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RELEASE OF DIRECTORS FROM NON-COMPETITION DUTY MUST RELATE TO SPECIFIC ACTIVITIES
In a 2007 civil judgment in a suit brought by the Securities and Futures Investors Protection Center, for confirmation that a resolution of a shareholders' meeting of Union Insurance Company Limited was void, the Taipei District Court held that the resolution, which released directors from their duty of non-competition, was void. Several noteworthy aspects of the judgment are outlined below:
．As the board is the decision-making body for execution of the business of a company limited by shares, directors naturally have intimate knowledge of the company's business secrets. If they were permitted to freely compete with the company, it would be difficult to ensure that a director would not use business secrets obtained from the company for his own or another's personal profit, thereby harming the company's interests. Accordingly, the Company Act expressly imposes a duty of non-competition on direc-tors.
．The original legislative intent in imposing a duty of non-competition on directors was to protect the interests of companies and their shareholders. Therefore, if after examining a situation in which a director intends to com-pete with the company, a shareholders' meet-ing believes that the company can tolerate such competition, the meeting can release the director from this duty in order to balance the interests of both sides. To enable a share-holders' meeting to substantively discuss and review the question of whether it should re-lease a director from the duty of non-competition, the Company Act requires the director to declare the material content of such activities and receive the meeting's con-sent. The Securities and Exchange Act also provides that a resolution to release a director of a public-issuing company from the duty of non-competition must be included in the agenda in the notice calling a shareholders' meeting, and the material content of the competing activity must be stated; the matter cannot be introduced as an emergency motion. The purpose of all these provisions is to ensure that information regarding competition by a director is fully disclosed, so as to enable shareholders to make an informed decision as to whether to release a specific director from the duty of non-competition.
．Thus, the director should provide whatever information is necessary to enable an informed decision. The information should address the degree of impact on the company's subsequent operations as a result of the proposed competitive activities. If a director has provided insufficient or false information to the shareholders' meeting and thereby obtained the meeting's authorization, such au-thorization is not lawful, and should be void. Moreover, a release should be granted indi-vidually in respect of specific activities; no general authorization should be granted.
．In the case before the court, it was clear from the minutes of the shareholders' meeting in question that the release had been discussed and granted even before the election of direc-tors took place. That is to say, the sharehold-ers meeting released the directors' duty even before they were elected. It is clear that this resolution was not made in respect of a spe-cific case and not on any informed basis. The resolution should therefore be void.
In practice, to ensure the validity of a release, the release should always be placed as a motion to be discussed after election of directors. In terms of specific procedure, the chairperson or the secre-tary of the meeting should clearly report the competing activities of each newly elected di-rector, including what position they may hold with what company, and only after the meeting has discussed the motion should the motion be put to a vote.