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Executive Yuan’s Draft Amendments to the Securities and Exchange Act to Strengthen the Function of Audit Committee



 Executive Yuan’s Draft Amendments to the Securities and Exchange Act to Strengthen the Function of Audit Committee

In order to fulfill the supervisory function of the audit committee, to protect the rights and interests of minority shareholders, and to stabilize the operation of companies, the Executive Yuan proposed the draft amendments to certain provisions of the Securities and Exchange Act of Taiwan on April 20, 2023 ("Draft Amendments") and will submit them to the Legislative Yuan for further review.  The key points of the Draft Amendments are as follows: 

1.      Certain matters should be resolved at a meeting of the audit committee 

According to Paragraph 4, Article 14-4 of the current Securities and Exchange Act ("Current SEA"), some stipulations in the Company Act shall apply mutatis mutandis to the independent directors as members of the audit committee, including Articles 213 to 215 which grant the supervisor the right to initiate a lawsuit against the directors; Article 220 which entitles the supervisor to convene a shareholders’ meeting; and Article 223 which entitles the supervisor to act as the representative of the company in purchase and sales transactions, loans or other legal acts with/against the directors.  Given the above, each independent director may exercise the above-mentioned rights/power independently.

Under the Draft Amendments, the independent directors can no longer exercise such rights/power independently (Paragraph 4, Article 14-4 of the Draft Amendments).  Once the Draft Amendments clears the legislative floor, the aforesaid essential matters of a company shall be resolved by the meeting of audit committee after thorough discussions, aiming to improve corporate governance and offer better protection for shareholders’ rights and interests. 

2.   If the meeting of audit committee cannot be convened due to justifiable reasons, matters to be resolved by the audit committee shall be approved by at least two-thirds of the board members at a board meeting

Paragraph 1, Article 14-5 of the Current SEA sets forth the scope of the audit committee’s duties.  To ensure a company’s normal operation, the Draft Amendments stipulate that if the meeting of audit committee cannot be convened due to justifiable reasons and therefore the audit committee cannot perform its duties, matters to be resolved by the audit committee shall instead be approved by at least two-thirds of the board members at a board meeting except that the annual and semi-annual financial reports shall still be approved by the independent directors before being submitted to the board meeting for approval by at least two-thirds of the board members (Paragraph 3, Article 14-5 of the Draft Amendments).  

Violation of the above rules will lead to an administrative fine ranging from NT$240,000 to NT$4.8 million and an order to correct the violation within a designated time period; the fine can be imposed consecutively if the violation is not corrected within said period (Subparagraph 2, Paragraph 1, Article 178 of the Draft Amendments).

The Draft Amendments aims to change the manner and procedure for the audit committee’s exercise of some rights/powers and will have a great impact on public companies once approved by the Legislative Yuan.  Lee and Li's “Corporate and Investment” practice group offers planning and consultation services on corporate governance, legal matters regarding business operations, and legal compliance.  If you have any questions on the Draft Amendments, please do not hesitate to contact us at any time.

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