The Supreme Court rendered the 108-Tai-Shang-403 Civil Decision of March 27, 2019 (hereinafter, the “Decision”), holding that if an incompetent director still serves as a director at the end of oral arguments at the trial court, a protection institution may request the court to remove the director, and this shall not be limited to the circumstance where such director is subject to removal by court order during the tenure.
According to the facts associated with this case, the Appellee asserted that it is a protection institution set up in accordance with the Securities Investor and Futures Trader Protection Law (hereinafter, the “Law”), while Appellant Company A is a listed company whose stock is traded at Taiwan Stock Exchange Corporation and Appellant B has served as a director of Company A to date. Appellant B engaged in violations of Article 20, Paragraph 2 and Article 171 of the Securities and Exchange Law during 2009 through 2011. Since he had engaged in acts that significantly undermined Company A during the performance of his job duty, he was obviously not a competent director. Therefore, an action was brought in accordance with Article 10-1 of the Law to seek a decision to remove Appellant B as a director. The original trial court ruled in favor of the Appellee. Dissatisfied, this appeal was filed.
According to this Decision, the right of removal by court order under Article 10-1, Paragraph 1, Subparagraph 2 of the Law is a right of formation granted to a protection institution of public-interest nature by a legislative body with a legislative objective of carrying out the spirit of corporate governance by discharging incompetent directors in time to protect the rights and interests of securities investors and fulfill the functions of a protection institution. If a director who has intentionally engaged in any act that deliberately inflicts any material damage upon the company or violates laws, regulations or the articles of incorporation can continue to serve as a director due to re-election, this obviously goes against the legislative objective of such provision. Therefore, if an incompetent director continues to serve as a director at the end of oral arguments at the trial court, the protection institution may request the court to remove the director, and this is not limited to the circumstance where the director is subject to removal by court order during the tenure, and the removal claim in the lawsuit is also not limited to any specific tenure. When a decision becomes final, res judicata will be invoked. A court’s declaration to remove an incompetent director will become effective for the removal of the director when the court decision becomes final. When a decision to remove a director becomes final, the competent authority will handle the removal registration on such basis. This is a criterion for setting up a defense, not for effectuation (compare Article 12 of the Company Law).
It was further pointed out in this Decision that since Appellant B, who was a director of a listed company, had engaged in an act which violated laws and regulations in material aspects during the performance of his duty as a director, the Appellee as a protection institution set up pursuant to the Law could certainly bring an action with the court to remove Appellant as a director according to the above explanation. Since the decision rendered by the original trial court against the Appellants did not violate any law or regulation based on such finding, the appeal of Company A and Appellant B was dismissed.