Interpretation No. 770 and protection for minority shareholders

Taiwan had a thriving M&A market in 2018, with more transactions and bigger deals, as well as high-profile transactions in various fields, compared to 2017. However, at the end of 2018, the Justices of the Constitutional Court issued guidance deemed ambiguous and unclear, even to the regulator and the practitioner

A case was filed by a minority shareholder (the applicant) in relation to a cash-out merger in 2007. The merger was between a Taiwanese company (target company) and its major shareholder (the parent), which held 84% of the target company shares. After the merger, the target company was merged into the parent, and so all minority shareholders were squeezed out.

Under the current M&A Act and other applicable laws and regulations of Taiwan, the parent is allowed to vote for the merger, so it used its majority vote to approve the merger in the target company’s shareholders’ meeting.

The only remedy available to a shareholder of a target company who objects to the merger is the appraisal right, i.e., asking the court to determine a fair price of target company shares and claiming the difference (if any) between the price offered by the parent and the fair price determined by the court, provided that the appraisal right is not available to an objecting shareholder who has exercised its voting rights in the target company’s shareholders’ meeting. In other words, waiver of voting right is a condition precedent to the appraisal right.

James Huang is a partner and Maggie Huang is an associate partner at Lee and Li in Taiwan. They can be contacted at jameshuang@leeandli.com and maggiehuang@leeandli.com

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