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Derivative Suit and Discharge Suit


To strengthen corporate governance mechanisms and protect the rights and interests of shareholders in cases involving matters such as breaches of trust and misappropriation of company assets by company management or breach of fiduciary duty by company directors or supervisors, the Securities Investor and Futures Trader Protection Act (hereinafter, the "Act") was amended on May 20, 2009 to add Article 10-1. That article empowers the Securities and Futures Investors Protection Center (SFIPC; hereinafter, the "Center")—upon discovering any conduct on the part of a director or supervisor of a TWSE or TPEx listed company in the course of performing his or her duties that is materially injurious to the company or materially violates laws, regulations, or the articles of incorporation—to bring a lawsuit on behalf of the company against the wrongdoing director or supervisor (a "derivative suit"). The Center also may ask the court to render a judgment or ruling to dismiss the director or supervisor (a "discharge suit"). Article 10-1 also exempts the Center, in exercising this power, from certain procedural and shareholding requirements of the Company Act, to ensure that the derivative suit and discharge suit mechanisms can operate realistically and feasibly and achieve the timely dismissal of unsuitable directors and supervisors, to protect the rights and interests of securities investors and futures traders and promote the sound development of the securities and futures markets.

More than a decade has passed since Article 10-1 of the Act took force on August 1, 2009. To enhance the derivative suit and discharge suit legal regime and reinforce good-faith company management and corporate governance, the Financial Supervisory Commission (FSC) studied and drafted a proposed amendment to Article 10-1. The amendment was passed by the Legislative Yuan on the third reading on May 22, 2020, promulgated by presidential announcement on June 10, and took force from August 1 of the same year. Key points of the amendment are as follows:

1. The amendment adds directors and supervisors of Emerging Stock companies to the scope of those against whom derivative suits and discharge suits may be brought by the Center.


2. Stock price manipulation, insider trading, fraud and other acts that disrupt the orderly conduct of market transactions are expressly listed as causes for which the Center can bring derivative suits and discharge suits.


3. The amendment empowers the Center to bring derivative suits against former directors or supervisors of a company. It also provides that any person who should bear liability for compensation with respect to the same basic facts and who has or had the authority to manage affairs of the company or to sign on behalf of the company may be joined or added to such a lawsuit. Furthermore, the Center, when assisting with the handling of a derivative suit, may intervene in the litigation while it is pending, with the legal effect of independent intervention.


4. The causes for which a discharge lawsuit may be brought to seek a judgment or ruling for dismissal of a director or supervisor are not limited to causes occurring during the term of office coinciding with the time the lawsuit is instituted. When a director or supervisor is dismissed by a final and unappealable court judgment or ruling in such a lawsuit, he or she is prohibited for a 3-year period from serving as a director or supervisor of an TWSE or TPEx listed or Emerging Stock company or as a designated natural person representing such a director or supervisor in the exercise of duties under Article 27, paragraph 1 of the Company Act; if already serving in such a capacity, he or she shall ipso facto be dismissed.

Update Date:2022/11/07 17:07