Regulations of Leveraged Buyouts in Taiwan — Protections on Target Shareholders and Creditors
Date Issued
2007
Date
2007
Author(s)
Kao, Jo-Shan
DOI
zh-TW
Abstract
Although the practice of the leveraged buyout (“LBO”) can promote general performance and reduce the cost of an enterprise, it is necessary to discuss methods of protecting parties interested in the legal system because it tends to sacrifice the rights and benefits of target shareholders and creditors in its implementation. The paper develops the two major axles of firstly how to ensure the rights and benefits of target shareholders and creditors in the management buyout (“MBO”) and secondly the LBO. It refers to legal experience in the USA and presents suggestions that might be referred to by our legislators and legal practitioners.
As far as the MBO is concerned, Rule 13e-3 and Schedule 13E-3 formulated under the authorization of the Securities Exchange Act of 1934 of the USA requires that buyers disclose related facts to the SEC and target shareholders and state whether the transaction is fair and able to address the insufficient information known to shareholders. In addition, directors of the target company should fully disclose their interested relations with the transaction and should be trustworthy. This has also been voted on by a majority of directors without interests. In practice, a special committee has been developed with the “entire fairness” to strengthen the protection of the shareholders.
As for the LBO, the application of the Fraudelent Transfer Act in the USA law indicates that most creditors of target companies hold that assets of target companies should not be used as guarantees for a loan in order to prevent the occurrence of fraudulent transfer, and they petition the courts to cancel such an act in order to properly ensure the rights and benefits of creditors. Courts of the USA have developed interpretations beyond articles on the basis of the confirmation of essentials. Secondly, in the event of falling into bankruptcy crisis resulting from the LBO, courts in the USA commonly accept that the entrusted creditors are entitled to inquire into the entrusting liabilities of directors. At the same time, courts admit that “business judgment rule” is applicable to prevent the occurrence where directors are blamed frequently for such a move.
Under the current law of our country, the buyout petition rights of shares and entrusting liabilities of directors should be standardized to ensure the rights and benefits of the target shareholders. On the basis of insufficient points, the paper proposes that the liabilities of disclosure by purchasers should be strengthened and stipulated in detail as are the liabilities entrusted to the directors. In view of safeguarding rights and benefits of the creditors of target companies and the fact that the current laws of our country are rarely effective, the paper proposes that the interpretation of fraudulent transfer refer to that used by courts of the USA and the entrusting liabilities of directors to all creditors be established.
Subjects
融資收購
經營階層收購
受託義務
完全公平標準
詐欺移轉
LBO
MBO
fiduciary duties
entire fairness
special committee
fraudulent transfer
Type
thesis
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