[1] Requirements for acquiring shares of a company in the name of a third party constitutes the acquisition of shares of a company prohibited under Article 341 of the Commercial Act

[2] The case holding that in a case where Gap corporation's director, etc. established Eul corporation and acquired Gap corporation's stocks under the name of Eul corporation's largest shareholder after establishing Eul corporation, Eul corporation's acquisition of the above stocks can only be recognized as having prepared the acquisition price of Eul corporation's stocks, and it cannot be deemed that Eul's acquisition of the above stocks constitutes the acquisition of treasury stocks prohibited under Article 341 of the Commercial Act, on the grounds that the above acquisition price of Eul corporation's stocks belongs to Gap corporation

[1] Article 341 of the Commercial Code provides that a company shall not acquire its own shares on its own account except as provided in any of the subparagraphs of the same Article. This provision aims at prohibiting in principle a company from acquiring its own shares on its own account, unless there exist any exceptional grounds under the Commercial Code or other Acts and subordinate statutes, as it threatens to endanger the capital foundation of the company. In order to deem that when a company acquires its shares in its own name without its own shares acquired by a third party and without its own shares acquired by a third party, it constitutes the acquisition of its own shares prohibited under the above provision, the company’s funds for acquiring its shares shall be contributed by the company

[2] The case holding that in a case where Gap's director, etc. established Eul, etc., and thereby controlled Eul company through Eul after acquiring Eul's shares under the name of Eul company's largest shareholder, Gap company paid advance payment to Eul company, and provided various financial support to Eul company to secure the principal and interest of loan when Eul borrowed funds to be used as the purchase price of shares, and Gap company's director, etc. obtained the above shares by unfairly transferring Eul company's important business sector and property to Eul company, thereby making Eul company raise funds for acquiring shares, and ultimately acquiring the above shares by using Eul company's funds, it can only be acknowledged that Eul's offering of the above acquisition price of shares belongs to Eul company's contribution, and since profits and losses arising from the above acquisition of shares by Eul company's director, etc., belong to Eul company, it cannot be viewed that the above acquisition of shares constitutes an acquisition of treasury shares under Article 341 of the Commercial Act.

[1] Article 341 of the Commercial Act (Amended by Act No. 10600, Apr. 14, 2011) / [2] Article 341 of the Commercial Act (Amended by Act No. 10600, Apr. 14, 201)

[1] Supreme Court Decision 2001Da44109 decided May 16, 2003 (Gong2003Sang, 1309) Supreme Court Decision 2006Da33609 decided July 26, 2007 (Gong2007Ha, 1346)

Hyundai Pusa Co., Ltd and four others (Law Firm Faithful, Attorney Jae-chul, Counsel for the plaintiff-appellant)

Paus Korea Co., Ltd. (LLC, Kim & Kim LLC, Attorneys Shin Hyun-chul et al., Counsel for the plaintiff-appellant)

Gwangju High Court Decision 2008Na3157 Decided February 27, 2009

The judgment below is reversed, and the case is remanded to the Gwangju High Court.

We examine the grounds of appeal.

1. Regarding ground of appeal No. 1

Article 341 of the Commercial Act provides that a company shall not acquire its own shares on its own account except as otherwise provided in any of the subparagraphs of the same Article. This provision aims at prohibiting a company from acquiring its own shares on its own account, unless there exist any grounds for exception provided in the Commercial Act or any other Acts and subordinate statutes, as it is likely to endanger the capital foundation of the company. In order to deem that a company’s acquisition of shares of a company under the name of a third party without acquiring its own shares directly constitutes the acquisition of its own shares prohibited under the above provision, the funds for acquiring its shares shall be made by the company’s contribution and the profits and losses accrued from the acquisition of the shares shall be attributed to the company (see, e.g., Supreme Court Decisions 2001Da44109, May 16, 2003; 2006Da33609, Jul. 26, 2007).

According to the reasoning of the judgment below, in light of the legislative intent of prohibiting the acquisition of treasury stocks after compiling the adopted evidence, the court below held that the non-party, etc., who received financial support from the company for the purpose of acquiring, maintaining, and strengthening corporate governance is prohibited from acquiring treasury stocks as a kind of evasion of the law on the acquisition of treasury stocks if it satisfies the above requirements. However, since various circumstances revealed in the facts stated in its reasoning, especially the non-party, etc., who is the defendant's director, established the global L&C (hereinafter referred to as "global L&T") under the management delegation of the defendant's largest shareholder, and operated the defendant according to the management delegation of the company, which is the defendant's largest shareholder, and established the global L&T (hereinafter referred to as "global L&T"), it was controlled by the defendant through the global L&T under the name of the global L&T, and it was actually prohibited from acquiring treasury stocks under the defendant's own capital or the defendant's property without permission, it constitutes a capital contribution under the defendant's name.

However, in light of the facts acknowledged by the court below, when the defendant paid advance payment to the global L&C and received a loan to use it as the purchase price of the stocks of this case, it is difficult to recognize that the global L&C has a relationship to which the profits and losses arising from the acquisition of the stocks of this case belong to the defendant by jointly and severally offering the principal and interest of the loan, so that the defendant can prepare the purchase price of the stocks of this case by unfairly transferring the defendant's important business sector and property to the global L&C as stated in the judgment of the court below, as well as that the non-party et al., a director of the defendant et al., obtained the stocks of this case from the defendant, and ultimately controlled the defendant by using the global L&C. However, even though it is difficult to find that the global L&C merely has a relation to the defendant's contribution to the acquisition price of the stocks of this case. Furthermore, it is difficult to find out the records on different records that there is no explicit or implied agreement between the defendant et al., separate from the defendant.

Therefore, the acquisition of the instant shares by global L&C pursuant to the foregoing legal doctrine is likely to endanger the Defendant’s capital foundation as the acquisition of shares by the Defendant’s calculation, and cannot be deemed as an acquisition of treasury shares prohibited by Article 341 of the Commercial Act.

Ultimately, the court below erred by misapprehending the legal principles on the acquisition of treasury stocks prohibited by Article 341 of the Commercial Act, thereby affecting the conclusion of the judgment.

The ground of appeal pointing this out is with merit.

2. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Yang Chang-soo (Presiding Justice)