In a corporate interest damage liability dispute case handled by our firm, our client, a minority shareholder of the company, alleged that the majority shareholder, de facto controller, and director of the company had established a new company to engage in business activities identical to those of the original company. They also utilized the original company’s employees and business opportunities for the benefit of the new company.

As a result, our firm, representing the client, filed a lawsuit against the majority shareholder, de facto controller, director, and the new company for damages arising from the breach of fiduciary duties. One of the key issues in this case is how to calculate the losses suffered by the original company.

We argue that, in accordance with Article 148 of the Company Law, the income obtained by the defendants from the new company should be attributed to the original company. Judicial practice indicates that such income includes not only the salaries, bonuses, and benefits directly received by the defendants from the new company but also equity-based income. For equity-based income, the calculation can be based on the revenue generated by the new company from the competing business, minus the costs directly attributable to such business. However, the deductible costs should not include arbitrarily determined administrative expenses of the new company.

Therefore, our firm applied to the court for a judicial audit of the aforementioned amounts. The court accepted our arguments and agreed to initiate the judicial audit process.