According to Article 10-1, Paragraph 1, Subparagraph 2, and Paragraph 7 of the Securities and Futures Investor Protection Act (hereinafter referred to as the "Investor Protection Act"), the Securities and Futures Investor Protection Center (hereinafter referred to as the "SFIPC") has the authority to file a lawsuit with the court to remove the directors and/or supervisors of a public company. This action can be initiated upon discovery that such directors and/or supervisors have caused significant harm to the company or have committed serious violations of laws and regulations. Furthermore, the defendant directors and supervisors, once removed by a court judgment, are prohibited from acting as a directors or supervisors in any public company within three years from the removal court ruling is finalized.
The legislative intention of such provision is to safeguard the rights and interests of investors and promote the healthy development of the securities market. As a result, the court judgment on removal action initiated by the SFIPC is accompanied with a disqualification effect.
One of the legal issue in connection with SFIPC’s removal lawsuit is whether such lawsuit is moot if the defendant is no longer a director or supervisor of the company. In the 112 Tai- Shang-Zi-No. 1110 Civil Judgement (Judgment Date: May 25, 2023), the Supreme Court held that the interpretation of the term "removal" should be based on the literal reading of the relevant clause, so it affirms the lower court’s position that only the individual who still serve as the public company’s director or supervisor can be the defendant in the removal action initiated by SFIPC.
However, in the 112 Tai- Shang-Zi-No. 842 Civil Judgement (Judgment Date: May 17, 2023), the Supreme Court reached a conclusion entirely contrary to the aforementioned position. In this case, the Supreme Court held that there is a loophole in the Article 10-1, Paragraph 1, Subparagraph 2, and Paragraph 7 of the Investor Protection Act and the scope of the removal lawsuit should be expanded to include the individual who is no longer the director or supervisor of a public company
Regarding the above-mentioned issues, the Supreme Court has reached contradicting conclusions based on different interpretation approach of the legal provision, which may need to be solved en banc. The alternative is to amend the Investor Protection Act, but according to the amendment draft announced by the Financial Supervisory Commission on May 10,2023, the current draft does not address this issue.
Furthermore, observing the lower court’s judgment thereafter, in the 112 Shang-Su-Zi-No. 5 Civil Judgement, the Intellectual Property and Commercial Court (Judgment Date: June 28, 2023) still sticks to the position to adopt the literal approach, holding that a removal lawsuit is moot if the defendant does not hold office by the time the lawsuit is filed. The court's reasoning further elucidated that the scope of removal lawsuits does not encompass directors and supervisors who have stepped down before the lawsuit starts. This stance, according to the court, aligns with the legislator’s intent and thus does not constitute a legal loophole.
Therefore, until a unified interpretation is established by the Supreme Court or an amendment to the Investor Protection Act is enacted otherwise, the question of whether the scope of removal lawsuits under the Investor Protection Act includes directors and supervisors who have already resigned at the time of filing remains to been seen.
(The article is originally in Chinese which can be found here.)