2. The Plaintiff’s primary claim on the issuance of 60,000 common shares at par value per September 21, 2015 and the Defendant’s claim on the issuance of 60,000 common shares at par value per September 30, 2016 are all dismissed.

3. The costs of lawsuit shall be borne by the Plaintiff.

Defendant’s issuance of 60,00 common shares of KRW 5,00 at par value on January 30, 2016 is null and void.

A. Status of the parties

1) On October 2, 2007, the Defendant was established as KRW 100 million in capital (the face value of KRW 5,000 in common shares).

2) As of July 1, 2013, B had 10,00 shares issued by the Defendant (50%) as of July 1, 2013, C had 7,058 shares (35.29%) and the Plaintiff held 2,942 shares (14.71%). B died on June 4, 2013, and B succeeded to the property of E, F, F, and G, who are spouse and children, E, E, F, and G, but was tried to waive inheritance on December 16, 2013, and D had been tried to grant full approval on December 31, 2013.

B. Issuance of preceding new stocks

1) On July 31, 2014, the Defendant issued 48,000 new shares on July 31, 2014 following a resolution of the board of directors, and allocated them to the company Breck Investment Co., Ltd. (hereinafter “Breck Investment”) (hereinafter “Issuance of new shares”).

On the other hand, on December 15, 2014, AB Investment transferred 3,400 shares out of 48,000 shares of the above new shares to H, 13,60 shares to H, 100 shares to H, 3,880 shares, 3,40 shares to F, and 3,40 shares transfer to H, 13,60 shares to E, 10,00 shares to E, 3,40 shares, respectively, and E, H, H, E, F, and I around that time.

2) On January 21, 2015, D and C filed a lawsuit seeking invalidation of the issuance of the preceding new shares as Seoul Central District Court 2015Gahap2336, and on January 28, 2015, the Plaintiff filed a lawsuit seeking invalidation of each of the preceding new shares under the Seoul Central District Court 2015Gahap50742, respectively, and each of the said lawsuits was combined (hereinafter referred to as the “joint lawsuit seeking invalidation of the issuance of new shares”).

(c) Issuance of bonds with warrants;

On February 26, 2015, the Defendant held a board of directors on February 26, 2015, and decided to issue Ethnacom for the purpose of using funds, such as the salaries of executive officers and employees, 30 million won in total face value, 100 million won in face value of each bond, 8% in face value per annum, 8% in annual interest rate per annum, maturity guarantee, 8% in maturity guarantee, March 3, 2018 due date, 100% in face value of preemptive rights exercise ratio, 100% in face value of shares to be issued, 5,00 won in face value of registered common shares of the type of shares to be issued, and 5,00 won in face value of non-registered private equity securities (hereinafter “instant bonds with warrants”). This date, Ethnacom accepted the entire bonds with warrants issued on March 3, 2015, and 300 million won in total deposited in passbook in the name of the Defendant.

(d) Resolutions to amend articles of incorporation;

1) Article 5 of the Defendant’s Articles of Incorporation stipulates the total number of shares to be issued as 80,000 shares.

2) On February 12, 2015, the Defendant representative director J notified the Defendant’s shareholders of the convocation of a general meeting of shareholders on February 27, 2015 in order to resolve the amendment of Article 5 regarding the total number of shares to be issued under the Defendant’s Articles of Incorporation.

3) As Seoul Central District Court 2015Kahap80163, D, C, and the Plaintiff filed an application for provisional disposition, such as prohibition of the holding of a general shareholders’ meeting, and on February 26, 2015, the said court rendered a provisional disposition order with the purport that, at a general shareholders’ meeting held on February 27, 2015, the Defendant shall not allow ABB Investment to exercise its voting rights on the Defendant’s 48,000 shares issued in the name of ABB Investment (hereinafter “related provisional disposition order”).

4) On February 27, 2015, the Defendant held a regular general meeting of shareholders. The said regular general meeting of shareholders, including D, C, and the Plaintiff, was made a resolution that included a resolution that mainly changes the total number of shares to be issued under Article 5 of the Defendant’s articles of incorporation from 80,00 to 1 million shares (hereinafter “resolution of the instant general meeting of shareholders”) with the consent of 41,480 shares, excluding D, C, and the total number of shares with voting rights 61,480 shares, excluding D, C, and 20,000 shares with voting rights.

E. The first issuance of new shares and the second issuance of new shares on September 21, 2015, L&C’s claim for new shares by exercising the preemptive right to all of the instant bonds with warrants on September 21, 2015, and it is treated as a substitute payment for converting the subscription price for new shares into the subscription price for new shares, and thus, 60,000 common shares issued at par value of KRW 5,000 per day (hereinafter “first issuance of new shares”). F. The second issuance of new shares was issued on January 30, 201 through a resolution of the board of directors (hereinafter “second issuance of new shares”).

G. Progress of a lawsuit seeking invalidation of the preceding new shares

On the other hand, with respect to a lawsuit seeking invalidation of the preceding issuance of new shares, a judgment was rendered on July 24, 2015 that confirmed that the preceding issuance of new shares is null and void. Accordingly, the Defendant appealed as Seoul High Court 2015Na204791, 2015Na204807 (Joint) but the above court declared that the Defendant’s appeal was dismissed on December 12, 2015, and the above judgment became final and conclusive on December 24, 2015.

H. The Defendant’s Articles of Incorporation

The provisions governing the issuance of bonds with warrants among the defendant's articles of incorporation are as follows:

Article 11-3 (Issuance of Bonds with Warrants) (1) The Company may issue bonds with warrants to persons other than shareholders by the resolution of the board of directors in the following cases to the extent that the total face value of the bonds does not exceed 100 million won:

[Ground of recognition] The descriptions of Gap evidence 3, 7, 8-1, 2, 3, 10, 11, Eul evidence 1 through 8, 11, 12, and the purport of the whole pleadings

2. Summary of the plaintiff's assertion

A. The argument as to the issuance of the first new shares

The plaintiff seeks confirmation of the absence of the first issue of new shares and confirmation of the invalidity of the first issue of new shares for the following reasons.

1) At the time of issuance of the instant bonds with warrants, notice under Article 418(4) of the Commercial Act was not given, and there was an error in the procedure of registration made under Articles 516-8(2) and 514-2(1) of the Commercial Act, unless registration was made under Article 516-8(2) and 514-2(1) of the Commercial Act.

2) The issuance of the instant bonds with warrants does not meet the requirements for the allocation of new shares to a third party under the proviso of Article 516-2(4) of the Commercial Act and the proviso of Article 418(2) of the Commercial Act. The provision on the issuance of bonds with warrants to a third party under the Articles of Incorporation does not provide for the issuance of bonds with warrants in a specific and conclusive manner, and the exercising price of the preemptive

3) Since 300 million won of the instant bonds with warrants was immediately withdrawn from the next day following the payment, it was paid under the name of J, etc. as the Defendant’s director at the time, the payment was made on the instant bonds with warrants.

4) The resolution of the general meeting of shareholders of this case with the purport that the provision on the total number of shares to be issued in the Defendant’s articles of incorporation should be mainly amended from 80,000 to 1 million shares, is null and void due to the defect in the method of resolution by which the voting right was exercised by avoiding the purpose of the relevant provisional disposition. As such, at the time of the first issuance of new shares, the total number of shares to be issued in the Defendant’s articles of incorporation was less than 80,00 shares at the time of the first issuance of new shares. However, the total number of shares issued by the Defendant was 6

Since the total number of shares issued by the defendant was 128,000 shares, the first issuance of new shares violated the provisions on the total number of shares to be issued under the defendant's articles of incorporation.

5) As above, since the directors appointed through the resolution of the general meeting of shareholders of this case, who held a board of directors and passed a resolution to issue the instant bonds with warrants, the resolution of the board of directors to issue the instant bonds with warrants is also null and void.

6) The primary issuance of new shares was used as a means to hold management rights of existing management, and the payment was embezzled as a benefit for directors, etc., so the primary issuance of new shares is contrary to good morals and other social order.

B. The second claim as to the issuance of new shares

The plaintiff asserts that, as long as the first issue of new shares is nonexistent or invalid as above, the second issue of new shares is invalid on the basis of changed shares ratio as a result of the first issue of new shares is valid.

3. Determination

A. Determination as to the issuance of the first new shares

1) Judgment as to the main claim

A) Article 429 of the Commercial Act provides, “The invalidity of issuance of new shares may be asserted only by a lawsuit within six months from the date of issuance of new shares only by shareholders, directors or auditors.” Thus, even if there are grounds for revocation or invalidity in a resolution of the board of directors or the general meeting of shareholders to nullify the issuance of new shares, a lawsuit may be brought to nullify the issuance of new shares after the issuance of new shares takes effect only by a lawsuit seeking invalidation of the issuance of new shares after the issuance of new shares takes effect. However, in a case where the procedural and substantive defects in the issuance are extremely serious, and there is no issuance of new shares, a lawsuit may be brought to confirm non-existence of new shares without a lawsuit seeking invalidation of issuance of new shares (see Supreme Court Decision 87Meu231

B) In light of the following circumstances, it is difficult to view that the circumstances alleged by the Plaintiff alone are extremely serious procedural and substantive defects in the issuance of the first new shares, and it does not necessarily constitute a case where the issuance of the first new shares does not exist. There is no evidence to deem otherwise that the absence of the first new shares is nonexistent. Therefore, the Plaintiff’s allegation in this part

(1) First, among the plaintiffs in the above 2.1, Article 429 of the Commercial Act provides that the issuance of new shares constitutes grounds for nullifying the issuance of new shares. Since the issuance of bonds with warrants also affects the physical foundation of a stock company and the interests of the existing shareholders, Article 429 of the Commercial Act is applied mutatis mutandis to the lawsuit for nullifying the issuance of new shares, and the legal principles on the grounds for nullifying the issuance of new shares also apply likewise (see, e.g., Supreme Court Decision 2015Da202919, Dec. 10, 2015). However, since Article 429 of the Commercial Act provides that the invalidity of the issuance of new shares is able to be asserted only within 6 months from the date of issuance of new shares to the directors or auditors, it is intended to early determine legal relations incidental to the issuance of new shares, this is similar to the issuance of new shares, it shall be deemed that the legal relationship becomes unstable after the lapse of the time of release from the bonds with warrants, and that the provision of this case 206.

(2) Even if the Plaintiff’s assertion is permissible, the Plaintiff’s assertion is without merit in light of the following circumstances. First of all, Article 516-2 of the Commercial Act, which provides for the issuance of bonds with warrants, does not apply mutatis mutandis to the Plaintiff’s claim. Thus, even if the Defendant did not comply with the procedure for notification and public notice as prescribed in Article 418(4) of the Commercial Act at the time of the issuance of the instant bonds with warrants, it is difficult to view that there is a defect in the procedure for the issuance of the instant bonds with warrants. Furthermore, according to the evidence No. 10, the registration under Article 516-8 of the Commercial Act was made on September 22, 2015, but there is no ground to view that the registration of the bonds with warrants is an effective requirement for the issuance of the bonds with warrants, and therefore, it is insufficient to view that the instant bonds with warrants are invalid merely because the registration was made without delay, according to the proviso to Article 418(2) of the Commercial Act, to the extent the Plaintiff’s issuance of the bonds with warrants can be determined.

However, in light of the overall purport of the arguments and arguments, the Defendant appears to have issued bonds with warrants in this case to achieve management objectives, such as raising funds, even if there is room for doubt that the instant bonds with warrants were issued in order to achieve management objectives, and even if there is no need to do so or there is room for doubt that they could have been able to do so by other methods, the issuance price of the bonds with warrants to be issued at the time of issuance of the bonds with warrants shall be determined by the board of directors at the time of issuance of the bonds with warrants. Further, Article 11-3(3) of the Articles of incorporation of the Defendant provides that “The issue price of the stocks to be issued at the time of the issuance of the bonds with warrants shall be determined by the board of directors at the time of issuance of the bonds with warrants or above, since among various methods of financing necessary funds in response to the demand for funds, the number of the bonds with warrants to be issued at the time of the exercise of the bonds with warrants, such as the size of the funds required at the time of issuance, urgency, interest rate, and other specific conditions to be determined in the articles of the company.

Meanwhile, as to the plaintiff's assertion that the issue price was remarkably low, it is necessary to consider the benefit of the underwriter when the convertible bonds are issued, and as shares issued by the exercise of convertible bonds or convertible rights are distributed as securities, it is necessary to protect the safety of transaction. In light of the fact that the claim for the maintenance of convertible bonds is a remedy for illegal issuance, and thus the lawsuit for the nullification of the issuance of convertible bonds is null and void later, and thus it is highly likely to undermine the safety of transaction and legal stability, it shall be strictly interpreted as much. Therefore, the above legal principle shall not be applied to the case where the violation of Acts and subordinate statutes or the articles of incorporation or remarkably unfair practices seriously affect the interests of the company or the basic principles of the company law or the interests of the existing shareholders and interests of the company. Furthermore, as long as the claim for the nullification of the issuance of convertible bonds should be strictly interpreted as the ground for the issuance of convertible bonds, it shall not be deemed that the plaintiff's claim for the conversion of convertible bonds already becomes null and void.

C. A. (3) Of the Plaintiff’s assertion, the validity of the payment of the share price cannot be denied even in the case of the so-called advance payment for the payment of the share price by withdrawing the share price with temporary loan and repaying the loan (see, e.g., Supreme Court Decisions 2002Da29138, Mar. 26, 2004; 2002Da29138, Mar. 26, 2004). Even if the advance payment was made with respect to the instant bonds with warrants as alleged by the Plaintiff, the validity of the payment cannot be denied, and therefore, the issuance of the instant bonds with warrants cannot be deemed null and void. According to the above facts and evidence Nos. 3 and 5 of the Plaintiff’s assertion, even if the board of directors’ resolution to issue the instant bonds with warrants was based on the authority of the board of directors to issue the new stocks with warrants, it is difficult to view that the resolution of the board of directors to issue the instant 20-party shares with the authority of the Plaintiff’s board of directors.

(3) Of the Plaintiff’s assertion, the facts as seen earlier, changed by the resolution of the instant general meeting of shareholders by the consent of the Minister of Foreign Affairs and Trade, H, E, F, and I present at the meeting of the Plaintiff with respect to Section A. (4) of this case. On the other hand, the provisional disposition order was rendered on February 26, 2016, which was the day before the instant general meeting of shareholders was not adopted on February 26, 2016, which was the day before the date when the instant general meeting of shareholders was adopted, against the prohibition of exercising the voting rights of the A.I.D., the judgment that prior issuance of new stocks to B.I.D is null and void in the lawsuit for invalidation of prior issuance of new stocks, and the judgment became final and conclusive.

However, there is no ground to view the validity of the provisional disposition order as effective to the above transferee of the shares by transfer from the BB Investment rather than the BB Investment, and even if the judgment becomes final and conclusive ex post facto in relation to the issuance of new shares, the judgment does not have a retroactive effect, and thus, the above transferee's exercise of voting rights cannot be deemed invalid retroactively. Thus, the above fact alone is difficult to view the resolution of the general meeting of shareholders of this case as invalid.

Even if the resolution of the shareholders' general meeting of this case is invalid due to the defect in the resolution of the shareholders' general meeting of this case, it is insufficient to view that there is a procedural and substantive defect to the extent that the first issue of new shares is nonexistent, aside from the fact that the provisions of the articles of incorporation on the total number of shares to be issued were violated.

(4) Of the Plaintiff’s assertion, the first issue of new shares is insufficient to be deemed to violate good morals and other social order, solely on the basis of the Plaintiff’s assertion, and there is no other evidence to acknowledge it.

2) Determination on the conjunctive claim

A lawsuit to nullify the issuance of new shares must be filed within six months from the date of the issuance of new shares (Article 429 of the Commercial Act). The fact that the primary issuance of new shares was made on September 21, 2015 is as seen earlier, and the Plaintiff’s duplicate of the complaint seeking the invalidity of the primary issuance of new shares is apparent in the record on June 21, 2016 when six months have passed since the date of the issuance of the said new shares. As such, the part of the lawsuit in this case’s preliminary claim regarding the primary issuance of new shares is unlawful.

B. Determination as to the second issuance of new shares

In addition to claiming the invalidity of the second issuance of new shares under the premise that the absence or invalidity of the first issuance of new shares is nonexistent, the Plaintiff does not assert and prove any grounds for invalidation of the second issuance of new shares. However, as seen earlier, insofar as the first issuance of new shares cannot be deemed null and void or nonexistent, the Plaintiff’s assertion on the second issuance of new shares under the premise that the absence or invalidity of the first issuance of new shares is nonexistent or null and void, is without merit.

4. Conclusion

Therefore, the conjunctive claim for the issuance of the first new shares among the lawsuits of this case is unlawful and dismissed. The main claim for the issuance of the first new shares and the second claim for the issuance of the second new shares are dismissed as they are without merit. It is so decided as per Disposition.

Judges Park Jong-soo

Judges Park Jae-gu