s directors and the only supervisor are removed because all of their shares are transferred while the remaining directors cannot call a shareholders’ meeting because they are at large, in hiding or declared wanted. Under such circumstances, the only solution is to allow shareholders to call a shareholders’ meeting on their own pursuant to article 173, Paragraph 4 of the Company Law (Compare the 78-Fa-Lu-11065 Circular of June 13, 1989 from the Ministry of Justice).
If none of the directors can discharge their responsibilities legally or factually due to the above-mentioned causes, this constitutes the inability of the board of directors to call a shareholders’ meeting. If only part of the directors are subject to such circumstances where they are unable to fulfill their responsibilities when there are still at least two directors in the board, this does not constitute the inability of the board of directors to call a shareholders’ meeting since the board of directors can still adopt a resolution to call a shareholders’ meeting, as previously explained. Therefore, shareholders can call a shareholders’ meeting on their own in accordance with Article 173, Paragraph 4 of the Company Law only when there is only one director left to carry his/her duty.
(3). Failure of a board of directors to call a shareholders’ meeting because the directors are subject to transfer of shares or any other cause
The Ministry of Economic Affairs used to hold in one circular that the failure of a board of directors to call a shareholders meeting under Article 173, Paragraph 4 of the Company Law refers to circumstances where a board of directors should but fail to call a shareholders’ meeting such as a general shareholders’ meeting within six months upon the end of each fiscal year pursuant to Article 170 of the Company Law, or a shareholders’ meeting is convened by the board of directors within a certain period to conduct supplemental election of directors pursuant to Article 201 when the vacancies in the board reach one third of all directors’ seats (Compare the Jing-Shang-09202201030 Circular of October 1, 2003). However, such circular is no longer cited since Article 173, Paragraph 4 of the Company Law takes into account special material causes befalling directors with transfer of shares by directors or other comparable causes (such as the resignation of all directors, a court injunction prohibiting all directors from discharging the responsibilities of directors, or the inability of the board of directors to call a board meeting since there is only one director left) as the preconditions (Compare the Jing-Shang-09802174140 Circular of January 19, 2010 from the Ministry of Economic Affairs). Based on the foregoing reasons, the Ministry of Economic Affairs obviously believes that only circumstances such as the transfer of shares or any other cause that prevents directors from calling a shareholders’ meeting fulfill the regulatory objective of Article 173, Paragraph 4 of the Company Law. Therefore, in case of any circumstance where a board of directors fails to call a shareholders’ meeting, the competent authority still will not allow shareholders to call a shareholders’ meeting on their own pursuant to Article 173, Paragraph 4 of the Company Law.