The Supreme Administrative Court rendered the 109-Tai-Shang-2623 Decision of November 4, 2020 (hereinafter, the “Decision”), holding that a company shall not act as a guarantor except as otherwise provided by law or the company’s articles of incorporationa company.
According to the facts underlying this Decision, the Appellee asserted that he possessed a check (hereinafter, the “Check at Issue”) issued by the Appellant, Company A, and that he requested that the Appellant pay the principal and interest after the check was presented and rejected. The Appellant contended that the Check at Issue was used to guarantee the borrowing of Individual C, the previous legal representative of the Appellant, from the Appellee. Under Article 16, Paragraph 1 of the Company Law, the Appellant’s act of guarantee should be invalid and the Appellant should be exempt from the liability for the check.
According to the Decision, Article 16, Paragraph 1 of the Company Law provides that a company shall not be a guarantor except as otherwise provided by law or the company’s articles of incorporation, when the company may provide a guarantee, in order to ensure the financial stability of the company and prevent any problem arising the provision of a guarantee for others by the legal representative of a company. If a company provides property to secure the debt of another person, this is no different from the circumstances of serving as a guarantor for others in terms of the financial impact on the company. Therefore, this is also prohibited under the above-mentioned provision.
It was further indicated in this Decision that the scope of the business operated by the Appellant does not include guarantee business, and Article 4-2 of the company’s articles of incorporation provides that an external guarantee may be provided only due to operation or investment needs. Therefore, the guarantee provided by the Appellant by issuing the Check at Issue to secure the debt of C seems to be no different from the circumstance of serving as C’s guarantor in terms of the financial impact. The repeated argument of Appellant and the Intervenor that the Check at Issue, which was issued by the Appellant, should not be valid for its violation of Article 16, Paragraph 1 of the Company Law is not entirely baseless. The original trial court jumped to a finding unfavorable to the Appellant merely on the ground that since the Check at Issue does not contain any wording indicating “guarantee,” it is difficult to determine that guarantee is the causal relationship and failed to specifically explore if the Appellant’s issuance of the Check at Issue is connected with his operation or investment needs. Therefore, the original trial court certainly was unlawful for self-contradictory grounds and inappropriate application of Article 16, Paragraph 1 of the Company Law.