A. Whether a company subject to competitive business falls under “other companies with the same type of business” as provided in Article 397(1) of the Commercial Act, even in a case where the company is engaged in preparatory business without commencing its business (affirmative);

B. Whether a director of a company constitutes a case where a director of another company establishes a company for the same business purpose and becomes a director and the representative director of another company, and where he/she prepares for business, he/she constitutes “material facts violating the Acts and subordinate statutes” under Article 385(2) of the Commercial Act concerning the dismissal of directors

A. The purport of the provision of Article 397(1) of the Commercial Act, which provides for a director’s duty not to engage in the competitive business, is to prohibit directors from engaging in competitive business that is highly likely to infringe upon their personal interests by taking advantage of their position and thereby having directors manage the company effectively and faithfully with the care of a good manager and perform their duties. Thus, it cannot be deemed that a company subject to competitive business is not “other companies for the same type of business” under the above provision on the ground that it is engaged in preparatory business, such as purchasing a factory site, without commencing its business.

B. Even if a director of a company establishes another company for the same business purpose as the company, and becomes a director and representative director of another company, and resigns from the office of director and representative director of another company prior to commencement of business activities, such act constitutes a violation of the duty of prohibition of competition under Article 397(1) of the Commercial Act, and barring any special circumstance, there is “material fact in violation of the relevant Act and subordinate statutes” under Article 385(2) of the Commercial Act concerning the dismissal of directors.

(b)Article 397 of the Commercial Code, Section 385 of the Commercial Code;

[Plaintiff-Appellee] 90Ma745 decided Nov. 2, 1990 (Gong1990, 2417)

Plaintiff-Appellant Kim Jae- Jae et al., Counsel for plaintiff-appellant

Defendant (Attorney Shin Jae-chul, Counsel for defendant-appellant)

Seoul High Court Decision 92Na24952 delivered on October 30, 1992

The appeal is dismissed.

The costs of appeal are assessed against the defendant.

We examine the grounds of appeal.

1. Upon considering the following facts, the court below established the non-party 1's representative director as the defendant company's representative director without the approval of the general meeting of shareholders, which is the non-party 1's company's establishment of the non-party 1's sub-joint venture company for the same business purpose as that of the defendant company (hereinafter the non-party company's representative director and representative director), and made a preparatory work such as purchasing the factory site for the business purpose, which became the non-party company's director and the non-party company's director and representative director. The non-party company has transferred the whole shares of the non-party company to the non-party without any experience in manufacturing and selling concrete products as the plaintiff's co-resident's co-owner, who was the non-party 1's representative director. The non-party company subsequently completed the factory site suspension work by giving a contract to the non-party 1, the non-party company's representative director, and delivered the products produced by the non-party company to the non-party company.

Examining the facts acknowledged by the court below based on relevant evidence, we affirm the fact-finding of the court below as to the reason for removal of directors, which is pointed out by the theory of lawsuit, and there is no misconception of facts against the rules of evidence or any error of incomplete reasoning.

2. The purport of Article 397(1) of the Commercial Act, which provides for a director’s duty not to engage in the competitive business, prohibits directors from engaging in competitive business which is highly likely to infringe upon their own interests by pursuing their personal interests by taking advantage of their position, and thus, requires directors to operate a company effectively and faithfully with the care of a good manager and perform their duties faithfully. Thus, the company subject to competitive business is at the stage of carrying out preparatory business, such as purchase of factory sites without commencement of its business, and cannot be seen as “other companies engaged in the same type of business.”

In this case, as duly determined by the court below, even if the defendant established the non-party company for the same business purpose as that of the company of the court below without the approval of the general meeting of shareholders of the company of the court below, and the non-party company's director and the representative director were the director of the non-party company and resigned before the commencement of the business activity, such act constitutes a violation of the non-party company's duty of prohibition of competitive business under Article 397 (1) of the Commercial Act and a violation of the law under Article 385 (2) of the Commercial Act concerning the dismissal of the director, unless there are special circumstances (see Supreme Court Order 90Ma745 delivered on November 2, 190).

As the argument points out, the circumstance that the defendant resigned from the office of director and the representative director of the non-party company only one month after the appointment of the non-party company, and the non-party company did not conduct business activities because it did not manufacture the product does not constitute the case where the defendant established the non-party company and took office as the representative director and purchased the factory site. Thus, the court below did not err in the misapprehension of legal principles as to the prohibition of competitive business as to the non-party company's resignation in the judgment of the court below. As pointed out in the argument, the court below held that the defendant still held the non-party company's full-time stocks and actually controlled the non-party company, thereby undermining the interests of the defendant of the court below. However, the court below did not err in the misapprehension of legal principles as to the theory of legal principles, since the court below did not err in the misapprehension of legal principles.

Therefore, the appeal shall be dismissed, and all costs of appeal shall be assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Park Jong-ho (Presiding Justice)