Newsletter
Draft Amendment to the Business Mergers and Acquisitions Act
On October 7, 2020, the Ministry of Economic Affairs announced the draft of the Amendment ("Amendment") to the Business Mergers and Acquisitions Act ("M&A Act"). The Amendment focused on improving the flexibility of mergers and acquisitions while also protecting the shareholders' rights. For the legal aspect of the Amendment, there are three key points as below:
1. Enhancing the mechanism of disclosure and appraisal right;
2. Expanding the scope of the asymmetric mergers and acquisitions; and
3. Corresponding with the amendment of the Company Act in 2018.
1. Enhancing the mechanism of disclosure and appraisal right
In response to the impact brought to the M&A Act by the Judicial Yuan Interpretation No. 770 in 2018, which emphasized the due process and the protection of rights in business mergers and acquisitions, the highlights of the Amendment are as below:
|
Disclosure
|
● Under the current laws, the contents of the directors' personal interests and the reasons of approval or dissent to the resolution of merger or acquisition should be explained at the board meeting and the shareholders meeting. The Amendment requires that such information be further stated on the shareholders' meeting notice so that the shareholders can know in advance of the meeting.
● A shareholder of a public company holding more than 10% of outstanding shares, who also serves as the director of another participating company, shall also disclose the aforementioned information.
|
|
Appraisal Right Protection
|
● Under the current laws, to exercise the appraisal right, the dissenting shareholders needs to abstain from voting. The Amendment allows the dissenting shareholders to choose to vote against the proposal (instead of abstain) for exercising the appraisal right.
|
2. Expanding the scope of the asymmetric mergers and acquisitions
Asymmetric merger, acquisition, share exchange, and division ("Asymmetric M&A"), where a company acquires a significantly smaller target, is only required to be approved by special resolution by the board, currently including when (i) the new shares issued by the merging company is not more than 20% of its voting shares or (ii) the consideration paid by the acquirer does not exceed 2% the book value of the target. To allow more flexibility and the efficiency of mergers and acquisitions, the Amendment allows more room for approval by special resolution by the board by amending the threshold in the case of (ii) above from 2% to 20% of the book value.
3. Corresponding with the amendment of the Company Act in 2018
The Amendment amends several articles of the M&A Act in response to the amendment of the Company Act in 2018. The key points are as below:
● The written voting trust agreement shall be registered 30 days prior to the annual shareholders' meeting or 15 days prior to a special shareholders' meeting.
● The Amendment clarifies that the voting trust agreement for the resolution of mergers and acquisitions is allowed among the shareholders of a public company.
In addition, to provide the tax concessions and support the mergers and acquisitions of the start-ups, the Amendment amends a number of accounting and tax rules. Aside from the amendment based on the previously amended Income Tax Act, some key points are provided below:
● Intangible assets may be amortized in certain years based on the actual cost. The scope of intangible assets is also expanded.
● The shareholders of a non-public target company that has been incorporated for less than five years can benefit from choosing to defer the taxation in full for five years on their dividends for shares acquired from mergers.