萬國法律事務所

China Trust recently announced that it will acquire 30% of the shares of Nan Shan Life Insurance Co. According to the Financial Holding Company Act, China Trust will therefore be required to treat Nan Shan Life Insurance Co. as a “subsidiary” of China Trust after said acquisition. However, the shares owned by China Trust do not actually result in China Trust becoming a controlling shareholder of Nan Shan Life Insurance Co. because more than 50% of the shares are in fact held by the China Strategic Group. Critics say that this case reveals the unreasonableness of the current definition of “subsidiary” in the Financial Holding Company Act.

The current Financial Holding Company Act defines a “controlling shareholder” as a party holding 25% of either the shares with voting rights or the total capital, or otherwise having the direct or indirect ability to designate the majority of the directors of a bank, insurance company or securities house.

Once it is found that a party is a controlling shareholder, such bank, insurance company or securities house will become a subsidiary of the financial holding company and this financial holding company will then bear the financial responsibility for said bank, insurance company or securities house.

For example, Article 56 of the Financial Holding Company Act states that financial holding company must assist its subsidiary to return to normal operations if the subsidiary’s capital adequacy ratio fails to meet the minimum amount as prescribed by the Government authority or if the subsidiary’s financial status drastically deteriorates, so that the subsidiary is unable to pay its due debt or such status is likely damage the interests of depositors.

Nevertheless, holding more than 25% of either shares with voting rights or total capitals does not always guarantee control of management in a company. As such, the current Financial Holding Company Act may impose excessive responsibility on a financial holding company particularly when such financial holding company did not obtain a majority of the shares. To resolve this problem, the Financial Supervisory Committee under the Executive Yuan plans to propose amendments to adjust the criteria for determining and defining a controlling shareholder as a party who holds from 25% to 50% of the relevant shares.