HIGH COURT'S DECISION OVERRULED: THE SUPREME COURT HELD THAT SPECIAL RESOLUTION IS NOT REQUIRED TO DISCHARGE ALL DIRECTORS

01/01/2010

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According to the Company Act, a resolution may be passed at a shareholders' meeting to hold an election to replace all the incumbent directors prior to the expiration of their tenure. Under such circumstances, the incumbent directors will be deemed discharged prior to the expiration of their tenure if the resolution does not indicate that the discharge is effective upon expiration of their tenure. According to the relevant rulings issued by the Ministry of Economic Affairs (MOEA), since such a resolution is to elect all directors but not aimed at discharging the directors, it is unnecessary to pass a special resolution at a shareholders' meeting. Consequently, the quorum of the shareholders' meeting for electing all directors prior to the expiration of the incumbent directors' tenure is the same as that for an election of the directors in a normal situation, where the presence of shareholders who represent half or more of the total number of the company's outstanding shares is necessary, and the new directors should be elected in accordance with the rules governing the directors' election.
Nevertheless, a judgment rendered by the High Court in 2009 diverged from the above rulings of the MOEA. The court opines that the passing of a special resolution at a shareholders' meeting is required for the election of directors before the expiration of the incumbent directors' tenure. This High Court judgment sparked discussions and disputes until the Supreme Court rendered a civil judgment in 2009. This Supreme Court judgment revoked the High Court judgment and confirmed that the passing of a special resolution at the shareholders' meeting is not required for the election of directors before the expiration of the incumbent directors' terms of office. The holdings of the Supreme Court are as followed:
l	The legislative intent of the regulations governing the election of directors before the expiration of the incumbent directors' tenure is to clarify problems arising out of the incumbent and newly elected directors' tenure, but not to prescribe the procedure of electing or discharging directors. Also, the regulation does not suggest that the election of directors before the expiration of the incumbent directors' tenure requires a more rigorous procedure through the passing of a special resolution at a shareholders' meeting, nor does it require a resolution to discharge the directors passed at a shareholders' meeting prior to the election of the directors.
l	The Company Act provides the expiration date for the incumbent directors when an election of directors is held before the completion of the incumbent directors' tenure. In spite of the provision, the legislation does not require any adherence to the procedure for discharging directors, namely, through the passing of a special resolution in an election of new directors held prior to the end of the incumbent director's tenure.
l	The relationship between the directors or supervisors and their company is that between an appointee and the appointer. Upon expiration of the directors' or supervisors' tenure, this relationship ceases to exist. Under the Company Act, directors can be discharged either by law or a resolution. The directors are deemed discharged prior to the expiration of the tenure through either way, and a resolution to discharge all the directors is not a requisite prior to the election of all directors. Given the nature of the discharge in question, it is a "discharge by law" but not "discharge by a resolution" as defined by the relevant law.
l	The election and the discharge of directors and supervisors carry distinct implications. While discharging all the directors and supervisors by way of a special resolution at a shareholders' meeting prior to the election of directors and supervisors is not required by law, the general procedure for electing all the directors and supervisors should be observed, and the resolution to discharge the incumbent directors should be adopted by a majority of the shareholders who represent half or more of the total number of the company's outstanding shares. In the event that the shareholders unreasonably hold an election prior to the expiration of the incumbent directors' or supervisors' terms of office, the directors or supervisors who are deemed discharged may claim compensation according to the regulations under the Civil Code.