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POWER TO PENALIZE OB-STRUCTION OF INSPECTIONS LIES WITH COURTS
The Company Act provides that a shareholder who has continuously held at least 3% of a company's total issued shares for at least a year may petition the court to appoint an inspector to inspect the company's business accounts and the status of its property. If the court considers it necessary, based on the inspector's report, it may order the company's supervisors to convene a shareholders' meeting. Obstruction, refusal, or evasion of such inspection, or failure by the su-pervisors to comply with a court order to con-vene a shareholders' meeting, is punishable by a fine of NT$20,000 to NT$100,000.
The above provisions are intended to give mi-nority shareholders the right to scrutinize the company's business accounts and the status of its property. But to prevent shareholders from abusing this power, it is subject to certain condi-tions: a petition must be made to the court by a shareholder meeting the shareholding threshold, and in the interests of objectivity and neutrality, the inspection is carried out by a court-appointed inspector, not by the shareholder. As the in-spector is appointed by the court, the exercise of his inspection powers should be under the con-trol of the court. Therefore the inspector is ap-pointed or removed by order of the court that heard the shareholder's petition, and after com-pleting the inspection the inspector should pre-sent his report to the court.
However, when the Company Act was last amended, in line with the removal of criminal penalties under various provisions, the Chinese term for "fine" in Article 245 of the Act was changed from one indicating a criminal penalty to one indicating an administrative penalty. This has led in practice to numerous instances of shareholders calling upon administrative agen-cies to impose penalties when a company fails to cooperate with an inspection, or its supervisors fail to call a shareholders' meeting.
In response to this confusion, on 16 November 2004 the Ministry of Economic Affairs issued an interpretation stating that based on the fact that procedures such as the appointment and removal of inspectors and the execution of inspections are all conducted under the control of the court, without the involvement of administrative agen-cies, if a company obstructs the work of an in-spector, despite the change in the wording of the Company Act, it is still up to the court to deter-mine, on the basis of the inspector's report, whether to impose a fine on the company under the Company Act. If a company does not accept the court's ruling, it may appeal to a higher court in accordance with procedural law.
In another interpretation dated 26 October 2004, the MOEA, citing the provisions of the Civil Code regarding the liquidation of juristic persons, stated that in the case of the liquidation of a lim-ited company, the power of supervision also lies with the court, and accordingly if the liquidator fails to report to the court within 15 days after assuming office in accordance with the Com-pany Act, it is up to the court to determine whether to impose any penalty.