For matters which may be resolved in a shareholders’ meeting, if the board of directors is requested by shareholders to call a meeting but fails to do so, and such proposal has been submitted to the competent authority, which reviews the submission and grants an approval that allows the shareholders to call the meeting on their own, such matters can be resolved in such shareholders’ meeting (Taiwan)

2018.4.10
Sean Tsou

The Supreme Court rendered 106-Tai-Shang-2461 Civil Decision of April 10, 2018 (hereinafter, the “Decision”), holding that for matters which may be resolved in a shareholders’ meeting, if the board of directors is requested by shareholders to call a meeting but fails to do so, and such proposal has been submitted to the competent authority, which reviews the submission and grants an approval that allows the shareholders to call the meeting on their own, such matters can be resolved in such shareholders’ meeting.

According to the facts underlying this Decision, the Plaintiff filed a complaint, alleging that former Chairman A of the Defendant had been suspended from the discharge of his duty as a director under a court ruling.  However, he called a special shareholders’ meeting on his own and caused the resolution at issue to be adopted after obtaining an approval from the competent authority (i.e., New Taipei Government) in accordance with Article 173, Paragraph 2 of the Company Act.  The resolution pertained to matters such as the sale, transfer and authorized sale or transfer of property held in the name of the Defendant and was a resolution for “material transaction act” under Article 185, Paragraph 1 of the Company Act.  However, he had failed to obtain a resolution adopted in a meeting attended by over two thirds of the directors sitting in the company’s board of directors with the majority of the attending directors voting in favor of the resolution.  Therefore, a complaint was filed with an anterior claim to confirm the invalidity of the resolution at issue with a posterior claim to set aside the resolution at issue.  The original decision concluded that the resolution at issue was invalid.  Dissatisfied, the Defendant appealed.

According to this Decision, Article 173, Paragraphs 1 and 2 of the Company Act specifically provide: “Any or a plural number of shareholder(s) of a company who has (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 therein the subjects for discussion and the reasons, request the board of directors to call a special meeting of shareholders.[Paragraph 1] If the board of directors fails to give a notice for convening a special meeting of shareholders within 15 days after the filing of the request under the preceding Paragraph, the proposing shareholder(s) may, after obtaining an approval from the competent authority, convene a special meeting of shareholders on his/their own. [Paragraph 2]” Therefore, shareholders are granted with a right to convene a shareholders’ meeting on their own under certain conditions.  This is a special provision for the convening procedure for shareholders’ meetings.  To wit, the shareholders of a company may request the board of directors to call a special shareholders’ meeting by submitting a written proposal specifying the subjects for discussion and reasons if specific shareholding and holding period requirements are met.  If the board of directors still fails to send a notice for convening such a special shareholders’ meeting, and if an approval from the competent authority has been obtained, the shareholders may convene the meeting on their own.  In addition, when a shareholder sends a request to the board, Article 173, Paragraph 1 of the Company Act only stipulates that the shareholder “may, by filing a written proposal setting forth therein the subjects for discussion and the reasons, request the board of directors to call a special meeting of shareholders” but does not specifically restrict the subjects for discussion proposed by the shareholder.  This suggests that the above requirement can break the monopoly of the board over the convening right and prevent improper operation of the company.  Since if the board refuses to call a shareholders’ meeting for relevant proposals made by shareholders in accordance with Article 185, Paragraph 1 of the Company Act, it is certainly difficult to expect the board to convene a board meeting to adopt a resolution for such proposals pursuant to law.  Therefore, any matter that can be resolved in a shareholders’ meeting or is specified by shareholders in their proposals made to request the board to convene a shareholders’ meeting, if such meeting is not convened by the board within 15 days after such request is lodged, and if the shareholders have submitted their proposed matters to the competent authority to obtain an approval for their convening the shareholders’ meeting on their own, such matter may be resolved in such shareholders’ meeting.  This also applies to relevant proposals under Article 185, Paragraph 1 of the Company Act and is free from the procedural restriction under Paragraph 5 of the same article that such proposals shall be introduced by the board.

It was further pointed out in this Decision that in this matter, the court had issued a ruling to suspend A and another director B.  As a result, the Defendant’s board could not discharge its duty.  After a temporary manager C was appointed, A requested C to call a special shareholders’ meeting with respect to the resolution at issue but to no avail.  Therefore, A applied to New Taipei City Government for an approval of A’s convening a special shareholders’ meeting on his own with respect to the resolution at issue in accordance with Article 173, Paragraph 2 of the Company Act.  This was certainly not prohibited by law.  Therefore, the Supreme Court ultimately reversed and remanded the original decision on the ground that the finding in the original decision that the resolution at issue was invalid was questionable.