Contests for corporate control: Examining the preliminary injunction from the Taisun case

Recently, the contest over control of the long-established food company Taisun Enterprise Co., Ltd. (“Taisun”) has frequently dominated the news headline in Taiwan, involving many litigation and non-litigation legal issues. This article focuses on the preliminary injunctions ruled by the Intellectual Property and Commercial Court (“Commercial Court”) and observe the Commercial Court’s recent developments through the lens of preliminary injunctions in the Taisun case.

According to statistics from the Commercial Court, there were 27 rulings with respect to preliminary injunctions ruled by the commercial tribunal from 2022 to the second quarter of 2023. Among them, the Taisun case is known to have contributed at least 6 rulings. Preliminary injunctions have become a major battlefield in the fight for corporate control. The scope of injunctions varies, ranging from prohibiting the implementation of board resolutions to prohibiting the exercise of voting rights at specific shareholders’ meetings. Despite the ever-changing circumstances, the context of preliminary injunctions remains consistent.

When the Commercial Court reviews an application for preliminary injunction, it will examine the "disputed legal relationship" and the "necessity of preservation." Regarding the necessity of preservation, in accordance with Article 36 of the Commercial Case Adjudication Rules, the court must consider the "likelihood of success in the future," "whether the petitioner or the opposing party will suffer irreparable harm," "the likelihood and degree of current and continued damages to both parties," and "the impact on the public interest."

Based on the rulings by the Commercial Court in the Taisun case, it could be seen that:

  1. Regarding the likelihood of success, Article 64 of the Commercial Case Adjudication Act, unlike the Code of Civil Procedure, does not allow the petition to supplement insufficient clarification with security deposits. Hence, the Commercial Court can only determine whether the petition's claims and evidence have reached the degree of "sufficient clarification." The petition cannot supplement insufficient clarification with security deposits. Therefore, it is crucial for the petition to present sufficient evidence for clarification within the short trial period. Additionally, in recent ruling where the Commercial Court granted preliminary injunctions, the petitions were still required to provide security.  Whether the court in the future would consider the security not necessary based on different case types remains to be seen.
  2. Besides considering the damages to both parties, the court must also weigh the impact on the public interest. In addition to the common factors such as the overall interests of the company and the rights of all shareholders, the factors considered by the courts are becoming more diverse. For example, in Commercial Court Civil Ruling No. 110-Shang-Zhan-Zi-8 where the parties were fighting for the corporate control in Solar Applied Materials Technology Corp., the court held that considering the company had significant influence in the supply chain of the semiconductor industry, not granting the injunction would cause irreparable harm to the development of Taiwan semiconductor industry. Ultimately, the preliminary injunction was granted.
  3. If the dispute would only cause monetary damages, the court may decide whether to grant the preliminary injunction based on the amount of possible losses for both parties. However, if the case fact involves the exercise of shareholders’ rights at a specific timing, such as the proposal rights or voting rights at the annual shareholders’ meeting, the Commercial Court often considers that such rights may be difficult to recover once deprived and thus rules for the shareholders (see Commercial Court Civil Ruling No. 112-Shang-Zhan-Zi-4).
  4. Even though the resolution meant to be prohibited by the preliminary injunction has already begun implementing (for example in Commercial Court Civil Ruling No. 112-Shang-Zhan-Zi-12, Taisun has already begun implementing the board resolution), the Commercial Court did not immediately recognize that the preliminary injunction was moot. Instead, it held that such factor has made the case urgent and the preliminary injunction should be granted, allowing the dispute to be temporarily resolved.

The contests for corporate control causing internal conflicts within the company is not something anyone would like to see. However, the business landscape is constantly changing. It is not uncommon to hear about situations where the company's operational direction could not be aligned. If these issues are not promptly and properly addressed, it may bring adverse impacts to the company. The Commercial Case Adjudication Act has been in effect for two years. In terms of handling preliminary injunctions, the adjudication process is much faster and the court’s opinion could readily be seen. This trend may have certain influence on cases where contests for corporate control are involved. The development for preliminary injunctions in the Commercial Court is worth continuous attention.

(The article is originally in Chinese which can be found here.)

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Contests for corporate control: Examining the preliminary injunction from the Taisun case