The Supreme Court rendered the 103-Tai-Shang-1732 Civil Decision of August 27, 2014 (hereinafter, the "Decision"), holding that under Article 197-1, Paragraph 2 of the Company Law, when a director of a publicly offered company has pledged over a half of his/her company shares held at the time of his/her election, the voting powers of the shares in excess of such threshold shall not be exercised and such shares shall not be included in the voting powers of the attending shareholders. The calculation of pledged shares of directors and supervisors is not limited to pledges made during their tenure.
According to the facts underlying this Decision, the Appellant is a shareholder of the Appellee who filed a complaint to set aside the resolutions adopted during the Appellee's shareholders' meeting. Literal interpretation was adopted by the original trial court, and it was held that since the wording "during the tenure" is not found in the first part of Article 197-1, Paragraph 1 of the Company Law, this is deemed limited to share pledges during the tenure of directors and does not include pledges set by shareholders before they serve as directors or supervisors. Therefore, C2 Co. and OLHE Co., both directors of the Appellee, could still participate in voting with all of their shares without violating the requirement when they had pledged over one half of their shares before serving as directors and supervisors. The Appellant asserted that the shareholders' meeting at issue had failed to deduct from the voting powers of the attending shareholders the portion of pledged shares which exceeded one half of the shares held at the time of election, and that the resolution method violated laws and regulations and thus is not acceptable. Dissatisfied, the Appellant filed this appeal.
According to the Decision, under Article 197-1, Paragraph 2 of the Company Law, when a director of a publicly offered company has pledged his/her shares which exceed one half of the shares held by him/her at the time of his/her election, the voting powers of the shares in excess of the threshold shall not be exercised and shall not be included in the voting powers of the attending shareholders. The legislative objective is that when a listed or OTC company is in financial hardship, its directors or supervisors mostly seek to protect its share price by pledging their shares, causing the percentage of pledged shares generally higher than that of another ordinary company. However, when the share price declines, the directors and supervisors often engage in further borrowing to protect the share price to protect themselves against any bank request for additional collateral. The vicious circle aggravates the finance of the company and undermines the rights and interests of general investors. To ensure a sound capital market and strengthen corporate governance, it is necessary to enhance control over directors or supervisors who have pledged a high percentage of their shares to discourage and halt stock speculation by business owners and to prevent excessive credit expansion and multiple credit extensions of directors and supervisors. Therefore, whether the shares of directors or supervisors are pledged before or during their tenures, when the number of their pledged shares is calculated, the calculation should not be limited to the pledges during their tenure to meet the legislative objective. It was further held that the original decision should be reversed and remanded on the ground that the opinion of the original trial court violates the law.