Plaintiff 1 and four others (Law Firm Shin, Attorneys Seo Byung-jin et al., Counsel for the plaintiff-appellant)

Seoul High Vehicle Industry Co., Ltd. (Law Firm LLC, Attorneys Park Young-young et al., Counsel for the plaintiff-appellant)

February 26, 2016

Seoul Eastern District Court Decision 2014Gahap109233 Decided April 3, 2015

1. Of the judgment of the first instance court, the part of the defendant's claim for confirmation of existence of the resolution of the provisional shareholders' meeting on November 10, 2012 shall be revoked.

On November 10, 2012, it is confirmed that there is no resolution to appoint Nonparty 1 as internal director and representative director at the special general meeting of shareholders of the defendant on November 10, 2012.

2. The appeal against the plaintiffs' primary and conjunctive claims against the provisional shareholders' general meeting on August 18, 2014 is dismissed.

2. The costs of the lawsuit are assessed against the plaintiffs, and the remainder is assessed against the defendant, respectively, by the first and second instances.

On November 10, 2012, the judgment of the first instance is revoked. It is confirmed that there is no resolution in which Nonparty 1 was appointed as an internal director and representative director at the special general meeting of shareholders held on November 10, 2012 by the Defendant. It is confirmed that there is no resolution in the special meeting of shareholders held on August 18, 2014 that Nonparty 3, Nonparty 4, and Nonparty 5 did not have a resolution in which the internal director was appointed as each internal director,

1. Basic facts

(a) The current status of distribution of shares by the defendant;

Of the Defendant’s outstanding shares, Plaintiff 1 owns 5,867 shares (10.86%) and Nonparty 2 holds 22,079 shares (40.89%) and 1,577 shares (2.9%), Plaintiff 5, and Plaintiff 2 are 675 shares (1.25%), Plaintiff 3, and Plaintiff 4 are 451 shares (0.835%) and Nonparty 1 holds 22,90 shares (42.41%) from among the Defendant’s outstanding shares.

B. Preparation of the Defendant’s minutes of the extraordinary shareholders’ meeting on November 10, 2012

1) On November 10, 2012, at a special general meeting of shareholders, a resolution to re-appoint Nonparty 1 and Plaintiff 1, whose term of office has expired, as a director, as a representative director, with the consent of all the shareholders Nonparty 1, Nonparty 2, and Plaintiff 1, and a special meeting minutes of the general meeting of shareholders, stating that “in the event that the number of directors is not more than two, the resolution to appoint the representative director at the general meeting of shareholders” was prepared, and that the amendment of the articles of incorporation to appoint the representative director was completed thereafter.

2) At a special shareholders’ meeting on the same day, the minutes of the special shareholders’ meeting were also prepared, with the consent of all Nonparty 1, Nonparty 2, and Plaintiff 1, who were present at the general shareholders’ meeting, to the effect that “the shareholders whose term of office has expired, Nonparty 1, and Plaintiff 1, who were re-appointed as a company director,” and

(c) A special general meeting of shareholders on August 18, 2014;

1) On June 17, 2014, Plaintiff 1 demanded the Defendant to convene an extraordinary general meeting of shareholders on the agenda of “the appointment of three directors, etc.,” and Nonparty 1 proposed an agenda for an additional appointment of one director on July 2, 2014 under Article 363-2(1) of the Commercial Act to the Defendant.

2) On July 10, 2014, Nonparty 1, as the Defendant representative director, issued a notice of convening a temporary general meeting of shareholders with the purpose of the meeting, including the date and place of the meeting, and the “cases of appointing four directors”, as well as the seven major staff candidates for new directors.

3) On August 5, 2014, Nonparty 1 requested the Defendant to appoint directors by means of a concentrated voting under Article 382-2 of the Commercial Act. On August 6, 2014, Nonparty 1 notified the Defendant as the Defendant’s representative director of the fact.

4) On August 18, 2014, the Defendant passed a resolution to appoint Nonparty 3 (40,800), Nonparty 4 (40,800), and Nonparty 5 (10,000) as an internal director, by conducting a concentrated vote at a special shareholders’ meeting.

D. The defendant's articles of incorporation

The provisions pertaining to the instant case are as follows:

Article 18 (Chairman) The representative director shall preside over the general meeting of stockholders: Provided, That another director who is appointed by the board of directors shall preside over the public notice.

Except as otherwise provided in Acts and subordinate statutes or the articles of incorporation, a resolution of the general meeting of stockholders shall be adopted by and with attendance of stockholders who hold stocks equivalent to the majority of the issued stocks, a majority of voting rights of the stockholders present.

Article 22 (Appointment of Directors) The directors of a company concerned shall be appointed by a majority of the voting rights after a shareholder who holds the shares equivalent to a majority of the total outstanding shares.

[Ground of recognition] Facts without dispute, Gap 1, 6, 7, 11, 12, 20, 24, 33 (including additional numbers), Eul 17, and the purport of the whole pleadings

2. Determination on November 10, 2012 on the claim to verify the absence of a resolution of the temporary general meeting of shareholders

A. The plaintiffs' assertion

The defendant did not issue a notice of convening a provisional general meeting of shareholders to the plaintiffs, and even though it did not hold a provisional general meeting of shareholders, the non-party 1 has forged the minutes of the first general meeting of shareholders to be appointed as directors and representative directors. Therefore, there is no resolution of the

B. Determination

1) In the case of a so-called one-called one-called company in which all shares are owned by the person who holds the total shares in a stock company, it is obvious that the shareholders will be established as the general meeting if they attend the general meeting as the sole shareholder and the resolution will be made with the intent of the shareholders. Thus, even if there was no fact of holding the general meeting, if the minutes of the general meeting were to have been prepared by the one-person shareholders, it may be deemed that there was a resolution, barring any special circumstances. The same applies to a case where one-person entered another person as a shareholder lending another person's name, but actually owns all shares. However, if a resolution of the general meeting was prepared in a false manner without going through the actual convocation procedure and resolution procedure, if the ownership of shares is substantially distributed, it shall be deemed that one-person is the majority of all shares, and even if the minutes of the general meeting have been prepared by such controlling shareholder, it shall be deemed that there is no resolution of the general meeting as it constitutes a serious defect to the extent that such resolution could not exist (see Supreme Court Decision 2007Da275, Feb. 27, 20007).

2) In light of the above legal principles, in full view of the overall purport of the arguments in the statement of No. 11-2 (the minutes of the first general meeting of shareholders, No. 12-1, No. 2, and No. 18-1 through No. 6 of the evidence No. 12-2, and No. 18 of the evidence No. 18, as to this case, the authenticity is presumed to have been established since Plaintiff 1’s seal is recognized as being affixed with Plaintiff 1’s seal. As to this case, the Plaintiffs asserted that Nonparty 6’s seal was forged because Nonparty 6 arbitrarily affixed Plaintiff 1’s seal, but there is no evidence to acknowledge it), No. 10, No. 11-4 of the evidence No. 11, No. 10, and No. 11-4, the first general meeting of shareholders held at the Defendant’ head office around November 10, 2012 with the attendance of Nonparty 1, Nonparty 2, and Plaintiff 161.

However, according to the defendant's 11 evidence 2, 12, 15, 17-2, 21, and 24 (the defendant's 1's 2's 1's 1's 2's 1's 1's 2's 1's 1's 2's 1's 1's 2's 1's 1's 1's 1's 1's 2's 1's 1's 1'''''''''''''''''''''' and 1'''''''''''''' 1''' 2''''''''' 1'''''' 6'''''''' 1'''' 1''''''' 1''''''' 6''' 1''''s 1''''''2'''''''''''6''''''''''''''''''''''2'4''''''''''s 1's 1'2's 1's 1'

Meanwhile, even if the Defendant’s shareholders did not raise any objection against only the preparation of the minutes of the general meeting of shareholders or the minutes of the board of directors without actually holding the shareholders’ general meeting until the relocation date, there was an objection among the following circumstances, which are acknowledged as comprehensively taking account of the overall purport of the pleadings as follows: (i) after July 2010, Plaintiff 1 raised an objection against the Defendant’s dividends, settlement of accounts, etc., and filed a lawsuit claiming dividends against the Defendant; (ii) Nonparty 8, who was the Defendant’s joint representative director for more than 20 years, died on September 8, 2010, and Nonparty 1, who was the Defendant’s sole representative director, became the Defendant’s representative director, and Nonparty 2, who was in exclusive charge of Nonparty 1’s business start-up and did not have the Defendant’s temporary representative director for more than 8 years, and (iii) Nonparty 1 again agreed to the Defendant’s temporary representative director’s appointment procedure and the minutes of the board of directors.

Therefore, the judgment of the provisional shareholders' meeting held on November 10, 2012 by the defendant who appointed the non-party 1 as a director and a representative director is considerably defective so that the resolution could not be seen as exist. Thus, the non-existence of the resolution should be deemed as nonexistent.

3. Determination on the resolution of the extraordinary general meeting of shareholders on August 18, 2014

(a) Main claim (request for confirmation of absence of resolution);

1) The plaintiffs' assertion

Since there is no resolution of the temporary general meeting of shareholders on November 10, 2012, which appointed Nonparty 1 as the defendant’s representative director, the resolution of the temporary general meeting of shareholders on August 18, 2014 was made by a person who is not qualified as the representative director, and there is no serious defect that the resolution cannot be deemed to exist.

2) Determination

As seen above, there is no resolution of a special general meeting of shareholders as of November 10, 2012, which appointed Nonparty 1 as the representative director. However, the fact that the term of office of Nonparty 1 and Plaintiff 1 expired on November 10, 2012, but no new director and the representative director have been appointed is disputed among the parties. Thus, Nonparty 1 has the rights and duties of the representative director until the new representative director takes office in accordance with Articles 389(3) and 386 of the Commercial Act. Thus, it is legitimate for Nonparty 1 to notify the temporary general meeting of shareholders as of August 18, 2014 and to proceed with the general meeting of shareholders as the chairperson.

As to this, the plaintiffs asserted that Article 389 (3) and Article 386 of the Commercial Act does not protect the retired representative director from office unfairly extending his/her representative director's term of office by abusing his/her authority to deal with emergency affairs. Thus, the plaintiffs asserted that the non-party 1 does not continue to have the rights and obligations of the representative director

However, according to Articles 389 and 386 of the Commercial Act, if the term of office of the representative director expires but the rights and obligations of the former representative director remain in existence due to the failure to appoint a new representative director, the director, auditor and other interested persons can request the court for the appointment of a temporary representative director, but the plaintiffs who are shareholders of the defendant did not take measures for the appointment of the representative director. There is no ground for excluding the application of the above provisions of the Commercial Act against the non-party 1, and there is no evidence to prove that the non-party 1 unfairly extended the term of office of the representative director by abusing the above provisions

Therefore, the plaintiffs' assertion that there is no resolution of the special shareholders' meeting on August 18, 2014 is without merit.

(b) Preliminary claim (claim for Revocation of Resolution);

1) The plaintiffs' assertion

The resolution of the special shareholders' meeting on August 18, 2014 should be revoked because the convocation procedure and the method of resolution violate the law or the articles of incorporation or are remarkably unfair for the following reasons.

A) Of the candidates for new directors, Nonparty 3 and Nonparty 4, who were listed as the director of the same type of business as the Defendant and Nonparty 4, omitted the career records and notified the Defendant, and Nonparty 3 and Nonparty 4 were appointed as directors due to the duty to hold concurrent offices (Article 397 of the Commercial Act).

B) Nonparty 1, who is not the representative director, proceeded with a meeting as the chairman of the special general meeting of shareholders.

C) There was no discussion and voting on the revised agenda proposed by the Plaintiffs (one of the plaintiffs and one of the non-party 1 elected respectively).

D) Even in the case of the appointment of directors based on the cumulative voting system, the quorum of “the attendance of a shareholder who holds a majority of the total number of outstanding shares” as prescribed by the Defendant’s articles of incorporation should be satisfied, but the Plaintiffs holding the majority shares did not participate and violated this, and only three directors were appointed differently from the initial agenda.

E) As a meeting is held by persons other than the Chairperson, the plaintiffs' right of debate and right of deliberation were infringed.

F) Even though the articles of incorporation was modified at the temporary shareholders’ meeting on November 10, 2012, it did not notify the Plaintiffs.

2) Determination

A) Notice of convening director-candidate omitted and appointment of director-qualified person

According to Gap evidence 1, Gap evidence 3-1, Eul evidence 4-1, and Eul evidence 8, the non-party 3 was registered as director and representative director of the company with special trucking transport business; the non-party 4 was registered as director of the company with the purpose of trucking transport business; and the non-party 4 was registered as the non-party director of the company with the purpose of automobile maintenance business. However, the non-party 4 did not have any special reason to view the defendant's appointment of non-party 4 as being in violation of the defendant's articles of incorporation or the defendant's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party's non-party.

B) Whether the meeting is held by an unauthorized person

As seen above, Nonparty 1 has the rights and duties of Defendant representative director at the time of the temporary general meeting of shareholders on August 18, 2014. Therefore, the Plaintiffs’ assertion on this part is without merit.

C) Whether discussion and voting were infringed on the revised agenda

In convening a general meeting of shareholders, notice is given in writing stating the purpose of the meeting (Article 363(1) and (2) of the Commercial Act). Thus, a resolution shall not be passed except for the subject matter of the meeting notified at the general meeting of shareholders. However, in the case of a centralized voting system in which two or more directors are elected, voting rights are granted to the number of directors to be elected by each shareholder, and shareholders may exercise their voting rights concentratedly or distributed to a specific candidate (Article 382-2 of the Commercial Act), so that shareholders may decide whether to request a concentrated voting for the company because the number of directors to be appointed is different and the number of voting rights to be exercised can be determined differently. Thus, the change is within the same agenda unless prior notice is given to the shareholders.

Therefore, it cannot be said that the resolution method violated the law or the articles of incorporation or is remarkably unfair on the ground that the defendant did not go through discussions and voting on the revised agenda of the plaintiffs.

D) Whether a quorum for proceedings has been violated

In the case of making a resolution by a centralized voting system, it is considered whether a shareholder who holds stocks equivalent to a majority of the total number of stocks issued in accordance with the defendant's articles of incorporation

The Defendant’s articles of incorporation (Article 22) provides that a shareholder who holds shares equivalent to a majority of the total number of issued and outstanding shares shall attend a meeting to exclude the centralized voting system from being elected by the majority of the voting rights, and there is no provision to apply the cumulative voting system separately. If a director is elected by the cumulative voting system at a general meeting of shareholders, the Commercial Act provides that a director shall follow the cumulative voting system under the Commercial Act. The Commercial Act provides that a director is elected in order from the person who obtains the largest number of voting rights in relation to the cumulative voting system (Article 382-2(4) of the Commercial Act) and does not provide for the quorum or quorum of the cumulative voting system; the significance of the cumulative voting system for protecting the right to appoint directors and the highest number of voting rights of the minority shareholders to be elected by the directors; even if only Nonparty 1 who recommended the remaining number of issued and outstanding shares, it cannot be deemed that only the Plaintiffs did not participate in the extraordinary voting system by themselves but did not take into account the purport of the remaining voting.

E) Whether the right to debate, deliberation, or amendment of the articles of incorporation is violated

The statement of Gap evidence No. 15 alone is insufficient to recognize that a meeting was led by a person other than the non-party 1, or that the plaintiffs' right to debate and deliberation was infringed, and there is no other evidence to acknowledge it.

In addition, as seen earlier, there is no resolution of the provisional general meeting of shareholders on November 10, 2012, and even if the articles of incorporation was modified to the effect that the representative director is appointed at the general meeting of shareholders if not more than two directors are appointed at the above provisional general meeting of shareholders, the Defendant cannot be deemed to have a duty to notify the Plaintiffs of the modified articles of incorporation at the temporary general meeting of shareholders on August 18, 2014, unless the modified contents are irrelevant to the agenda of the provisional general meeting of shareholders on August 18, 2014. Therefore, the convocation procedure and method of resolution cannot be deemed to have violated the statutes or the articles of incorporation or to have been significantly unfair.

4. Conclusion

If so, the plaintiffs' claim for confirmation of existence of the resolution of the provisional shareholders' meeting as of November 10, 2012 is justified, and all the surrounding and conjunctive claims related to the resolution of the provisional shareholders' meeting as of August 18, 2014 are dismissed as of August 18, 2014. Since the judgment of the court of first instance is inappropriate in some different conclusions, the part of the defendant's claim for confirmation of existence of the resolution of the provisional shareholders' meeting as of November 10, 2012 among the judgment of the court of first instance is revoked, and the defendant's claim for confirmation of existence of the resolution of the provisional shareholders' meeting as of November 10, 2012 is revoked, and there is no resolution that appoints non-party 1 as a director and the representative director from the provisional shareholders' meeting as of November 10, 2012, and all appeals as to the plaintiff's main and conjunctive claims as of August 18,

Judges Kim Jong-chul (Presiding Justice)