[1] Where a shareholder who filed a representative lawsuit loses his/her status as a shareholder during the proceeding of a lawsuit, whether the shareholder’s lawsuit brought by him/her is unlawful (affirmative in principle), and whether the same applies where the shareholder loses his/her status against his/her will (affirmative)

[2] In a case where Eul et al., a shareholder holding approximately 0.7607% of the shares issued by Gap securities company, et al., filed a representative lawsuit, and Eul et al., a financial holding company Gap and Byung et al., during the lawsuit, completed share swap and Gap et al. become a shareholder of Gap company and lost its status as a shareholder of Eul et al., the case affirming the judgment below holding that Eul et al., who was not holding the shares of Gap company

[1] Article 403(1), (2), (3), and (5) of the Commercial Act; Article 33(5) of the Act on Corporate Governance of Financial Companies / [2] Articles 360-2, 403(1), (2), (3), and (5) of the Commercial Act; Article 33(5) of the Act on Corporate Governance of Financial Companies

[1] Supreme Court Decision 2017Da35717 Decided November 29, 2018 (Gong2019Sang, 138)

Plaintiff 1 and 17 others (Law Firm Hannuri, Attorneys Real-ju et al., Counsel for the plaintiff-appellant)

Defendant 1 and four others (Law Firm LLC, Attorneys Cho Il-bong et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2017Na2024708 decided October 19, 2017

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

1. Article 403(1) of the Commercial Act provides that “Any shareholder who holds shares equivalent to at least 1/100 of the total number of issued and outstanding shares may file a lawsuit against the company to enforce directors’ liability,” and Article 403(2) of the Commercial Act provides that “if the company fails to file a lawsuit within 30 days from the date on which the claim is received under paragraph (1), the shareholder under paragraph (1) may immediately file a lawsuit for the company.” Further, Article 403(5) of the Commercial Act provides that “Where the shares held by the shareholder who files a lawsuit under paragraphs (3) and (4) are reduced to less than 1/100 of the total number of issued and outstanding shares after the filing of the lawsuit (excluding cases where the number of shares held by the financial company does not have any effect on the filing of the lawsuit, a person who holds rights equivalent to at least 10/100 of the total number of issued and outstanding shares of the financial company shall be entitled to exercise the rights of a shareholder under Article 403 of the Commercial Act.”

In full view of these provisions, in order for a shareholder to institute a representative suit, the shareholder’s filing of a suit against the company to enforce the liability of the director and the filing of the suit on behalf of the company shall meet the requirements for stockholding as prescribed by the Commercial Act or the Act on Corporate Governance of Financial Companies, and the number of shares held after the filing of the suit shall not meet the requirements. However, in a case where a shareholder who has filed a representative suit loses his/her status as a shareholder because he/she was not holding shares at all during the process of the suit, barring any special circumstance, the shareholder loses his/her standing to sue and files a suit against his/her will, and this does not change because the shareholder lost his/her status as a shareholder (see Supreme Court Decision 2017Da35717, Nov. 29, 2018,

2. The lower court, on the following grounds, determined that the Plaintiffs were disqualified from standing to sue of this case, which was not entirely owned by Hyundai Securities Co., Ltd. (hereinafter “Modern Securities”) after filing the instant derivative suit. That is, at the time of filing the instant suit, the Plaintiffs were shareholders of modern securities holding approximately 0.760,090 shares of Hyundai Securities (1,80,090%) with the co-Plaintiffs of the first instance court at the time of filing the instant suit. However, during the process of the instant lawsuit, the Plaintiff became a shareholder of Hyundai Securities Co., Ltd. (hereinafter “Modern Securities Co., Ltd.”) and the K non-Financial Branch Co., Ltd. (hereinafter “Mod Non-Financial Branch Co., Ltd.”) to become a 100% shareholder of Hyundai Securities Co., Ltd. and lost

In light of the above legal principles and the records, the judgment of the court below did not err in the misapprehension of legal principles as to the standing to sue in shareholder representative lawsuits as alleged in the grounds of appeal.

3. Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Ahn Jae-chul (Presiding Justice)