Insolvency Law at Taiwan
Taiwan's insolvency framework is governed by the Bankruptcy Act and the Company Act, providing structured mechanisms for both individual and corporate debtors to address financial distress.
🏛️ Legal Framework
Bankruptcy Act: Applies to individuals and private legal entities, outlining procedures for liquidation and rehabilitation.
Company Act: Specifically addresses corporate restructuring and reorganization processes.
⚖️ Key Features of Insolvency Procedures
1. Bankruptcy Proceedings
Initiation: Bankruptcy can be declared upon petition by the debtor, creditors, or the court.
Appointment of Trustee: A court-appointed trustee, typically a certified public accountant (CPA), lawyer, or creditor, manages the bankruptcy estate. (Commencing the Process | Taiwan | Global Restructuring and Insolvency Guide | Baker McKenzie Resource Hub)
Asset Liquidation: The trustee oversees the sale of assets to satisfy creditors' claims. (Commencing the Process | Taiwan | Global Restructuring and Insolvency Guide | Baker McKenzie Resource Hub)
Stay of Proceedings: Upon adjudication, all actions concerning the bankrupt's estate are stayed until a qualified person assumes the action or the bankruptcy proceeding concludes. (Effect of Process | Taiwan | Global Restructuring and Insolvency Guide | Baker McKenzie Resource Hub)
2. Corporate Reorganization
Eligibility: Applicable to companies facing financial difficulties but with potential for rehabilitation. (Commencing the Process | Taiwan | Global Restructuring and Insolvency Guide | Baker McKenzie Resource Hub)
Court Supervision: Reorganization is conducted under court supervision to adjust the interests of creditors, shareholders, and other stakeholders. (Banking & Finance 2023 - Taiwan | Global Practice Guides | Chambers and Partners)
Reorganization Plan: Creditors must submit claims to the reorganization supervisor; only approved claims are repaid through the reorganization process. (Restructuring and Insolvency Guide Taiwan - Ally Law)
3. Consumer Debt Clearance Act
Effective Date: Implemented on April 1, 2022. (Personal Bankruptcy Law Takes Effect Apr. 1 | Taiwan Industry Updates | CENS.com)
Eligibility: Individuals with significant unsecured debts may apply for rehabilitation or liquidation. (Personal Bankruptcy Law Takes Effect Apr. 1 | Taiwan Industry Updates | CENS.com)
Restrictions: Debtors undergoing rehabilitation face strict spending limits for six years; those in liquidation face restrictions for ten years. (Personal Bankruptcy Law Takes Effect Apr. 1 | Taiwan Industry Updates | CENS.com)
📊 Creditor Priority and Distribution
Secured Creditors: Generally have the highest priority, with claims satisfied before unsecured creditors.
Labor Claims: Unpaid wages and severance payments have priority over unsecured claims. (Banking & Finance 2023 - Taiwan | Global Practice Guides | Chambers and Partners)
Tax Claims: Certain tax obligations, such as land value increment tax, take precedence over other claims. (Restructuring and Insolvency Guide Taiwan - Ally Law)
🌐 Cross-Border Insolvency
Territorial Principle: Taiwan adheres to a territorial approach, meaning foreign bankruptcy proceedings do not automatically affect assets located in Taiwan. (Restructuring and Insolvency Guide Taiwan - Ally Law)
Recognition of Foreign Proceedings: No formal mechanism exists for recognizing foreign bankruptcy judgments; entities must initiate separate proceedings within Taiwan. (Restructuring and Insolvency Guide Taiwan - Ally Law)
✅ Conclusion
Taiwan's insolvency laws offer structured avenues for individuals and corporations to address financial distress, with provisions for liquidation, reorganization, and consumer debt clearance. The legal framework emphasizes creditor rights and establishes clear procedures for asset distribution. However, the territorial approach to cross-border insolvency may necessitate separate proceedings for assets located within Taiwan.
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