Newsletter
COMPANY DIRECTORS PERSONALLY LIABLE FOR FAILURE TO PERFORM DUTIES
On 11 March 2008, the Taipei District Court rendered a judgment in an action brought by the Securities and Futures Investors Protection Center against Summit Computer Technology Co., Ltd., et al. Summit and all its directors and supervisors were found jointly and severally liable for damages. Parts of the grounds for the judgment are highly noteworthy and outlined below.
The court noted that the references in the Company Act to a company responsible person's "conducting business" are generally given a broad interpretation, being taken to mean all actions of the responsible person of a company in the course of business. Furthermore, loss or damage arising out of the conduct of business is not limited to that resulting from active endeavors in the conduct of business, but may also include harm to third parties that results from the failure of a company officer to perform a statutory duty in a timely manner. The directors and supervisors are elected by the shareholders, and they respectively bear the heavy responsibility of conducting and supervising the company's business. During their individual terms of office, each is under a mandate from the company, and according to law should conduct the company's business faithfully and observe the duty of care of a good administrator. But if a director or supervisor fails to appreciate the importance of his duties, and during his term of office takes no part whatever in important company affairs, then the positions of director and supervisor exist in name only, and it will not be possible to achieve the legislative intent of the Company Act, in separating the organ of conduct of business operations from that of supervision, of preventing the management of a company from usurping authority and exceeding their powers.
If a director or supervisor ignores statutory requirements and does not perform his statutory duties to compile, examine, or file financial statements, this would allow others to produce false and misleading financial statements, and to defraud the public. Therefore, if a director or supervisor intentionally fails to perform his statutory duties, with the result that investors, having been misled by incorrect financial statements, make incorrect investment decisions and suffer losses, under the provisions of the Company Act such directors and supervisors should be liable jointly and severally with the company to compensate the investors.