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Derivative Suit and Discharge Suit

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Derivative Suit and Discharge Suit
Introduction

In order to strengthen corporate governance mechanism and protect investors from securities fraud schemes with regard to the matter of public-company administrators breaching of trust, or fraudulently appropriating company’s assets, or breaching of duty of care as well as duty of loyalty by the board member(s) or supervisor(s), the Securities and Futures Investors Protection Act (hereinafter referred to as the “Act”) was amended on May 20, 2009, added with Article 10-1 that the Securities and Futures Investors Protection Center (SFIPC, hereinafter referred to as the “Center”) may take actions by the following procedures in the event that the board of directors or supervisors cause material damage to the company, or violate the requirements of laws or the articles of incorporation of the company in conducting business :

  1. To request the company’s supervisors to file a lawsuit on behalf of the company against the wrongdoing board member(s) or vice versa. If the company’s supervisors or board of directors fail to do the foregoing within 30 days after the receipt of request from the Center, the Center may file the lawsuit for the company, provided that the Center is exempted from the regulations stated in Articles 214 and 227 of the CompanyAct. The request of the Center should be made in writing.
  2. The Center may file lawsuit and request the court to discharge the company’s wrongdoing supervisor(s) or board member(s), provided that the Center is exempted from the regulations stated in Articles 200 and 227 of the Company Act.

Per the articles mentioned above, instead of the fact that a public company’s board of directors or supervisors may actively file a lawsuit against the board member(s) or supervisor(s) whose behavior has caused or would cause material damage to the company or violate the laws or the articles of incorporation of the company. In the event that the company’s board of directors or supervisors fail to file the lawsuit at the request of the Center, the Center may file a lawsuit and request the court to discharge the company’s wrongdoing board member(s) or supervisor(s), provided that the Center is exempted from the requirement of the Company Act concerning the shareholding limits while conducting the said legal process.

Once any administrator(s) of a public company is found to breach of trust, or duty or care as well as duty of loyalty, or fraudulently appropriate company’s assets, or the company’s board of director(s) or supervisor(s) fail to conduct business in due diligence, the Center will take necessary actions to protect the interest of the shareholders, ensure the investor protection system, and healthy development of the securities and futures markets.

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Update Date:2015/12/26 12:07