Whether a corporation shall undergo a resolution of the board of directors when filing an application for commencing rehabilitation procedures (affirmative)

Article 393(1) of the Commercial Act provides that a resolution of the board of directors shall be made on the disposal and transfer of important assets of a stock company, borrowing of large-scale assets, etc. so that the board of directors of a stock company has the power to make a decision on the execution of business of the company. Thus, not only disposal of important assets of a stock company, borrowing of large-scale assets, but also important business which is not entrusted to the representative director general and specific, which

When a stock company files an application for rehabilitation procedures, the filing of the application is notified to the Financial Services Commission and the competent administrative agency [Article 40 of the Debtor Rehabilitation and Bankruptcy Act (hereinafter “DR”)], and the debtor’s right to dispose of the debtor’s business and property is controlled by the court’s preservative measure (Article 43 of the Debtor Rehabilitation and Bankruptcy Act).

Where rehabilitation procedures commence against a stock company, due to the termination of a contract and the exercise of the right to repurchase, etc. on the ground thereof, a substantial change occurs in the company’s business or property. In addition, the right to manage affairs of the original stock company is granted to the representative director (Articles 389(3) and 209(1) of the Commercial Act); and the right to make decisions on the disposal and transfer of important matters or important assets as prescribed by the articles of incorporation or law has the general meeting of shareholders or the board of directors (Articles 361 and 393(1) of the Commercial Act); however, upon commencement of rehabilitation procedures, the right to perform affairs and the right to manage and dispose of the company is exclusive to the administrator; and the custodian is required to obtain prior permission from the court in order to perform certain acts, such as disposal of the assets or expenditure of money (see Articles 5

A stock company may seek the efficient rehabilitation of an obligor or its business by adjusting legal relations among various interested parties, including creditors, shareholders, etc. through rehabilitation procedures (Article 1 of the Debtor Rehabilitation Act). However, when a decision to discontinue rehabilitation procedures becomes final and conclusive, the bankruptcy procedures may proceed (Article 6(1) of the Debtor Rehabilitation Act).

In light of the above role of the board of directors in a stock company and the effect of a decision on commencing rehabilitation procedures for a stock company, an application for commencing rehabilitation procedures for a stock company is an important business that is not part of the representative director’s daily business affairs and requires

Articles 209(1), 361, 389(3), and 393(1) of the Commercial Act; Articles 1, 6(1), 40, 43, 56(1), and 61 of the Debtor Rehabilitation and Bankruptcy Act

Supreme Court Decision 2009Da55808 Decided January 14, 2010

Plaintiff (Law Firm Cheong, Attorneys Lee Jae-ap et al., Counsel for the plaintiff-appellant)

Dae Chang Enterprise Co., Ltd. (Law Firm Li, Attorneys Lee Lee-soo et al., Counsel for the plaintiff-appellant)

Suwon District Court Decision 2018Na61192 decided December 6, 2018

All appeals are dismissed. The costs of appeal are assessed against each party.

The grounds of appeal are examined.

1. Plaintiff’s ground of appeal

Article 393(1) of the Commercial Act provides that a resolution of the board of directors shall be made on the disposal and transfer of important assets of a stock company, and the execution of business of a company such as borrowing large-scale assets. Thus, the board of directors of a stock company shall have the authority to make a decision on the execution of business of the company. As such, not only the disposal of important assets of a stock company, the borrowing of large-scale assets, but also important business which is not entrusted to the representative director generally and specifically, and which is not included in daily business (see Supreme Court Decision 2009Da5808, Jan.

When a stock company files an application for rehabilitation procedures, the filing of the application is notified to the Financial Services Commission and the competent administrative agency [Article 40 of the Debtor Rehabilitation and Bankruptcy Act (hereinafter “DR”)], and the debtor’s right to dispose of the debtor’s business and property is controlled by the court’s preservative measure (Article 43 of the Debtor Rehabilitation and Bankruptcy Act).

Where rehabilitation procedures commence against a stock company, due to the termination of a contract and the exercise of the right to repurchase, etc. on the ground thereof, a substantial change occurs in the company’s business or property. In addition, the right to manage affairs of the original stock company is granted to the representative director (Articles 389(3) and 209(1) of the Commercial Act). The right to make decisions on the disposal and transfer of important matters or important assets prescribed by the articles of incorporation or laws has the general meeting of shareholders or the board of directors (Articles 361 and 393(1) of the Commercial Act). However, upon commencement of rehabilitation procedures, the right to perform affairs and the right to manage and dispose of the company is exclusively attached to the manager, and the custodian is required to obtain prior permission from the court in order to perform certain acts, such as disposal of the assets or expenditure of money (see Articles 5

A stock company may seek the efficient rehabilitation of an obligor or its business by adjusting legal relations among various interested parties, including creditors, shareholders, etc. through rehabilitation procedures (Article 1 of the Debtor Rehabilitation Act). However, when a decision to discontinue rehabilitation procedures becomes final and conclusive, the bankruptcy procedures may proceed (Article 6(1) of the Debtor Rehabilitation Act).

In light of the above role of the board of directors in a stock company and the effect of a decision on commencing rehabilitation procedures for a stock company, an application for commencing rehabilitation procedures for a stock company shall be deemed to require a resolution of the board of directors as it constitutes an important business not belonging

The court below held that the plaintiff, a representative director of the defendant, is liable for damages caused by illegal acts against the defendant on the premise that the plaintiff's application for commencement of rehabilitation procedure constitutes an important business not belonging to the representative director's daily business

In light of the aforementioned legal principles and records, the above determination by the court below is just and acceptable, and contrary to the allegations in the grounds of appeal, there were no errors by misapprehending the legal principles on the application for commencing rehabilitation procedures and on the requirements for establishing illegal acts, thereby affecting the conclusion

In addition, examining the reasoning of the lower judgment in light of the relevant legal principles, the lower court’s determination that did not limit the Plaintiff’s liability is acceptable, and contrary to what is alleged in the grounds of appeal, there were no errors affecting the conclusion of the judgment.

2. As to the Defendant’s ground of appeal

A. Ground of appeal No.1

Based on its stated reasoning, the lower court determined that the Defendant’s “Guidelines for the Payment of Retirement Allowances for Executive Officers” was an effective provision established through legitimate procedures.

In light of the relevant legal principles and records, the above determination by the court below is acceptable, and contrary to the allegations in the grounds of appeal, the court below did not err by misapprehending the legal principles on the duty to pay retirement allowances for officers, etc.

B. Ground of appeal No. 2

If the plaintiff did not file an application for commencement of rehabilitation procedures, the court below held that it is difficult to recognize that the defendant received a project as stated in the decision of the court below and received the expected profits, and did not recognize the plaintiff's liability with respect to the part that the defendant deemed to have lost the profits of time due to the application for commencement

In light of the relevant legal principles and records, the above determination by the court below is acceptable, and contrary to the allegations in the grounds of appeal, there were no errors by misapprehending the legal principles on liability for damages or by failing to exhaust all necessary deliberations.

C. Ground of appeal No. 3

Based on its stated reasoning, the lower court determined that an amount equivalent to 1/2 of the Plaintiff’s retirement allowance is not allowed to offset the amount.

In light of the relevant legal principles and records, the above determination by the court below is just and acceptable, and contrary to the allegations in the grounds of appeal, there were no errors by misapprehending the legal principles as to claims prohibited from seizure, thereby affecting the judgment.

3. Conclusion

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

Justices Kim Seon-soo (Presiding Justice)