Whether Article 191-19 (1) of the former Securities and Exchange Act prohibiting a KOSDAQ-listed corporation from offering real estate owned by it as security for its directors (negative)

In light of the fact that the act of violating Article 191-19 (1) of the former Securities and Exchange Act (repealed by Article 2 of the Addenda to the Financial Investment Services and Capital Markets Act, Act No. 8635 of Aug. 3, 2007) can not be deemed to have a socially anti-sociality and anti-divantity to the extent that it should not be denied even its judicial effect; in the case of a trade of a company, the smooth and safety of the trade are emphasized; in particular, in the case of a trade of a company, the smooth and safety of the transaction are emphasized; in Article 191-19 (1) 2 of the former Securities and Exchange Act; Article 84-24 of the former Enforcement Decree of the Securities and Exchange Act (repealed by Article 2 of the Addenda to the Enforcement Decree of the Financial Investment Services and Capital Markets Act, Act No. 20947 of Jul. 29, 2008), it is reasonable to interpret the effect of Article 191-19 (1) of the former Securities and Exchange Act as a simple regulation.

Article 191-19(1) of the former Securities and Exchange Act (repealed by Article 2 of the Addenda to the Financial Investment Services and Capital Markets Act, Act No. 8635, Aug. 3, 2007) (see current Article 542-9(1) of the Commercial Act), Article 105 of the Civil Act, Article 401-2(1) of the Commercial Act, Article 84-24(2) of the former Enforcement Decree of the Securities and Exchange Act (repealed by Article 2 of the Addenda to the Enforcement Decree of the Financial Investment Services and Capital Markets Act, Act No. 20947, Jul. 29, 2008)

[Defendant-Appellee] Plaintiff 1 and 2 others

Defendant (Law Firm Western, Attorneys Kim Sung-sung et al., Counsel for defendant-appellant)

May 12, 2009

1. The plaintiff's claim is dismissed.

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

The defendant will implement the procedure for registration of cancellation of the establishment registration of the neighboring real estate completed by the Seoul Southern District Court No. 92358, Oct. 30, 2008, with respect to each real estate attached to the plaintiff (hereinafter "the real estate of this case").

1. Basic facts

A. Nonparty 1 served as the Plaintiff’s representative director from September 23, 2008 to December 9, 2008.

B. The Defendant decided to invest KRW 2 billion in capital increase with the Plaintiff’s third party’s capital increase issued for new shares, and entered into a share purchase contract with Nonparty 1 and Nonparty 2 to purchase the Plaintiff’s shares acquired through the Defendant’s participation in capital increase issued for new shares (hereinafter “instant purchase contract”) on October 6, 2008, and the down payment amounting to KRW 500 million on the date of the contract, and the balance shall be calculated by multiplying the number of shares owned by the Defendant on October 14, 2008, by the number of shares owned by the Defendant on October 15, 2008. The Plaintiff guaranteed at least KRW 1.7 billion and was paid each by October 15, 2008. On the same day, the Plaintiff jointly and severally guaranteed the Defendant’s debt to the Defendant

C. On October 24, 2008, the Plaintiff, a joint and several surety of the sales contract of this case, promised to set up a collateral of 2 billion won with respect to the instant real estate on October 24, 2008. On October 30, 2008, the Plaintiff completed the registration of setting up a collateral of 2 billion won with respect to the instant real estate, which was owned by the Defendant on October 29, 2008, due to the contract signed by the Defendant on October 29, 2008, and the creation of a collateral of 2 billion won with respect to the instant real estate, as stated in the purport of the claim by the Plaintiff (hereinafter “instant collateral”).

D. The Plaintiff is a KOSDAQ-listed corporation from before the date of concluding the instant sales contract to the date of closing the argument in this case.

[Evidence] Facts without dispute, Gap evidence Nos. 1, 2, Eul evidence Nos. 1 and 2 (including branch numbers), the purport of the whole pleadings

2. Determination

A. The plaintiff's assertion

1) At the time of completion of the establishment registration of the instant collateral security right, Nonparty 1, the representative director of the Plaintiff, was completed to the Defendant for his personal interest, and thus, is null and void as it constitutes abuse of power of representation.

2) The instant mortgage contract is null and void in violation of Article 191-19 (1) 1) of the Securities and Exchange Act (amended by Act No. 8635 of Aug. 3, 2007 and enforced on Feb. 4, 2009; hereinafter the same shall apply) which was in force at the time of the establishment thereof, and thus null and void in violation of Article 191-19 (1) 2).

B. Determination

1) Determination as to the assertion of abuse of power of representation

Even if the representative director of a corporation abused his authority for the purpose of pursuing his own interest or a third party's interest regardless of the company's profit, the act done within the scope of his representative director's representative director's representative director's representative director's representative director's representative director's representative director's act shall be valid as an act of the company once. However, if the other party to the act knew or could have known the intention of the representative director's representative director's act, it shall be null and void against the company. However, there is no evidence to find that the non-party 1, the representative director of the plaintiff's

2) Judgment on the assertion of violation of the Securities and Exchange Act

First of all, if Article 191-19 (1) of the Securities and Exchange Act prohibiting the act of offering real estate owned by a corporation for the purpose of a director falls under the validity provision, and thus the legal effect of the act of offering security is denied, (1) if the act of offering security is interpreted as the validity provision of the act of offering security despite the absence of any express provision of the invalidation provision, it is problematic to protect a third party in good faith, and it is against the legal stability with the uncertainty of the interpretation standard, so it is reasonable to view the legislator's objective intent as the regulation provision unless there is any express provision of the validity provision of invalidation in the law, and it is desirable to view the effect provision as the effect provision of the act of offering security only if there is no express provision, and 2) if the act of violating the above Article 191-19 (1) of the Securities and Exchange Act does not explicitly invalidate the act of offering security, it shall not be against the safety of the corporation itself, and 15).

Article 401-2(1) of the Commercial Act prohibits an auditor, including a person falling under any of the subparagraphs of Article 401-2(1) of the same Act and a member of the audit committee, from engaging in a certain act under the above provision of the Act on behalf of such auditor. Since the concept of the above person is unclear, its scope is flexible, and a third person is not easily identified in the corporate register, etc., if the other party denies the judicial effect of the act prohibited under the above provision, it may cause damages to the third party if the other party is a third party, and further, the subsequent purchaser who traded the transaction can make any unexpected sacrifice and unforeseeable sacrifice, so that safety of the transaction may be seriously harmed, and the other party may avoid the transaction, and may cause a decline in corporate activities. (4) According to Article 191-19(1)2 of the Securities and Exchange Act and Article 84-24(7) of the Enforcement Decree of the said Act, the Plaintiff’s provision of real estate as an exception to the prohibited act is interpreted as effective under Article 19(1) of the Securities and Exchange Act.

The interpretation of Article 191-19 (1) of the Securities and Exchange Act to secure transparency and soundness in corporate management is desirable to be the same with the interpretation of Article 398 of the Commercial Act that prohibits a certain transaction between a director and a company (hereinafter “director’s own transaction”) in order to prevent a director from seeking his or her own interest or a third party’s interest by making a transaction with a company using his or her position and causing losses to the company and its shareholders).

Article 398 of the Commercial Act prohibits directors from trading with the company on their own or for the account of a third party. Under the text of the Act, the transaction here requires the so-called "direct transaction" in which directors act as the direct counter-party to the company and as the agent or representative of the counter-party to the transaction. However, the case is interpreted externally and externally, but the case is also interpreted as a transaction with the company and a third party, but the scope of application is expanded by considering that it actually includes the so-called "indirect transaction" in which the interests of the director and the company may conflict. Accordingly, Article 191-19 (1) of the Securities and Exchange Act prohibits a corporation as the subject of the Norm and thus prohibits a "act to become the counter-party to the director, etc." while prohibiting not only the direct transaction with the director, etc., but also the indirect transaction.

However, with respect to the validity of the transaction in violation of Article 398 of the Commercial Act, the Supreme Court precedents held that the representative director's act of transferring his claim against a third party on behalf of the company constitutes one's own transaction under Article 398 of the Commercial Act and must go through a resolution of the board of directors. However, with regard to the fact that the assignment of claim does not require approval of the board of directors as an act of fulfilling the existing obligation, the pertinent director's own assertion and proof should be made. However, although the resolution of the board of directors is merely an internal decision-making of the company, if the other party knew, or did not know, due to gross negligence, that the resolution of the board of directors was not made, the transaction is valid. The situation that the other party knew, or could have known, that the resolution of the board of directors was not made, belongs to the matter that the representative director argued, and thus, it accords with the general rule of experience that the representative of the company knew, or did not know, the internal procedure of the company's act in violation of Article 191-1 of the Securities and Exchange Act.

In addition to the purport of the argument as to this case's health class, Eul evidence Nos. 1 and 2, when the defendant invests in the plaintiff's third party's allocation of capital increase with capital increase, the plaintiff was unable to pay investment from the defendant for the smooth attraction of capital through the success of capital increase with capital increase, and the plaintiff was unable to pay the debt related to the sales contract of this case. In light of the above circumstances, since the sales contract of this case was made as part of the plaintiff's financing convenience, it can be seen that it constitutes a transaction for the plaintiff's company rather than for the non-party 1's representative director, and therefore, the joint and several sureties and the collateral security contract of this case cannot be deemed null and void in violation of Article 191-19 (1) of the Securities and Exchange Act. Therefore, the defendant's assertion on this point is with merit, and the plaintiff's assertion on this point is without merit.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

[Attachment] Indication of Real Estate: omitted

Judge Choi Jin (Presiding Judge)

(1) Article 191-19 (Transactions with Interested Persons, such as Major Stockholders, etc. of Stock-listed Corporations and KOSDAQ-listed Corporations) (1) Any stock-listed corporation or KOSDAQ-listed corporation shall be prohibited from performing an act falling under any item of subparagraph 1 for major shareholders (including their specially related persons), directors (including any person falling under any subparagraph of Article 401-2 (1) of the Commercial Act; hereafter the same shall apply in this paragraph), or auditors (including members of the audit committee; hereafter the same shall apply in this paragraph) of the relevant corporation or for them: Provided, That the same shall not apply to cases falling under any item of subparagraph 2:

(1) No listed company may extend credit (referring to lending of an asset with economic value, such as money, guaranteeing the performance of an obligation, purchase of securities for financial support, and other transactions prescribed by Presidential Decree, which are direct or indirect transactions with a credit risk; hereafter the same shall apply in this Article) to a person who falls under any of the following subparagraphs or for such person:

Supreme Court Decision 97Da18059 delivered on August 29, 1997, etc.

(c) Where the principal invests in or is in a de facto relationship with the principal as an executive officer or an organization with the principal (hereinafter referred to as "specially related person") under Article 2-8 (20) 1 of the Enforcement Decree of the Financial Investment Services and Capital Markets Act (hereinafter referred to as "person who has a de facto relationship with the principal, as prescribed by Presidential Decree" means a person who falls under any of the following items (including a person in a de facto marital relationship; hereinafter the same shall apply).

5) The term "major shareholder" in Article 2 (20) of the Securities and Exchange Act means a shareholder who falls under any of the following items: 2. A major shareholder: A person who falls under any of the following items: A person who holds at least 10/100 of the total number of outstanding voting stocks (including foreign stocks and foreign stock depository receipts) of a corporation on his/her own account regardless of in whose name the person owns at least 10/100 of the total number of outstanding voting stocks (including foreign stocks and foreign stock depository receipts) of the corporation;

(6) Article 401-2 (Liability of Person under Order of Management, etc.) (1) of the Commercial Act (Liability of Person under Order of Management, etc.) (1) A person who falls under any of the following subparagraphs shall be deemed to be a director in the application of Articles 399, 401 and 403 with respect to the duties which he/she instructs or performs.

(2) The term “act as prescribed by the Presidential Decree” in Article 191-19 (1) 2 (a) of the Act means the act of lending money within the limit of 50,000 won, as prescribed by the juristic person, for the sake of welfare, such as school expenses, housing funds, medical expenses, etc.

Supreme Court Decision 2005Da4291 Decided May 10, 2007

9) A director (Transactions between a director and a company) may, only with the approval of the board of directors, engage in a transaction with the company for his own account or for the account of a third party. In this case, the provisions of Article 124 of the Civil Act shall not apply.

Note 10) Supreme Court Decision 84Meu1591 Decided December 11, 1984, etc.

Note 11) Supreme Court Decision 2005Da65180 Decided March 9, 2006

Supreme Court Decision 2005Da480 Decided May 27, 2005, etc.