Newsletter
EXECUTIVE YUAN COMPLETES REVIEW OF FINANCIAL INSTITUTIONS MERGERS LAW
The Executive Yuan recently completed its review of the draft Financial Institutions Mergers Law. The draft law provides that when there exists material adverse change on the operating or financial condition of an insurance company, such that the insurance company is unable to perform its payment obligations or there exists any matter which may affect the rights and interests of its insured clients, the competent authority may order it to merge with another financial institution. To permit a non-corporate financial institution (e.g., the Central Trust of China) to merge with a troubled insurance company, the draft law expressly provides that the relevant provisions of the Company Law may not apply in this regard.
The draft law was made mainly to encourage mergers between companies in the same industries, mainly, banking, securities or futures, and insurance industries. Special approval on a case-by-case basis will be required for mergers between companies in different industries; provided that the companies may simultaneously engage in such different industries under the laws and regulations.
To encourage mergers by financial institutions, the draft law simplifies the merger procedures. Where a financial intuition such as a credit cooperative or the credit departments of farmers' and fishermen's association wishes to merge, the approval of the merger may be adopted by two-thirds majority votes present at a meeting attended by three-quarters of the member's representative. In addition, to simplify the merger procedures, the merger resolution may be notified in writing or by a 20-day prior public announcement.
Where a financial institution, as a company limited by shares, intends to merge an insurance company, such merger should be adopted by a majority of the votes present at the meeting attended by the shareholders representing more than one half of the total issued and outstanding shares. Those shareholders objecting to the merger may not request the financial institution to purchase back their shares. In addition, the notice of the dissolution or merger may be made by public announcement and not subject to the relevant provisions of the Company Law.
Further, in case where the Ministry of Finance believes there is a need for urgent action and where there exists no material adverse effect on the competition in the financial market, no approval from the Fair Trade Commission under the Fair Trade Law is required.