The Study on Management Buyout and Comparison of the Judicial Review in America and Japan

Management buyout ( MBO ) means management set a special company to acquire the company that managers work for, especially whose objective is taking the objective is taking the company private ( going-private transaction )to avoid the costs of remaining a publicly traded entity, while the transaction in which the controlling shareholder is the acquirer represents an opportunity for abuse. Because controlling shareholders often have significant influence over the board of directors as well as over management, not to mention that they are even the members of the board of directors or the managers themselves, having access to substantial nonpublic information. Regarding to the possibility to detriment of minority shareholders in the management buyout, this thesis aims to go through the present regulation of tender offer of Taiwan’s Securities and Exchanges Act, the fiduciary duty of Taiwan’s the Business Mergers And Acquisitions Act and Company Act, and the relevant administrative regulations to describe the defect of the recent legal system and try to construct the pattern of judicial review in the management buyout. Examine the standard of the fiduciary duty used in the U.S. and Japanese court practice, there is a difficult dilemma between the Business Judgement Rule ( BJR ) and the unfair enough resulting in detriment of minority shareholders. Delaware courts have traditionally subjected going-private mergers to entire fairness review, with the burden on controlling shareholder defendants to demonstrate that such freeze-out transactions are entirely fair to minority shareholders, while endorsing BJR review for going private mergers with dual procedural protections. Compare to the U.S., Japanese courts try to use a traditional pattern to use the Japanese’s Business Judgement Rule to construct the whole new model to review the board of the directors’ loyalty and the duty of care. Even more, the Japanese courts broaden the scope of the duty to all the shareholders to protect minority shareholders from the abuse of the fair procedure covering the determination of a fair but unreasonable price by directors. Based upon the reflections of legal practices in the U.S. and Japan, this thesis tries to provide a new pattern, which is divided into two parts, to examine the duty of the directors. Learning from the pattern used in Japanese courts, this model separates the duties of directors into two categories, one is owed to the company under paragraph 1 of article 23 of Taiwan’s Company law and paragraph 1 of article 5 of Taiwan’s the Business Mergers And Acquisitions Act and another is owed to the shareholders. And suggest endorsing Japanese’s BJR review for going private mergers with dual procedural protections, based on the U.S. IX pattern. Besides, directors might obtain the nonpublic information about the pricing through their daily work. Sometimes they may ignore the high possibility to get higher price, only giving the reasonable but lower price within the fair range instead higher price in the fair range. To prevent directors from making profits over the shareholders’ rights, Taiwan’s court could review the directors’ duty owed to shareholders according to paragraph 2 of article 23 of Taiwan’s Company law, by the point of view of tort in the civil law system, for the negligent omission tort liability of the directors to protect minority shareholders.