When a company convenes a general meeting to vote on “the transfer of all or a substantial part of the business or assets,” yet it so happens that this
42. Supreme Court Decision, case no. 1988 Tai-Shang Tzu 1918.
43. However, in regard to substance, the chairman in relation to certain types of ordinary business has the power to shape the will of the company. Although the managers are an auxiliary body involved in the execution of the company’s business, in relation to the handling of such business, they actually have the discretionary authority. This can perhaps be included as part of the shaping of the company’s intention. The same applies to the responsible persons of other companies.
44. After the regulations governing the rights of shareholders to initiate proposals were passed, whether or not the transactions of Article 185 of the Company Act should be based on proposals initiated by shareholders and how these proposals should be handled merit further discussion.
proposal does not conform to the board of directors’ procedures for making a proposal, or else there are errors in the way that voting rights are calculated, so much so that the voting method adopted is erroneous, what should be done on such an occasion?
The problems that arise based on the circumstances described above are basically problems to do with the validity of the resolutions adopted in the general meeting. Apart from the voting method adopted, both from an academic and a practical point of view, when there are problems with the procedures that the board of directors follow when making proposals or mistakes are made with regard to how voting rights are calculated, it is generally believed that there has been a violation in terms of the procedures for convening a meeting or the way in which resolutions are handled. The resolution passed in the general meeting is voidable, not invalid.45
When a proposal is passed, not by a special resolution, but by a vote in accordance with the procedures for an ordinary resolution, there are different views that arise in relation to this. There are those scholars who advocate that if, where there should be a special resolution, an ordinary resolution or a tentative resolution is used instead, then the resolution is not established, and thus such a resolution is invalid. This means that the attendance at the meeting by shareholders representing a requisite number of shares is the necessary condition for the juristic act to be established. Its violation is not simply procedure.46
In practice, the majority of scholars are of the opinion that “in regard to the acts listed in Article 185, Paragraph 1 of the Company Law, when the general meeting is convened and the shareholders in attendance are not sufficient to represent at least two-thirds of the total number of shares already in issue, there is a violation of Article 185, Paragraph 1 of the Company Law, and this is also a violation of the approach used to pass resolutions in the general meeting. Pursuant to Article 189 of the Company Law, a shareholder may, within 30 days of the date on which the resolution was adopted, petition to the court to rescind said resolution. This does not fall within the scope of Article 191 of the same law whereby the resolution is declared null and void.” 47 There are not a few judgments that have agreed to such a decision.48
45 . Such as Supreme Court Decision, case no. 1991 Tai-Shang Tzu 1050 (without the shareholders participating in a vote).
46. FANG-CHIH KE, CORPORATION LAW (I) 274 (5th ed., Nov. 2002) (in Chinese); Kuo-Chuan Lin, Su Ching Che Hsiao Cheng Hsu Hsia Tzu Chih Ku Tung Hui Chueh Yi (Petitioning the Court to Annul a Resolution that is Flawed due to the General Meeting’s Procedures), 79 YUEH TAN FA HSUEH TSA CHIH (TAIWAN L. REV.) 20, 21 (Dec. 2003) (in Chinese). Supreme Court Decision, case no. 1976 Tai-Shang Tzu 1374.
47. Supreme Court Decision, case no. 1974 Tai-Shang Tzu 965.
48. Such as Supreme Court Decision, case no. 1996 Tai-Shang Tzu 1885, and Supreme Court Decision, case no. 2002 Tai-Shang Tzu 2183. Wang-Ruu Tseng, Ku Tung Hui Cheng Hsu Wen Ti Chih
If in accordance with the majority viewpoint, a decision to “transfer all or a substantial part of the business or assets” has been made that is not based on a vote in accordance with a special resolution, prior to that resolution’s annulment by the court, the resolution is still valid. In relation to this, a noticeable contradiction becomes apparent. There is such a contradiction if, prior to its being annulled, the resolution is still valid (this can be interpreted as meaning that such a resolution still represents a forming of the company’s intention), how is it, based on such an effective formation of intention, that the resulting acts are not deemed to be valid?
According to the Supreme Court Decision, case no. 1991 Tai-Shang Tzu 434: “If the transfer of all or a substantial part of a company’s business or assets does not comply with laws and regulations, then such a transfer is invalid. This differs from the situation where the company adopts procedures for convening a general meeting or an approach for adopting a resolution to perform this transfer that violates laws and regulations and the company’s articles of incorporation, in which case a shareholder may in accordance with Article 189 of the same law enter a petition in the court for the annulment of such a resolution.” This may explain why the court on the one hand adjudicates the transfer to be void while on the other hand argues that the resolution is voidable.
However, it needs to be asked how these two situations differ. Let us imagine that if the formation of the company’s intention is to be based on the regulations contained within the Company Law, then the emphasis should be on the general meeting. On such an occasion, the resolutions adopted by the general meeting are the only means by which such intention is formed. The key then lies in whether the validity of such “resolutions” and the validity of such “shaping of intention” can each be effectively judged. According to the judgments, these are two different things, but one can also imagine that if the formation of intention is separated from such resolutions, it needs to be asked what such resolutions really mean. That is, in theory these are not two different things, but are really the same thing.
The difficult problem then occurs. In the opinion of most scholars, on this occasion the problem is faced with a deadlock. On the contrary, if it is based on a minority view, then the problem is resolved. Based on the minority view, such a resolution is not validly passed, and thus void. Since the principal does not form the intention to transfer the business or assets, the legal effect of the said agency will be uncertain.
The main reason why the majority do not regard the resolution resulting from the special resolution not being appropriately adopted as not being
Tan Tao (A Discussion of General Meeting Procedural Problems), 178 FA HSUEH TSUNG KAN (CHINA L.J.) 76, 82 (Apr. 2000).
established or not taking effect is that only the voting method adopted has been in violation of the law. This differs somewhat from the general meeting’s attendance threshold not having been achieved. In relation to the latter, it is basically not possible to regard the general meeting as already having been held in accordance with the law, and thus its resolutions have not been established.49 On the other hand, the voting threshold can be differently designed. At times, the company’s articles of incorporation can be a regulation with a higher threshold. For this reason, there are naturally reservations over whether or not it is necessary to cause its resolution to not be established or to be void.
We can now compare these two situations: (1) the general meeting by means of an ordinary resolution approves the transfer of all or a substantial part of the business or assets; and (2) the company uses a special resolution to approve it; however, subsequently it is discovered that because there was an error in the calculation the quorum for a special resolution is not achieved.50 Essentially, neither of these two kinds of situation fulfills the requirement of a special resolution, but the former one is clearly in violation of the law in formality. However, in regard to the counterparty to the transaction, what is felt as a result should differ. As to what the objective of the regulation concerning the special resolution in Article 185 of the Company Law is, it is first necessary to make this clear.
In theory, the general meeting is one of the channels for resolving the agency cost problems between the shareholders and the managers, and it also protects the interests of the minority shareholders.51 Certainly, through the setting of special voting thresholds, the general meeting can to a certain degree prevent large shareholders from arbitrarily changing the company’s basic events and structure. Related cases give rise to arguments over
“whether or not a resolution should be passed in a general meeting for the company’s internal events,” based on which it is believed that this should not be used to oppose the counterparty, but with various opinions being held in judgments.52 These opinions differ so much that there are judgments that indicate that, even if the company’s representatives’ transactions with the trading counterparty appear in the minutes of the general meeting and the board of directors’ meetings, if the company has in actual fact not already
49. Supreme Court Decision, case no. 1980 Tai-Shang Tzu 1415.
50. Regarding a quorum and a majority, please refer to Kuo-Chuan Lin, Ku Tung Hui Chueh Yi Ting Tsu Shu Yu To Shu Chueh Chih Chi Suan (The Calculation of a Quorum and a Majority for a General Meeting Resolution), 65 TAI WAN PEN TU FA HSUEH TSA CHIH (TAIWAN L.J.) 199, 199-204 (Dec. 2004) (in Chinese).
51. SeeSHAREHOLDER VOTING RIGHTS AND PRACTICES IN EUROPE AND THE UNITED STATES (hereinafter Shareholder Voting Rights and Practices)331 (Theodor Baums & Eddy Wymeerscheds., 1999).
52. Supreme Court Decision, case no. 1980 Tai-Shang Tzu 3362.
convened the general meeting, it is also not because of this that the transactions have been valid for the company.53 From this it can be seen that the emphasis is on whether or not the procedures in Article 185 are indeed complied with. These procedures include the policy choice that “protecting the shareholders” is greater than “transactions safety.” In the two examples given above, in the case of a special resolution adopted in a general meeting where what constitutes a quorum or a majority is calculated wrongly with the result that the resolution is flawed, when looked at in the real world, the threat to the safety of transactions is even more serious. This is because, regardless of how the counterparty to the transaction is verified, the likelihood of being discovered is very small. However, if one proceeds from there not having been a special resolution adopted, the general meeting minutes may perhaps provide some clues.
For this reason, the majority view will probably not give rise to problems under certain circumstances. This is the case in view of the counterparty to the transaction actually being unable to verify every circumstance that is likely to lead to the general meeting resolution being annulled. In relation to this, consideration should be given to transaction safety being more important than protecting the minority shareholders. For this reason, all resolutions that go through the general meeting, regardless of the procedures used and regardless of their content, at least externally have the backing of a resolution passed in the general meeting. On such occasions, all of the acts performed by the chairman in representing the company will be effective. If the general meeting resolution is subsequently annulled (or based on the minority view, is deemed to be void), the validity of the transaction is accordingly decided by the rule of “apparent authority.”
In other words, the validity of the acts listed in Article 185 will be adjusted in line with the majority view. However, at present such a development does not appear to be likely.