June 2023
Teresa Huang and Albert Yen
Article 276, Paragraph 1 of the Company Act provides: “Upon expiration of the time limit set forth for payment on new shares, if there are still some not subscribed or some subscribed but withdrawn or not yet paid for, the shareholders who have subscribed the new shares and paid for them may set a time limit of one month or more to press the company for full subscription and full payment on shares, failing which the shareholders may withdraw their subscriptions and the company shall refund the money paid on shares together with legal interest.” This is the right of withdrawal granted to the subscribers under the Company Act in order to ensure that the company issuing new shares will comply with the terms of share subscription it has promised. However, if the board of directors of the company resolves to reduce the number of newly issued shares before the payment deadline (based on the actual amount already paid), this calls into question whether this constitutes a situation where “upon expiration of the time limit set forth for payment on new shares, there are still some not subscribed or some subscribed but withdrawn or not yet paid for.”
Regarding this issue, the Taiwan Taipei District Court rendered the 110-Zhong-Su-1042 Civil Decision (hereinafter, the “First Instance Decision”), citing the gist of the Jing-Shang-10502005270 and the Jing-Shang-10902402960 rulings from the Ministry of Economic Affairs (which stated that if the payment for subscription falls short and cannot be completed by the record date of capital increase, the board of directors may convene a meeting to adjust the number of newly issued shares and the record date of capital increase based on the actual amount subscribed and paid, and this is not prohibited by law) to opine that since the board of directors of the company had resolved to reduce the number of newly issued shares on the record date of capital increase, the payment for share subscription has been received in full. Therefore, the court held that the assertion of a withdrawal of subscription by the subscribers in accordance with Article 276, Paragraph 1 of the Company Act is legally inappropriate.
However, the subscribers appealed against the First Instance Decision, and the Taiwan High Court rendered the 111-Zhong-Shang-724 Civil Decision (hereinafter, the “Second Instance Decision), which held a different view. The Second Instance Decision held: “If the company issuing new shares is allowed to arbitrarily modify the terms of issuing new shares and only needs to register the subscribers’ subscription as capital increase, regardless of whether the final completion of the capital increase aligns with the terms notified or announced by the company at the time of issuing new shares, the subscribers cannot exercise the right of withdrawal under Article 276, Paragraph 1 of the Company Act. This would make the subscription agreement binding the subscribers only but not binding the company issuing new shares, which can hardly be regarded fair to both parties to the agreement and clearly undermine the subscribers’ right of withdrawal under Article 276, Paragraph 1 of the Company Act. Furthermore, the above-mentioned rulings of the Ministry of Economic Affairs only provide explanations regarding the ambiguity of whether it is permissible to amend company registration for new share issuance. As for whether the subscribers may exercise the right of withdrawal if they disagree with the modified terms of new share issuance resolved by the board of directors, the above rulings did not provide any explanation. Therefore, the Second Instance Decision stated that the right of withdrawal granted to the subscribers under the Company Act cannot be undermined by the unilateral modification of the terms of new share issuance by the company’s board of directors.
It remains to be seen if the Supreme Court will uphold the view of the Second Instance Decision after this case is appealed to the third instance court.
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