The Securities and Exchange Act was established on April 30, 1968 and has undergone 28 amendments since then. The most recent amendment was made on January 27, 2021, and a preannouncement of this draft amendment was made by the Financial Supervisory Commission on August 16, 2022, approved by the Executive Yuan on April 20, 2023. On May 30 of the same year, the amendment was passed by the Legislative Yuan on the third reading following the Executive Yuan’s version. It was promulgated by the President on June 28 and officially implemented on June 30.

This amendment carries two significant points. First, material corporate affairs, such as suing board members, convening shareholder meetings, and board members’ representation of the company in transactions between themselves and the company, should be conducted through the deliberation of the audit committee (amended Article 14-4). Second, in cases where the audit committee cannot convene due to valid reasons, to avoid impacting the company’s operations, it has been added that matters requiring the committee’s resolution should be resolved by a special resolution of the entire board of directors (amended Article 14-5). Meanwhile, independent directors on the audit committee, based on their roles as committee members, are required to express their consent or dissent on financial reports. Violations are subject to penalties to maintain the spirit of corporate governance (amended Article 178).

The following mainly discusses the rationale behind transferring the authority to convene shareholder meetings from independent directors back to the audit committee, as stipulated in amended Article 14-4. The independent director system originated from the Securities and Exchange Act amendment in 2006. The independent director and audit committee system was introduced to comply with international trends. It was expected that independent directors could utilize their impartial and fair status to exercise supervisory functions and enhance internal corporate control. In addition, they could assert their roles’ independence from any constraints in board meetings or shareholder meetings to voice reservations or dissenting opinions and keep records in meeting minutes. This intention cannot be regarded as unkind. Subsequently, regulatory authorities gradually promoted the adoption of the system among listed companies, and all listed companies had formally established independent directors by 2022, replacing the original roles and functions of supervisors.

However, in practice, it was often observed that when a dispute over management rights occurred in an issuing company, independent directors would cite Article 14-4, Paragraph 4 of the Securities and Exchange Act, which applied the provision of Article 220 of the Company Act: “In addition to the condition that the board of directors does not or is unable to convene a meeting of shareholders, the supervisors may, for the benefit of the company, call a meeting of shareholders when it is deemed necessary.” The agendas of such extraordinary shareholders’ meetings typically involved the dismissal of specific directors or a complete re-election of the board. In some cases, different independent directors of the same company would even separately convene extraordinary shareholders’ meetings to conduct a comprehensive re-election on the same date or closely spaced dates, leading to completely different board compositions or contradictory resolutions. This was a situation colloquially known as “dual shareholder meetings.” This confused all shareholders and made it difficult for them to exercise their rights, affecting normal company operations. This also caused disturbances for the Ministry of Economic Affairs, the administrative authority in charge of company registrations, when handling changes in company registration. As a result, there were increasing calls for reform, both in practice and academia, suggesting that the powers of independent directors should be appropriately limited. The amendment should be employed to prevent arbitrary convening of extraordinary shareholder meetings by an individual independent director, and full authority should be returned to the audit committee; after careful evaluation through a collective decision-making process, the committee could then convene meetings. This approach complied with the requirements stipulated in Article 220 of the Company Act, which mandates convening the company’s benefit when necessary.

Before this amendment, in practice, two parties engaged in a struggle for control of company management often attempted to prevent the other party from convening a shareholders’ meeting by applying to the court for a temporary restraining order under Article 64, Paragraph 1 of the Commercial Case Adjudication Act and Article 538 of the Code of Civil Procedure. One party requested to prohibit the other from exercising directorial powers, implementing resolutions of the board of directors or shareholders’ meeting, exercising shareholder voting rights, convening an extraordinary shareholders’ meeting, and so on. The party also filed a separate lawsuit for this case. Additionally, there were cases where emergency measures were requested under Code of Civil Procedure Article 538-1 to prohibit the other party from convening shareholder meetings.

Such cases have been assigned to the Intellectual Property and Commercial Court following the implementation of the Commercial Case Adjudication Act on July 1, 2021. In accordance with the provisions of the Commercial Case Adjudication Act and its implementing regulations, when considering applications for temporary restraining orders, the Commercial Court shall evaluate the necessity for preservation based on four considerations: 1. the likelihood of the applicant’s eventual victory; 2. whether the approval or rejection of an application can cause irreparable harm to either the applicant or the opposing party; 3. weighing the potential and extent of current and ongoing harm to both parties if the disposition is made or not; 4. the impact on the public interest. Therefore, when an applicant applies for a court order to establish a provisional injunction maintaining a temporary status quo a legal relationship in dispute must exist. In addition, in cases where it is necessary to prevent material harm or to avoid imminent danger and for situations where it is necessary to establish a provisional injunction maintaining a temporary status quo regarding the legal relationship in dispute, an applicant must present sufficient evidence to clarify this need. In this context, the necessity to establish a provisional injunction maintaining a temporary status quo is meant to prevent material harm or to avoid imminent danger or cases where similar situations must be stopped. However, as for the extent to which the severity of the damage, the urgency of the danger, or the presence of other similar circumstances should be clarified, the application of the theory of balancing and the principle of proportionality shall be on a case-by-case basis. Regarding the significance, it must be determined based on whether the benefits the applicant stands to gain or the harm they aim to prevent by seeking a provisional injunction maintaining a temporary status quo exceeds the disadvantages or damages that the opposing party would suffer due to such disposition. Only then can it be considered significant and necessary for preservation. In practice, the Commercial Court will discuss these four elements individually when deliberating.

Upon further examination of the relevant rulings made by the Commercial Court regarding the applications for provisional injunction maintaining a temporary status quo, outcomes of both approval and denial are evident. ( For instance, denials include Provisional Commercial Ruling No. 5, 13, 17, 19, 23, and 30 of 2022, while approvals include Provisional Commercial Ruling No. 7 of 2021, No. 38 of 2022, and No. 1 of 2023). The primary basis is whether the evidence and arguments presented by both parties are sufficient to convince the Commercial Court that the four requirements have been met, thereby necessitating a provisional injunction maintaining a temporary status quo disposition.

After the amendment to the Securities and Exchange Act, the authority of independent directors to convene shareholder meetings has been transferred to the audit committee, which should effectively reduce occurrences of “dual shareholder meetings” and decrease the number of provisional injunction maintaining a temporary status quo cases handled by the Commercial Court. The convening of shareholder meetings is thus returned to its regular course, principally by the board of directors and exceptionally by the audit committee when necessary for company interests. However, it remains to be seen whether the limitation of independent directors’ authority to convene shareholder meetings will lead to other ripple effects or if individuals with specific purposes will seek alternative solutions. It remains advisable to continue monitoring.