By Hung Ou Yang
As Mandarin Oriental Taipei announced that it submitted a mass redundancy plan to the Department of Labor of Taipei City Government on May 28, 2020, it represents that more and more businesses in Taiwan may be facing financial crisis which may lead to liquidation, reorganization, or even bankruptcy in the near future. Before any liquidation, reorganization, or bankruptcy procedures begin, creditors have to understand the best practice to secure their credits when all of us are being impacted by COVID-19.
In short, the best practice is to apply for provisional attachment on the debtor’s assets to ensure that the creditor will have more leverage to negotiate with the debtor, and, more importantly, that the assets will be used to pay back the money owed to the creditor.
Under Article 522 of the Taiwan Code of Civil Procedure, a creditor may apply for provisional attachment for purposes of securing the satisfaction of future enforcement before filing any lawsuit when his claims are monetary or his claims could be transformed to monetary claims. If the court approves the creditor’s application for provisional attachment, the creditor may trace the debtor’s assets with the court’s order via the Tax Bureau’s electronic system. When the debtor’s assets like the bank accounts and the real estate are attached because of the court’s order, the creditor will obtain the upper hand during the negotiation and the litigation. That is to say, the debtor will face huge pressures when all his cash or properties are frozen by the provisional attachment. As to the creditor’s cost for initiating such provisional attachment procedures, it is almost entirely in the creditor’s favor in Taiwan because the court will only charge the creditor around USD 35 regardless of the amounts of the claims owned by the creditor.
To satisfy the requirements of the provisional attachment, Section 1 of Article 523 of the Taiwan Code of Civil Procedure states that the creditor must show there will be the “impossibility or extreme difficulty” when enforcing the court’s judgement in the future. As it is hard to delineate the “impossibility or extreme difficulty” standard, Section 2 of Article 523 directly provides for an example that such standard shall be deemed satisfied when the creditor has to enforce the judgement in a foreign country. However, the court limits the scope of Section 2 of Article 523 so that it will apply only when all the debtor’s assets are located out of Taiwan. 98 Taiwan High Court Kang 1102 (2009) (stating that debtor used the creditor’s loan for a Hong Kong company cannot satisfy the standard under Article 523).
In practice, the court tends to approve the provisional attachment application when the debtor fails to reply the creditor’s demand letter issued by a lawyer or rejects creditor’s appropriate requests in such a letter. See 98 Supreme Court TaiKang 746 (2009). Consequently, it is always a good strategy for the creditor to use a demand letter to initiate the negotiation process, the subsequent provisional attachment application, and litigation. Moreover, the court will be more likely to approve the provisional attachment application where the creditor’s claim exceeds a certain amount of money. The rule of thumb is that any claim over approximately USD 200,000 with good cause of action will be more likely to get a court’s approval for provisional attachment. In addition, the Taiwanese courts generally would state that whether the debts are substantially more than the debtor’s assets is one of the reasons why the provisional attachment application is approved. See 99 Supreme Court TaiKang 175 (2010). However, in such situation probably the creditor will not get any benefits from the provisional attachment and the subsequent litigation because the debtor’s assets cannot cover the credits owed to all the creditors.
All in all, in Taiwan, issuing a demand letter to the debtor before taking any legal action will get more benefits than you can imagine for the creditor, especially when you would like to ensure that the debtor’s assets will be used to pay your money back. If you would like to protect your claims against a Taiwanese debtor, you may consult Brain Trust International Law Firm to get more information.
Authour: Hung Ou Yang
Managing Attorney
Taipei
+886-2-2707-9976
[email protected]
Copyright Brain Trust International Law Firm
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
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