Guilty in first instance, acquitted on appeal | Criminal defense case involving company capital increase, company law, and commercial accounting law

Reason for innocence 1: The cash capital increase is not a fake number on the books.

The Taiwan High Court first confirmed:

When the company conducted three cash capital increases, the relevant capital increases were indeed actually transferred into the company's bank account.

The relevant procedures also went through:

Board resolutions; bank transaction documents; cash capital increase documents;

Accountant Capital Verification Visa

Please confirm.

The High Court therefore did not accept the premise that "the company never obtained any additional capital from the beginning."

This difference is very important.

Article 9 of the Company Law addresses issues related to false or misleading company capital.

If the capital increase funds do indeed enter the company, the real question now is:

Where did the company subsequently use its funds?

However, one cannot conclude that the initial capital increase was fake simply because the funds subsequently left the company's account.

Second reason for innocence: The fact that shareholders used borrowed money to increase capital does not mean that the share payments were not actually made.

The High Court clearly distinguishes between:

Has the share payment actually been made?

and:

Where does the shareholders' money come from?

These are two separate things.

The court held that when a company increases its capital in cash, as long as the company actually receives the receivables, and the shareholders use their own money or borrow money from others to obtain the funds, it will not automatically become an illegal capital increase simply because the source of the funds is a loan.

therefore:

The borrowed money was used to invest in the company.

This is not equivalent to a false capital increase.

What really needs to be determined is whether the company actually received the funds, and what legal relationship exists behind the subsequent outflow of funds.

Third reason for innocence: Repaying shareholder loans is not the same as returning the proceeds from capital increases to shareholders.

This is the most important core of the case.

Prior to the cash capital increase in 2020, the company in question had already had many years of shareholder transactions and loans.

These debts:

It was not made after an investigation; it was not created temporarily for this case.

Instead, it already existed in the company's books.

After the cash capital increase is completed, the company will use its own assets to repay the existing shareholder loans.

The High Court therefore held that:

This has a completely different legal nature from a company returning the share payments recently made by shareholders to the original shareholders.

One is:

Return the share capital.

The other one is:

Settle the company's existing debts.

If the company originally had this debt, after payment, the company's cash assets will decrease, but its liabilities will also decrease accordingly.

Therefore, we cannot only see:

Money in → Money out

This directly establishes that the company's capital has been withdrawn.

Reason for innocence #4: It wasn't about hollowing out the company, but rather reducing debt.

The High Court further examined the company's asset and liability information.

The results show:

After the company completed the capital increase, it did indeed use the funds to settle existing shareholder transactions.

The company's debt has also actually decreased.

The court therefore held that the company's purpose in issuing the cash capital increase was:

Improve financial structure; reduce debt ratio;

Repay the company's existing debts.

The court did not find that the company had become a shell company as a result, nor did it find that these actions caused harm to shareholders, the general public, or the company itself.

This is a significant difference between the second instance and the first instance in terms of the economic substance of the case.

Fifth reason for innocence: Section 71 of the Business Accounting Act is also invalid.

The first instance court also held that the defendant's handling of the matter constituted a violation of Article 71, Paragraph 5 of the Commercial Accounting Law:

"Using improper methods to cause inaccurate results in accounting matters or financial statements."

However, the second instance re-examined the evidence:

Shareholder loans; shareholder transactions; cash capital increases; bank cash flows; accounting entries; balance sheet;

And after the accountant's testimony,

The company's accounting treatment is based on actual transactions.

The company did receive the capital increase; the company did have existing loans.

The company did indeed use the funds to repay these liabilities.

Therefore, the court held that:

It cannot be determined that the defendant used improper methods to produce false results in accounting matters.

Criminal liability under the Commercial Accounting Law is also not established.

For an analysis of the constituent elements and case files, please refer to [link/reference].Legal violations and evidence assessment in commercial accounting law.

Reason for acquittal six: The defendant acted on the professional advice of an accountant, and there was reasonable doubt about his subjective intent to commit a crime.

Another important fact in this case is that the relevant capital increase and subsequent debt handling were not secretly designed by the defendant.

The company had originally sought to convert debt into equity.

Because the relevant documentation and procedures could not be completed, the accountant advised the company to:

Switch to cash capital increase;

After the capital increase is completed, the company funds will be used to settle outstanding debts with existing shareholders.

This aims to reduce debt and improve the financial structure.

The accountant also testified about the relevant background in court.

The High Court therefore held that the defendant handled the company's capital increase and debt issues in accordance with the advice of professional accountants.

In this case, to further determine whether the defendant knowingly acted illegally and still intentionally fabricated false information regarding the company's capital or registration,

There are at least reasonable doubts.

This also became an important reason for the court to deny the subjective intent of the perpetrator.