Newsletter
FAILURE TO REPURCHASE SHARES OF DISSENTING SHAREHOLDERS
If Companies A and B resolve to merge, with Company B as the dissolved company, then on the merger record date shares in Company B will be cancelled. But if Company B has dissenting shareholders who oppose the merger and exer-cise the appraisal right, may they be issued with shares in Company A in exchange for their shares in Company B? This has frequently been a subject of dispute in practice.
According to a 1980 judgment of the Supreme Court, if the purchase price of shares subject to the appraisal right is set by a court ruling, the transfer of ownership in such shares does not become effective at the time of the ruling, but at the time when the repurchase price is paid. Therefore, if on the merger record date the pur-chase price payable to dissenting shareholders of the dissolved company has not yet been paid, then at the time of the merger the company should still issue shares in the surviving or newly incorporated company to the dissenting share-holders in exchange for their shares in the dis-solved company.
However, in practice this has given rise to the question of whether, if the shares held by dis-senting shareholders have already been cancelled due to the merger, and their cancellation has been registered with the company registration author-ity, the company should reapply to change its registered details, or should pay the share pur-chase price to the dissenting shareholders.
To clarify this point of dispute, on 21 December 2006 the Ministry of Economic Affairs held a meeting at which it concluded that if a company were to reapply for a change in its registration by reason of merger, it would be necessary for the authority to first revoke its original approval of the merger case and reinstate the status quo ante. But at that point, as the company that was dis-solved due to the merger in fact no longer exists, in practice it is not possible to return to the status quo ante or to reregister the dissolved company. Therefore, with reference to a 1997 judgment of the Taipei District Court, the MOEA concluded that the most appropriate course of action is for the company to pay the purchase price of the dissolved company's shares to the dissenting shareholders.