The meaning of Article 520 (1) of the Commercial Act "when the company's business operation continues to be remarkably in a fixed state and as a result there is or might be irreparable damage to the company," and "when there are unavoidable reasons" and "when there are unavoidable reasons."

Article 520(1) of the Commercial Act provides for the request for dissolution against a stock company: “In the following cases, any shareholder who holds no less than 10/10 of the total number of issued and outstanding shares may file a petition with a court for dissolution of the company.” Here, “When the company’s business operation continues to be in, or may cause, irreparable damage to, the company’s irrecoverable state of paid-in capital.” Here, “when the company’s business operation continues to be, or is likely to be, irrecoverable” refers to cases where the company’s business operation continues to be, caused by the company’s failure to normally operate the company due to its existence of its business due to a conflict between directors and shareholders, such as where the company’s failure to normally operate the company due to its existence of its business, and “when there are unavoidable reasons” means cases where there is no other method to protect the interests of shareholders except for dissolution of the company.

Article 520 (1) of the Commercial Act

Plaintiff (Law Firm No. Gong & Kim, Attorneys Song-Gyeong et al., Counsel for the plaintiff-appellant)

Han Newa Co., Ltd. (Law Firm LBS Partners, Attorneys Lee Dong-soo et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2013Na12435 decided June 20, 2013

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. As to the claim for dissolution against a stock company, Article 520(1) of the Commercial Act provides that “any shareholder who holds no less than 10/10 of the total number of issued and outstanding shares may file a petition with a court for dissolution of the company.” In this context, “when the company’s business operation continues to be in, or may cause, irreparable injury to, the recovery of the company’s business operation.” Here, the term “when the company’s business operation continues to be in, or is likely to be, irrecoverable” means when the company’s business operation continues to be in, due to the company’s failure to normally operate the company due to a conflict between directors and shareholders, such as where the company’s business operation continues to be considerably difficult due to the company’s failure to continue to be in, or may cause irreparable injury to, the company,” and “when there are unavoidable reasons” means cases where there is no other method to protect shareholders’ interests except for dissolution of the company.

2. Review of the reasoning of the lower judgment and the record reveals the following facts.

(1) On September 17, 2008, the Plaintiff established AD&C Co., Ltd. (hereinafter “A&C”) holding all stocks of the Plaintiff in order to conduct a business to create the Culture and Arts Tourist Complex (hereinafter “instant business”) on the land located in the Namyang-si, Chungcheongnam-si, Chungcheongnam-si, Seoul (hereinafter “instant land”).

(2) On May 11, 2009, the Plaintiff sold the instant land to ADC at KRW 50 billion. AD&C concluded a real estate security trust agreement for each of the lands listed in the attached Table 1 of the lower judgment and a real estate security trust agreement for each of the lands listed in the attached Table 2 of the lower judgment (hereinafter collectively collectively referred to as the “instant trust agreement”) with the lender, the beneficiary and the debtor as the lender, and the beneficiary and the debtor as the beneficiary and the real estate security trust for each of the lands listed in the attached Table 2 of the lower judgment, including the real estate security trust agreement for each of the lands listed in the attached Table 1 of the lower judgment and the real estate security trust for each of the lands listed in the attached Table 2 of the lower judgment (hereinafter collectively referred to as “instant trust agreement”).

(3) On February 8, 2010, the Plaintiff and ADC (hereinafter “Plaintiff”) entered into a joint venture agreement with the Korea New Technology Co., Ltd. (hereinafter “Korea New Technology Co., Ltd.”) under which the Plaintiff and the Korea New Technology Co., Ltd. would jointly engage in the instant project by establishing a special purpose corporation in which the Plaintiff and the Korea New Technology Co., Ltd participate, and accordingly, the Korea New Technology Co., Ltd paid KRW 3 billion to the Plaintiff on the same day. On February 25, 2010, the Plaintiff entered into a contract with the Korea New Technology Co., Ltd. (hereinafter “Korea New Technology Co., Ltd”).

(4) After that, the Plaintiff and the Korea New Technology Co., Ltd. (hereinafter “Korea New Technology Co., Ltd”) agreed to participate in the instant joint venture agreement, which is an affiliated company of Korea New Technology Co., Ltd. (hereinafter “Korea New Technology Co., Ltd.”). Accordingly, the Plaintiff and the Korea New Technology Co., Ltd entered into a contract with the Plaintiff on March 9, 2010 to modify the instant joint venture agreement (hereinafter “the first revised contract”) on the grounds that the shares of the special purpose corporation are 49% on the Plaintiff’s side and 51% on the part of Korea New Technology Co., Ltd. (hereinafter “the first revised contract”), and the Korea New Technology Co., Ltd paid the Plaintiff the first intermediate payment of KRW 2.5 billion on the same day.

(5) On March 11, 2010, the Plaintiff and the Han New Public Co., Ltd established the Defendant as a special purpose corporation for the implementation of the instant project in accordance with the instant joint venture agreement and the first amendment agreement. According to the mutual agreement between both parties, two persons recommended by the Plaintiff and three persons recommended by the Han New Public Co., Ltd. were the Defendant’s director, one auditor recommended by the Plaintiff and one person recommended by the Plaintiff and one person recommended by the Han New Public Co., Ltd. were the Defendant’s co-representative.

(6) On March 26, 2010, the Plaintiff’s side and the Korea-Japan public side and the Defendant concluded a sales contract with the Defendant to sell all of the instant land and ground buildings, ground objects, standing trees, and other superficies (hereinafter “instant sales contract”). At the time, the Plaintiff’s side and the Korea-Japan public side assessed the value of the instant land as KRW 50 billion, but the sales amount was stated as KRW 2.5 billion for the purpose of saving capital gains tax, etc.

(7) According to the instant sales contract, on March 26, 2010, the Defendant acquired the obligation to return KRW 5.5 billion, which the Plaintiff incurred for the new public service of Korea on March 26, 2010. On March 31, 2010, the Defendant took over the obligation to repay the loans to the Plaintiff’s lender, which the Defendant acquired from the new public service of KRW 10 billion borrowed from the annexed public service of KRW 4 billion on the same day. Meanwhile, the Plaintiff agreed to amend the instant trust contract as stipulated in the instant sales contract, and agreed to amend the instant trust contract on March 31, 2010, the first priority beneficiary of the instant trust contract of this case from the lender to the annexed mutual savings bank (the preferred beneficiary of this case amount of KRW 1.4 billion), and the debtor of this case was changed from the annexed public service of KRW 5.3 billion, as the first priority beneficiary of this case to the Defendant, and the debtor of this case was changed from the annexed public service of KRW 2.3 billion.

(8) On November 2010, the new public official requested the Plaintiff to issue a certificate of beneficial interest including the amount loaned to the Defendant for the payment of the interest on the Defendant’s loans to the Defendant’s subordinate mutual savings bank. However, on or around December 2010, the Plaintiff rejected the request on the ground that the above interest should be borne by the new public official. Meanwhile, the Plaintiff expressed to the Defendant that “The Plaintiff is obligated to cancel the beneficial interest equivalent to KRW 2.5 billion for the new public official upon the completion of the registration of transfer of ownership of the instant land (the total amount of KRW 3 billion for the first intermediate payment, KRW 2.5 billion for the second intermediate payment, KRW 1.4 billion for the second intermediate payment, KRW 6 billion for the Defendant’s capital increase in consideration of the instant sales contract, and Nonparty 1 recommended by the Plaintiff to resign, and thus, wishes to appoint Nonparty 2 as a director.”

(9) On January 17, 201, Nonparty 3 notified the Plaintiff of the fact that he/she requested the approval of the relevant documents for the implementation of the instant project and for the submission of the project plan. However, on January 21, 2011, the Plaintiff notified Nonparty 3 of his/her intention to give prompt response after a detailed and careful review, and did not approve the relevant documents.

(10) On January 28, 201, Nonparty 3 held a general meeting of shareholders concerning the appointment of directors proposed by the Plaintiff, ② the issue of capital increase with consideration proposed by the Plaintiff, ③ the issuance of a certificate of beneficial rights to the funds borrowed by the Defendant, ④ the appointment and appointment of a joint representative director due to non- cooperation with the Plaintiff’s affairs, ④ the directors recommended by the Plaintiff during the absence of the Plaintiff present the board of directors, and rejected the said proposal with the consent of all members, ③ the issuance of a certificate of beneficial rights to additional loans to the public, ④ the removal of the Plaintiff.

(11) On January 28, 2011, the Plaintiff notified the Defendant and the Han New Public Party of the purport that the first modified contract and the instant sales contract will be rescinded. After that, on February 1, 2011, AD&C applied for the approval of the instant project solely for the implementation of the instant project at the Namyang city, and on February 9, 2011, the Plaintiff sent notice to the Defendant requesting dissolution.

(12) From February 7, 2011 to March 3, 2011, the Defendant requested the Plaintiff to issue the instant application for business approval and the written consent for land use necessary for the submission of the business plan. However, the Plaintiff rejected such request. On March 23, 2011, the Defendant sent the Plaintiff a notice that the instant sales contract will be rescinded on the grounds of the Plaintiff’s failure to perform his/her duty to cooperate, etc. and sent such notice to the Plaintiff around that time.

(13) On April 1, 201, the forest mutual savings bank notified the Defendant and the Plaintiff of repayment of principal and interest on the ground that the maturity of the Defendant’s loan obligation jointly and severally guaranteed by Korea and Japan has arrived, and on the same day, Korea and Japan paid the total amount of the principal and interest of the loan to Busan Mutual Savings Bank as joint and several sureties on the same day. On April 6, 2011, Korea and Japan requested the public sale of the instant land as the first and second first beneficiaries of the instant trust agreement, and accordingly, this trust proceeds with the public sale procedure for each land and building on each ground listed in the attached Table 1 of the lower judgment on June 21, 201, and sold each land and building on each ground listed in the attached Table 1 of the lower court on the public sale date to KRW 37256,660,000,000,000,000,000,000 won.

(14) The Korea-Japan collected KRW 19.5 billion in actual payment from the public auction proceeds, and KRW 20,506,736,333 in total from the status of the first and second priority beneficiary of the instant trust agreement. The Defendant collected KRW 5.00 billion in total from the Defendant’s claim for the trust principal or trust proceeds with respect to the trust trust trust proceeds, which was leased to the Defendant, and completed the settlement procedure for the Defendant and the Defendant. The Defendant received KRW 12,739,57,49 in total from the Korea-Japan trust as the beneficiary of the instant trust agreement, and received KRW 12,739,57,49 in total from the public auction proceeds.

(15) When it is anticipated that each of the lands and above-ground buildings listed in the [Attachment 1] of the lower judgment will be disposed of by public auction to Kinc Development. On June 20, 201, the day immediately preceding the date of public auction, the Plaintiff sold the standing timber of this case to Kinc Holdings Co., Ltd. for KRW 1 billion. On August 29, 201, the Plaintiff sold each of the lands listed in Annex 2 of the lower judgment to Kinc Development for KRW 1 billion.

(16) On June 21, 2012, Korea New and New Co., Ltd., Ltd., which is the implementation company of the Busan Gangseo-gu Joint Housing Construction Project, takes over KRW 56,440 million as the largest investor, and operates the said Company as a major investor, by acquiring KRW 56,00 million as the total amount of KRW 6,440,00,00 as the public sale price received on June 21, 2012, as a major shareholder of the Defendant, who holds 51% of the shares issued in the instant case, which was practically impossible to implement the instant project due to the public sale of the instant land, etc.

3. We examine the above facts in accordance with the legal principles as seen earlier.

(1) The following circumstances revealed by the above facts, i.e., ① the Plaintiff’s joint venture investment contract, etc. for the purpose of jointly running the instant business, and the Defendant was established as a special purpose corporation for the purpose of jointly operating the instant business; ② for such reason, three persons recommended by the Plaintiff’s side are the Defendant’s directors; ③ one person recommended by the Plaintiff himself/herself as a joint representative director and operated the Defendant; ③ However, regarding the scope of the right to benefit of Korea and Japan, disputes arose between the Plaintiff and the new public counterpart, and ④ the Plaintiff was dismissed from the joint representative without any possibility of having been removed from the Defendant’s own land for the purpose of restoring the Plaintiff’s new land and its new land for the purpose of removing the Plaintiff’s new land from the original purpose of the sale of the instant land and its new land for the purpose of removing the Plaintiff’s new land from the original purpose of the sale of the instant land for the purpose of the sale of the instant land and its new land for the purpose of removing the Plaintiff’s new land from the original purpose of the sale of the instant land.

(2) In addition, in light of the following: (a) the land of this case was already disposed of by public sale, etc., and the defendant could not be acquired by the defendant; and (b) under the situation where the new public co-owner who is in conflict with the plaintiff's side appoints a majority director and independently operates the defendant, it is virtually impossible to keep the current state through the exercise of a minority shareholder's right such as the filing of a representative lawsuit; (b) even if the plaintiff requested the defendant's board of directors to convene a temporary general meeting for dissolution and the general meeting of shareholders is held by the defendant, there is no possibility that a resolution of dissolution requiring a special resolution will be established in the situation where the new public co-owner holds the majority of the shares issued, and (c) this situation will continue in the future as long as the single public co-owner occupies the status of the majority of the defendant, it is reasonable to deem that there exists no other way to protect

(3) In the same purport, the lower court was justifiable to have determined that there existed a cause for dissolution under Article 520(1)1 of the Commercial Act to the Defendant. In so doing, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence inconsistent with logical and empirical rules, or by misapprehending the legal doctrine on the grounds for requesting dissolution

4. Conclusion

Therefore, the appeal is 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.

Justices Park Sang-ok (Presiding Justice)