The liquidation and bankruptcy of a company in Taiwan
The liquidation of a company in Taiwan
(1) Commencement of Liquidation Proceedings
Liquidation proceedings are the proceedings that must be carried out in order to extinguish the existence of a juristic person. Apart from merger, spin-off, or bankruptcy, a company must be dissolved and enter into liquidation if any one of the situations prescribed under Article 315, paragraph 1 of the Company Act occurs. The situations prescribed under this Article include:
(a) the occurrence of an event of dissolution as specified under the Articles of Incorporation;
(b) where the objective of the business undertaken by the company has already been achieved or cannot be achieved;
(c) the adoption of a resolution to dissolve by the shareholders;
(e) except where the company is established by a government agency or a juristic person, the number of shareholders of the registered shares is less than two (in Taiwan, characteristically, a company must be dissolved if the sole shareholder is a natural person, while a company may exist if the sole shareholder is a juristic person); and
(f) an order to dissolve is issued by a competent authority or a judgment to dissolve is rendered by a court.
(a) the occurrence of an event of dissolution as specified under the Articles of Incorporation;
(b) where the objective of the business undertaken by the company has already been achieved or cannot be achieved;
(c) the adoption of a resolution to dissolve by the shareholders;
(e) except where the company is established by a government agency or a juristic person, the number of shareholders of the registered shares is less than two (in Taiwan, characteristically, a company must be dissolved if the sole shareholder is a natural person, while a company may exist if the sole shareholder is a juristic person); and
(f) an order to dissolve is issued by a competent authority or a judgment to dissolve is rendered by a court.
(2) Liquidation Procedure
According to Article 322 of the Company Act, except as otherwise provided in the Company Act or in the Articles of Incorporation, or except where the shareholders have already appointed a liquidator, the liquidation of a company limited by shares must in principle be conducted by the directors, i.e., the liquidators. Moreover, according to Articles 326 to 334 of the Company Act, during the period of liquidation, the liquidator must inspect and liquidate the assets of the company and draft financial statements and an inventory of property, submit them to the supervisors for examination, obtain the approval of the shareholders’ meeting, and file them with the court. The liquidator must, by means of public notice, urge the creditors of the company to declare their rights of claims and distribute the remaining assets to each shareholder according to the proportion of its contribution after having finalized the accounts of the company, collected claims, and repaid the debts (including tax obligations).
According to Article 322 of the Company Act, except as otherwise provided in the Company Act or in the Articles of Incorporation, or except where the shareholders have already appointed a liquidator, the liquidation of a company limited by shares must in principle be conducted by the directors, i.e., the liquidators. Moreover, according to Articles 326 to 334 of the Company Act, during the period of liquidation, the liquidator must inspect and liquidate the assets of the company and draft financial statements and an inventory of property, submit them to the supervisors for examination, obtain the approval of the shareholders’ meeting, and file them with the court. The liquidator must, by means of public notice, urge the creditors of the company to declare their rights of claims and distribute the remaining assets to each shareholder according to the proportion of its contribution after having finalized the accounts of the company, collected claims, and repaid the debts (including tax obligations).
Upon the completion of the aforementioned liquidation matters, the liquidator must draft an income and expenditure statement and a statement of profit and loss for the period of liquidation within 15 days, submit it together with all statements and records of accounts to the supervisors for its review, and submit them to the shareholders’ meeting for confirmation. The shareholders’ meeting may appoint another inspector to examine whether the aforesaid statements and records of accounts are in order. The income and expenditure statement and the statement of profit and loss approved by the shareholders’ meeting shall be filed with the court within 15 days after the approval thereof at the shareholders’ meeting.
(3) Period of Liquidation Proceedings
According to Article 93, paragraph 1 of the Company Act, the liquidator must, within 15 days after the shareholders’ approval of the financial statements made during the liquidation period, report to the court in respect of the completion of the liquidation. Furthermore, according to Article 87 of the Company Act, the liquidator must complete the liquidation proceedings within six months. If an extension is required, the liquidator must petition the court for an extension thereof and specify the reasons for such extension.
A brief outline of bankruptcy proceedings in Taiwan
(1) Commencement of Bankruptcy Proceedings
According to Article 1 of the Insolvency Act, where a debtor cannot repay its debts, the debtor must settle its debts pursuant to the procedure prescribed under the Insolvency Act. The following persons have the right or obligation to petition the court for a declaration of bankruptcy:
According to Article 1 of the Insolvency Act, where a debtor cannot repay its debts, the debtor must settle its debts pursuant to the procedure prescribed under the Insolvency Act. The following persons have the right or obligation to petition the court for a declaration of bankruptcy:
(a) The creditor or the debtor may petition for the declaration of bankruptcy;
(b) Where the assets of a company are clearly insufficient to set off the debts, except in the case where reorganization proceedings are taken, the board of directors must file for bankruptcy (Article 211, paragraph 2 of the Company Act);
(c) Where it is found that the assets of the company are insufficient to set off the debts, the liquidator must petition the court for a declaration of bankruptcy (Article 89 of the Company Act);
(d) Where the court dismisses a petition for reorganization on the grounds that reorganization is not possible based on the company’s operations and financial status (Article 285-1 of the Company Act) and where the bankruptcy requirements are satisfied, the court may at its discretion declare the company bankrupt; and
(b) Where the assets of a company are clearly insufficient to set off the debts, except in the case where reorganization proceedings are taken, the board of directors must file for bankruptcy (Article 211, paragraph 2 of the Company Act);
(c) Where it is found that the assets of the company are insufficient to set off the debts, the liquidator must petition the court for a declaration of bankruptcy (Article 89 of the Company Act);
(d) Where the court dismisses a petition for reorganization on the grounds that reorganization is not possible based on the company’s operations and financial status (Article 285-1 of the Company Act) and where the bankruptcy requirements are satisfied, the court may at its discretion declare the company bankrupt; and
(e) If, in the case where, after the commencement of special liquidation proceedings, there is no prospect of reaching an agreement or no prospect of an agreement of settlement being duly carried out (Article 355 of the Company Act), the court must ex officio make an adjudication of bankruptcy in accordance with the Bankruptcy Law.
(2) Bankruptcy Procedure
Bankruptcy proceedings are a mechanism established so that in the event a debtor cannot repay its debt obligations, the majority creditors may receive compensation from the bankrupt’s current assets. Thus, the main objective of bankruptcy proceedings is to group the bankrupt’s assets as a bankruptcy estate, which will be auctioned or sold by the trustee elected by the court. Upon the deduction of the necessary costs, such as management fees of the estate, the assets are equally distributed among the majority creditors. Moreover, if the bankrupt does not have any assets, or if the assets are insufficient to pay the management fees of the trustee, or if there is only one creditor, the court will dismiss the bankruptcy petition pursuant to Article 63 of the Insolvency Act.
Bankruptcy proceedings are a mechanism established so that in the event a debtor cannot repay its debt obligations, the majority creditors may receive compensation from the bankrupt’s current assets. Thus, the main objective of bankruptcy proceedings is to group the bankrupt’s assets as a bankruptcy estate, which will be auctioned or sold by the trustee elected by the court. Upon the deduction of the necessary costs, such as management fees of the estate, the assets are equally distributed among the majority creditors. Moreover, if the bankrupt does not have any assets, or if the assets are insufficient to pay the management fees of the trustee, or if there is only one creditor, the court will dismiss the bankruptcy petition pursuant to Article 63 of the Insolvency Act.
(3) Completion of bankruptcy proceedings
After having organized the assets of the estate according to the aforementioned procedure and distributed the assets to the creditors in proportion to the amounts owed thereto, the bankruptcy trustee must submit a report to the court. The court will then declare the debtor bankrupt and complete the bankruptcy proceedings.
