The legislative policy and the direction of the amendments of Company Act and Securities and Exchange Act

Project Investigator : Wen-Yeu Wang

        Company Act and Securities and Exchange Act as the fundamental laws in the capital market, the qualities of the provisions affect whether the process of capital market in our Country goes smoothly and whether the business environment is friendly. It is even more important to our Country especially when the capital market has highly been developed and internationalized, and the proportion of Taiwan stock values in GDP is equivalent to the developed market.
         Although our Company Act and Securities and Exchange Act had been significantly amended in 2001 and 2006, and had some minor adjustments in different levels thereafter. However, the relevant legislative policy and the overall direction of the amendments seem to lack of a complete plan and thorough discussions, which led the legislative reasons confusing and unclear and the policy repetitive and uncertain.
         Take article 197-1 of the Company Act for example, which has been amended on October 25th 2011, published by President on November 9th, and come to force on November 9th of the same year. According to section 2 of article 197-1: “In case a director of a company whose shares are issued to the public has created a pledge on the company’s shares more than half of the company’s shares being held by him/her/it at the time he/she/it is elected, the voting power of the excessive portion of shares shall not be exercised and the excessive portion of shares shall not be counted in the number of votes of shareholders present at the meeting.” This article is also applied to the supervisors based on article 227 of the Companies Act. In other words, once the directors and supervisors of the public offering companies create a pledge on the company’s shares more than half of the company’s shares being held by the directors or supervisors at the time being elected, the voting power of the excessive portion of shares shall not be exercised in the future. Thus this article shall have great impacts on the shareholder with the high financial leverage and affect the management power of the public offering company.
         Though the legislative purpose of this article is to response the practical issues of the proliferation of pledged shares, and the directors and supervisors improperly using their authorities to control the finance of the company. However, besides that the scholars consider that this amendment is not consistent with the theory, the competent authorities is also uncertain about the detailed legislative process and relevant research on the article. Consequently, it not only exposes the different understandings between the academia and practice, and the discord between the legislative department and executive department, but the opinions of applying the law from executors, lawyers, and the managers are not integrated and coordinated in certain levels at all.
         What has happened in practice is that due to the shares pledged by directors, and could not exercise their voting rights in Shareholders' Meeting, all the agenda failed to pass in the meeting. We have to further assess whether this is a good or bad phenomenon to corporate governance, but there are still other measures to attain the corporate governance. Therefore, this new article is greatly controversial. Moreover, the Company Act introducing shadow director and de facto director theory in 2012, which will promote our international competitiveness, but it will lead to controversies due to the relevant provisions not being complete.
         For these reasons, we invite the professors of the National Taiwan University College of Law, who expert in business law and financial law to compose the research team. Bring out the overall legislative views and the direction of relevant policy in the future to the Companies Act and the Securities Exchange Act.