SPECIAL RESOLUTION REQUIRED FOR AN ELECTION OF ALL DIRECTORS PRIOR TO THE EXPIRATION OF THEIR TENURE OF OFFICE

11/01/2009

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According to the Company Act, a resolution may be passed at a shareholders' meeting to hold an election to replace all the incumbent directors prior to the expiration of their tenure of office. In such circumstances, the incumbent directors will be deemed discharged prior to the expiration of their tenure of office if the resolution does not indicate that the discharge will not be effective until the original tenure of office expires. According to the relevant rulings issued by the Ministry of Economic Affairs, since such a resolution is for an election of all directors, not aimed at discharging any directors, a special resolution adopted at a shareholders' meeting is not necessary. Consequently, the quorum of the shareholders' meeting for electing all directors prior to the expiration of the incumbent directors' tenure of office is the same as that for an election of the directors in a normal situation, and the new directors should be elected in accordance with the rules of directors' election.

Nevertheless, a judgment rendered by the High Court in 2009 diverged from the above-mentioned rulings of the MOEA. The court opines that the provision regarding the discharge of directors in the Company Act does not exclude the discharge of all the directors before the expiration of their tenure of office from the requirement of a special resolution. Moreover, compared with the discharge of an individual director, the discharge of all the directors causes a greater impact on the operations of the company, so to adopt a more complicated procedure such as a special-resolution proceeding to discharge all the directors is reasonable. Furthermore, in the Company Act, since the provision specifying that the discharge of any directors before the expiration of their tenure of office shall undergo a special resolution precedes the provision stipulating the election of all new directors before the expiration of the incumbent directors' tenure of office, clearly, the legislative intent underscores the necessity of a more complicated resolution procedure like a special resolution for the election of new directors before the end of the incumbent directors' tenure of office. Therefore, the court held that the passing of a special resolution at the shareholders' meeting is required for the election of directors before the expiration of the incumbent directors' tenure of office.