Legal experts have urged the government to consider amending regulations to prevent more listed companies from taking controversial actions to maintain control of their boardrooms.
“Neither the Ministry of Economic Affairs nor the Financial Supervisory Commission have the tools to effectively address Tatung Co’s (大同) management dispute,” Huang Ming-jye (黃銘傑), a professor of law at National Taiwan University, told the Taipei Times by telephone on Friday.
After Tatung’s management — controlled by the founding Lin (林) family — retained full control of the nine-member board by depriving certain investors of their voting rights at a shareholders’ meeting on June 30, the Securities and Futures Investors Protection Center last week filed a lawsuit to dismiss Tatung chairwoman Lin Kuo Wen-yen (林郭文艷), and the ministry rejected the registration of the company’s new board members.
However, Tatung announced that it would appeal the ministry’s rejection and said it would defend itself against the center’s suit.
“Although Minister of Economic Affairs Wang Mei-hua (王美花) said that she did not consider the company’s board election legal, the ministry is not entitled to declare the election invalid. Only the court has the final say, if you really comprehend the Company Act (公司法),” Huang said.
Even if the ministry orders the company to hold a new shareholders’ meeting according to Article 195 of the act, Tatung is likely to insist on the legality of its board election held on June 30 and not cooperate, Huang said.
In an extreme scenario, the ministry would retract registration of the firm’s current board members, said Stephen Wu (吳志光), a lawyer at Lee and Li Attorneys-at-Law (理律法律事務所).
“However, the move would hardly affect the company’s operations,” Wu said.
That is because in Taiwan the registration of board directors is not a requirement for the board to execute their rights, but is only needed to be used against a third party, such as a former board director, Wu said.
“Put it simply, there is nothing the government can do if Tatung is determined to ignore all the government’s instructions and public opinion. Tatung must obey the court ruling, but the legal process will likely take a long time,” he said.
The minority shareholders led by Lin Hung-hsin (林宏信) have applied to the ministry to hold a special shareholders’ meeting, while another group of shareholders headed by Shanyuan Group (三圓建設) chairman Wang Kuang-hsiang (王光祥) plans to apply next week, which might result in a more complicated situation, Wu said.
Even if those activist investors work together to re-elect new board directors after convening a special shareholders’ meeting successfully, “it would be questionable whether Lin Kuo and her team would accept the new board members,” he said.
The commission is also not equipped to solve the situation, as it can only change the trading method for Tatung stocks or bar the firm from conducting shareholders’ services under current regulations, Huang said.
Huang said he was disappointed by the ministry, as he had urged it to set up stronger mechanisms to curb companies intentionally violating shareholders’ rights when it was amending the act in 2018.
“What Tatung did is wrong, but I am more frustrated that the government could not solve the situation quickly,” he said.
The ministry should establish a mechanism to prohibit disqualified directors from taking important positions for a long period and ensure that companies have a corporate secretary to ensure regulatory compliance, he said.
The government could consider amending the Securities and Exchange Act (證券交易法) first to protect investors, as it would be much easier, he added.
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