What are the options for companies in financial difficulty in Taiwan?
If the company is listed on the Taiwan stock exchange, then the company may pursue a formal reorganisation as set forth under Article 282 of the Company Act.
If a listed company (as referred to above) is unable to pursue reorganisation, and in respect of all other companies, a company will enter into a formal bankruptcy procedure under the Bankruptcy Act in order to implement an equitable and orderly repayment scheme amongst its creditors.
How does informal contractual debt restructuring work?
Whilst there is no Taiwan law or precedent governing informal contractual debt restructuring, the Bankruptcy Act provides two pre-bankruptcy procedures: (i) settlement through court, and (ii) settlement through chamber of commerce. A debtor may avail itself of either option to avoid formal bankruptcy.
How are formal reorganisations implemented?
Any of the following qualified petitioners may file a petition for reorganisation of a listed company with the court under the Company Act:
- The company, provided that the resolution to file the a petition for reorganisation is adopted by a majority vote at a board of directors meeting attended by at least two-thirds of all the directors of the company;
- Shareholders holding at least 10% of the total issued shares of the company for at least six consecutive months; or
- Creditors whose claims against the company are equivalent to the value of at least 10% of the total issued shares of the company.
What is the effect once a reorganisation plan is binding?
The reorganisation plan adopted at an interested parties’ meeting is binding on the company and the interested parties upon the court’s approval of the plan.
What happens if the restructuring is not successful?
The execution of the reorganisation plan should be completed within one year after the date of the court’s approval of the plan. The court may extend the one-year period upon an application by the reorganisation supervisor(s). Failure to execute the entire reorganisation plan in time may result in the termination of the company’s reorganisation.
Upon issuing a ruling to terminate the company’s reorganisation, the court would notify relevant authorities, and may ex officio, (provided that the conditions prescribed under the Taiwan Bankruptcy Act are met), declare the company bankrupt. In addition, the effects of any stay order issued by the court, would terminate, meaning that the creditors may exercise their rights against the company, and the power and authority of the shareholders, directors would be reinstated.
How is bankruptcy started?
A bankruptcy petition may be filed either by the insolvent debtor as a voluntary bankruptcy petition, or by one or more of its creditors as an involuntary bankruptcy petition under the Bankruptcy Act. If a company’s assets are insufficient to pay off its debt, the company’s board of directors should file a bankruptcy petition, (unless the company is listed and has petitioned for reorganisation).
A voluntary bankruptcy petition filed by the debtor should be accompanied by a schedule of its property and a list of creditors and debtors. An involuntary bankruptcy petition filed by a creditor should include the nature of the claim, the amount of the claim and the facts regarding the debtor’s insolvency.
What does the trustee do?
The trustee (appointed under the bankruptcy process) may request the court to revoke any gratuitous or non-gratuitous acts committed by the debtor prior to the adjudication of bankruptcy if (in the case of gratuitous acts) they are prejudicial to the creditors’ rights, or (in the case of non-gratuitous acts) they are prejudicial to the creditors’ right and both the debtor and the beneficiary knew of the prejudice at the time of the transaction.
A trustee may annul the following acts carried out by the debtor within six months before the adjudication of bankruptcy:
- Granting of security for outstanding debts, except where the debtor contracted to provide the security at least six months before the adjudication of bankruptcy.
- Repayment of debts that are not yet due.
In addition to the above, a trustee has the following responsibilities:
- The trustee needs to review and verify the statement of the debtor’s assets and the list of the creditors and debtors provided by the debtor;
- The trustee should take necessary precautionary measures to collect the bankruptcy estate;
- Prior to the first creditor’s meeting, the trustee may, with the permission of the court, continue the business of the debtor within the scope necessary for liquidation,
- The trustee should obtain the consent of the supervisor appointed by the creditors before committing certain acts, for instance, transferring the rights over real property, making borrowings, and waiving rights;
- The trustee may request the court to convene a creditors’ meeting which shall be presided over by a judge;
- The trustee should prepare the statement of claims and the statement of assets and at the creditors’ meeting, present the statements and report on the progress of the bankruptcy proceeding. If the debtor has drawn up a reconciliation plan, the trustee should, after reviewing it, present it at the creditor’s meeting.
- If the resolution concluded at the creditors’ meeting is not in the interests of the creditors, the trustee should request the court to prohibit the implementation of the resolution;
- If the bankruptcy estate can be distributed after the first creditors’ meeting, the trustee should distribute it to the creditors; and
- Immediately after the final distribution, the trustee should report the final distribution to the court so that the court can conclude the bankruptcy procedure.
Can the court issue a winding-up order for a foreign company?
A foreign legal entity can be subject to the Taiwan Bankruptcy Act and can therefore be the subject of a winding up order issued by a Taiwan court.