Information Openness Issues for Overseas Firms after Listing in Taiwan

So that investors have sufficient information to make decisions when buying or selling stocks, Taiwan’s Securities and Exchange Act requires domestic companies to make regular disclosures of financial and business information, and if unexpected material events occur, they are also required to report them in a timely manner. These requirements stem from the same principle of securities management; namely, the principle of information openness, or the right to information.

When overseas firms come list shares in Taiwan, they have the same need to give open information to investors. However, hindered by the law’s restrictive language, the Securities and Exchange Act’s information openness principle cannot be applied  across the board applied to such overseas corporations. Under the current supervisory framework, overseas corporations file their financial reports with the Financial Supervisory Commission (FSC), whereas disclosure obligations for other information are imposed by the Taiwan Stock Exchange (TWSE) through binding market listing agreements. As for corporations whose listing entity and actual operating units are not located in Taiwan, an issue that could arise at any time is how to get them to follow Taiwan rules and regulations and meet the competent authority’s requirements.

To be more specific, in terms of financial report preparation and filing obligations, companies with primary listings have a choice of using Taiwan, U.S. or international accounting standards for their financial reports, but if they are not prepared with in accordance with Taiwan GAAP, the when accountants audit or review them they must provide clear explanations of the discrepancies between the standards adopted and Taiwan GAAP and index them in the notes. In terms of filing deadlines, an overseas company with a primary listing in Taiwan must make public and file an annual financial report within four months of the close of each fiscal year, as well as an audit report issued by two Taiwan CPAs; a semi-annual financial report must be made public and filed within 75 days from the close of the first half of the accounting year, along with an audit report issued by two Taiwan CPAs; first and third quarter financial reports must be issued and filed within 45 days of close of the respective quarters, without needing to be audited or reviewed by accountants.

The TWSE, in accordance with “Taiwan Stock Exchange Corporation Rules Governing Information Reporting by Listed Companies”, requires foreign companies with primary listings to make public of a good deal of information outside of regular financial reports, including endorsements and guarantees, loans of funds, acquisitions or disposals of property, changes in shareholdings of directors and supervisors, and related party transactions, and these requirements are the same as for domestic corporations. However, other matters like monthly business turnover, treasury stock repurchases, and employee stock options are not part of the information that firms with primary listings need to file regularly.

So that investors might keep abreast of developments at firms with primary listings, in addition to their regular information filings, such firms are required to make external disclosures of material information in a timely manner. So called material information is stipulated under “Taiwan Stock Exchange Corporation Procedures for Verification and Disclosure of Material Information of Listed Companies” to include such things as whether a primary-listing company has a director or supervisor with a registered address in Taiwan; changes its litigious or non-litigious agent; or if the financial report of a primary-listed company is not prepared according to ROC accounting standards, the differences in items between the accounting principles employed and those of the Republic of China and the monetary amounts affected, and the certifying CPA's opinion on these matters.

When an overseas company seeks a secondary market listing in Taiwan, through Taiwan depositary receipts, the company has already listed its shares on an exchange in another country and is subject to considerable supervision. As a result, the strength of Taiwan’s legal controls for secondary-listing companies is not as great as it is for primary-listing companies. For instance, the FSC allows them to use the accounting principles of their own country or country where their shares are listed, and the reporting deadlines are more flexible. Annual reports can be filed as late as six months after the close of the fiscal year, while semi-annual and first and third quarter financial reports may be handled as stipulated by the laws and regulations of the secondary-listing company’s own country or country where its shares are listed. As for disclosures of other information, the TWSE’s rules on regular, scheduled information disclosures in “Taiwan Stock Exchange Corporation Rules Governing Information Reporting by Listed Companies” do not in fact apply to secondary-listing companies, but the “Taiwan Stock Exchange Corporation Procedures for Verification and Disclosure of Material Information of Listed Companies” nonetheless require timely filings with the TWSE if material information is encountered.

When it comes to regular, scheduled information filing, practice makes perfect, as the uncertainties about compliance tend to decrease. To ensure that information is disclosed on schedule, overseas corporations ought to carry out a program of instruction to raise familiarity with the law among internal personnel assigned such tasks, and local legal and accounting experts should be engaged to draw up the relevant checklists for better compliance, and those experts should be consulted regularly on the latest legal guidance and changing circumstances.

Relatively speaking, material information tends to appear suddenly, and whether it is indeed material is not necessarily immediately apparent, so there also tends to be more compliance-related variables involved. The TWSE’s current deadlines for material information filing by overseas firms are based on Taiwan time, and the content of filings is supposed to be in Chinese. Overseas companies that do not use Chinese should set up appropriate response mechanisms early on to avoid being caught unawares. Also, judgments as to what is material information involve different degrees of expertise, and the TWSE will take what is considered material information under foreign laws and regulations and include it among material information that must be made public and filed in Taiwan. Hence, to be safe, overseas firms enlist the expertise of outside foreign lawyers, and as events occur have those outside lawyers make an initial judgment as to whether they constitute material information under Taiwan law or relevant foreign laws. The foreign lawyers and domestic lawyers appointed by the overseas enterprise can then discuss if a timely domestic filing needs to be made. An overseas company should also appoint a suitable individual to act as its litigious and non-litigious agent. This individual can serve as an initial contact window and cooperate closely with the firm’s Taiwan lawyers, CPAs and underwriters. Although the competent authority has not restricted the qualifications of local litigious and non-litigious agents, it is proper that they be professional attorneys in order to fully execute the their duties filing material information with the TWSE.

For overseas firms that come to Taiwan for a market listing, fulfilling one’s information openness obligation can be viewed passively or actively. From the passive perspective, it avoids having the authorities impose unwelcome punishment in the form of a fine for breach of contract, a change of stock transaction method, or even a halt of stock trading. From the positive perspective, full and timely information disclosures signify that the overseas enterprise has established good internal control, internal audit and other governance mechanisms. They are also a clear demonstration of management’s good faith, with numerous benefits for a company’s image, so they are well worth the effort and attention of overseas companies listing in Taiwan.