The Securities & Futures Comm-ission (證期會) has rejected Taiwan Fertilizer's (台肥) plan to pay its shareholders a NT$4 share dividend because the company had allegedly violated the Company Law (公司法).
According to the securities commission, TaiFertilizer's misuse of a loan violated Article 15 of the Company Law, and its investment in other companies exceeded the limit as stipulated in Article 13 of the law.
In October last year, the Ministry of Economic Affairs (經濟部) dismissed the chairman of Taifertilizer and other board members for lending NT$4 billion to its four subsidiaries.
The four subsidiaries had used part of the sum to buy Taiwan Fertilizer's stock.
The Ministry of Economic Affairs owns more than 40 percent of Taifertilizer, which was listed in September as part of the government's privatization plans.
According to an official from the securities commission, rather than use the loan for inter-company trading activities, its use by Taifertilizer's affiliates to buy its stock violated Article 15 of the Company Law.
Article 15 states that a company shall not loan money to any other company unless inter-company trading activities call for a capital loan.
"This is the key factor behind our disapproval of Taifertilizer's NT$4 share dividend. Further, the company has done little to improve the situation," said the official.
According to the official, the four subsidiaries have so far returned only a small amount of the loan to Taifertilizer.
"Before the company improves the situation [of the four subsidiaries repaying most of the loan to Taifertilizer], it is unlikely that we will approve the company's share dividend," said the official.
But an official from Taifertilizer explained that repayment of the loan now would be irresponsible.
"We are doing our best," said the official. But the four affiliates' sale of their Taifertilizer's stocks now would cause the company's share price to fall, he said.
Further, even if the four affiliates were to sell all their stock in Taifertilizer, they would be unable to pay back all the money they borrowed from the company because they had purchased its stock at an average price of NT$62 per share.
Taifertilizer's share price closed yesterday at NT$41.5. "Selling those stocks now would damage investors' rights," said the official.
The official said it would take time for those subsidiaries to pay back the loan to Taifertilizer, and suggested it would be better for them to sell their Taifertilizer stock when its share price has gone up more.
"By rejecting the NT$4 share dividend, the securities commission has damaged the investors' rights.
"Their action will cause the company's share price to fall," said the official. The company share price fell by NT$3.10 yesterday.
As well as the misuse of Taifertilizer's loan, the securities commission pointed out that the company's total reinvestment in other companies had exceeded NT$4.5 billion. According to Taifertilizer's articles of incorporation, the total amount of the company's reinvestment should not exceed 60 percent of its total capitalization.
The company's total capitalization is NT$7 billion.
The excess reinvestment violated Article 13 of the Company Law, which states that the total amount of a company's reinvestment should not exceed 40 percent of its total capitalization, unless otherwise provided for in its articles of incorporation.
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