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Legal Risks That Corporations may Face during COVID-19 Outbreak

Legal Risks That Corporations may Face during COVID-19 Outbreak
The outbreak of the coronavirus disease (COVID-19) has significantly affected nearly every aspect of our social life and business activities. Government authorities in different jurisdictions have implemented control measures on the movement of certain goods and human beings to curb the spread of the disease, and such measures have also impacted the flow of commerce. Below we highlight the key potential legal risks that corporations may face during such public health emergency and provide some possible responses to mitigate such risks.
Convening of Shareholders’ Meetings and Board Meetings
Ÿ ShareholdersMeeting
Article 170 of Taiwan’s Company Act stipulates that shareholders’ meetings should be held at least once every year and should be convened within six (6) months following the end of the fiscal year, unless otherwise approved by the competent authorities upon the request filed by individual corporations based on legitimate grounds. Therefore, except where a delay has been approved by the competent authorities, corporations should convene their shareholders’ general meetings by June 30, 2020 at the latest. At present, the competent authorities have not yet made any announcement to indicate whether the outbreak of COVID-19 can be cited as a legitimate reason to postpone a shareholders’ meeting. Hence, if a corporation needs to postpone its shareholders’ meeting due to COVID-19, it still needs to file an application to obtain the competent authorities’ approval. Nevertheless, for companies limited by shares where there is only one corporate shareholder, as the functions of their shareholders’ meeting are exercised by the board of directors, such companies are not bound by the Company Act on matters relating to convening shareholders’ meetings, and will not be affected by COVID-19 in this regard.
Ÿ Board Meetings
Article 205 of Taiwan’s Company Act prescribes that in principle, directors should attend board meetings in person or via teleconference; provided that non-public offering companies may, either through stipulation in its articles of incorporation or with consent of all directors, adopt or reject resolutions by having the directors exercise their voting rights in writing and without attending the meeting in person. Hence, if a director is unable to attend a board meeting in person due to COVID-19, the director may appoint another director to attend on his or her behalf or attend the meeting via teleconference; the convening of board meetings will not be affected by COVID-19.
Also, according to Taiwan’s Company Act, where a company has only one director, the functions of the board of directors may be performed by such sole director and the company is not subject to the Company Act on matters relating to convening board meetings and is not required to hold board meetings. The functions of the board should still be performed by the sole director and any proposal should be approved or rejected by the sole director in writing. COVID-19 will have no impact in this regard.
Performance of M&A Agreements
Most M&A agreements include MAE (material adverse effect) provisions to mitigate the risks of any material adverse effect arising from an event not attributable to either party after the execution of the M&A agreement and before its closing. Under such provisions, the buyer is entitled to suspend or terminate the agreement before the closing of the transaction in the event that the target or its assets encounter any MAE, which may also become the basis for the parties to renegotiate the deal or agree on a replacement deal.
Parties to M&A transactions should pay special attention to the potential legal risks that COVID-19 could bring to the transactions, and carefully examine the MAE provisions in the agreement that has been executed or under negotiation. Also, whether COVID-19’s impact on the macro or micro economic climates can be construed as “material adverse effects” is another issue to which the parties to M&A transactions need to pay close attention.
Human Resources Arrangement
For issues regarding epidemic prevention-related family care leave, workplace safety and health protection measures, and overseas assignments, please refer to Lee and Li Newsletter issued on February 26, 2020: Human Resource Arrangement in Response to Novel Coronavirus (2019-nCoV) http://www.leeandli.com.tw/EN/NewslettersDetail/6413.htm
Patent and Trademark Issues
The Intellectual Property Office under the Ministry of Economic Affairs has not yet made any announcement to provide for an extension on deadlines of patent or trademark applications in response to the outbreak of COVID-19. Hence, applicants should still complete its applications for registration, renewal or otherwise within the statutory timeframe. For detailed information, please refer to Lee and Li Newsletter issued on January 30, 2020: Update & Impact on IP Case Deadlines for China and Hong Kong Due to Coronavirus Problem .
Performance of Contracts of Public Construction Projects
COVID-19 may constitute a force majeure event under contracts of public construction projects or private participation in infrastructure projects, please refer to Lee and Li Newsletter issued on February 13, 2020: Potential Legal Issues relating to Construction Projects/BOT Contracts due to the Outbreak of Novel Coronavirus (COVID-19) http://www.leeandli.com.tw/EN/NewslettersDetail/6414.htm
Risks for Taiwanese Corporations with Operations in China
The quarantine rules, traffic control, delay in resuming business operation and other measures implemented to prevent the spread of COVID-19 may cause disputes regarding the performance of contracts by the parties. Please refer to the alert sheet issued by L&L-Leaven, Attorneys-at-Law on February 17, 2020: 企业面临新型冠状病毒可能遭遇的法律问题
Apart from these issues, to mitigate the impact resulting from the outbreak of COVID-19 , the Executive Yuan has proposed the Draft Bill of the Statutes Governing the Provision of Bailout and Revitalization Package in response to COVID-19 Outbreak (the "Draft"), which covers epidemic prevention rules, subsidies for epidemic prevention personnel, subsidies and rules regarding leave for the quarantined, provisions in relation to requisition and compensation of supplies, provisions related to relief and revitalization of corporations, involving labor laws, tax laws, financial laws and so on. Once announced, the Draft will take retrospective effect from January 15, 2020 and expire on June 30, 2021. Although the Draft is pending the consideration and approval by the Executive Yuan and the Legislative Yuan, corporations should pay close attention to the development of the Draft in order to adopt appropriate precautions and response measures timely.
If you wish to learn more about the issues above or have any questions or comments, please do not hesitate to contact us.
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