In a case where a shareholder holding no less than 1/100 of the total issued and outstanding shares files a lawsuit on behalf of the company immediately without demanding a director to file a lawsuit against the company, even though there is no risk of irreparable damage to the company, the meaning of such lawsuit is legitimate (negative) and the meaning of “case where irreparable damage may occur”

Article 403(1), (3), and (4) of the Commercial Act

Plaintiff

Defendant 1 and five others

Daegu High Court Decision 2009Na151 Decided November 6, 2009

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

The grounds of appeal are also examined.

1. According to Article 403(1), (3), and (4) of the Commercial Act, a shareholder who holds no less than 1/100 of the total issued and outstanding shares may file a lawsuit against the company to enforce directors' liability. In a case where the company does not file a lawsuit within 30 days from the date of receipt of such request or where the company is likely to cause irreparable damage to the company due to the lapse of the above period, a shareholder who holds no less than 1/100 of the total issued and outstanding shares may immediately file a lawsuit on behalf of the company. This constitutes a provision on the requirements for filing a lawsuit prepared to prevent a lawsuit against the company by shareholders, taking into account that it is based on the rights of a shareholder's representative lawsuit.

Therefore, if a shareholder who holds no less than 1/100 of the total issued and outstanding shares, without demanding a director to file a lawsuit against the company without demanding the company to bring an action against the company, despite the absence of a risk of irreparable damage, files an action on behalf of the company immediately, such lawsuit shall be dismissed as illegal and void. Here, where irreparable damage is likely to occur, means the case where the director is likely to escape or dispose of assets, such as when the director intends to escape or dispose of assets, at the expiration of the prescription period for claiming damages against the director.

2. According to the reasoning of the judgment below, the court below acknowledged facts as stated in its reasoning based on the evidence adopted. Even if the non-party company was dissolved, if there are other provisions in the articles of incorporation, or if the non-party company did not appoint a liquidator separately at the general meeting of shareholders, the director at the time of dissolution is naturally an institution executing and representing liquidation affairs of the company under liquidation. Thus, in this case, it is difficult to view that there are special circumstances where the plaintiff is exempted from filing a lawsuit to enforce director's liability against the company (hereinafter "request for lawsuit"). As alleged by the plaintiff, even if the shareholder's filing a lawsuit is not of doubt, such circumstance alone cannot be viewed as a case where the claim for lawsuit is exempted. Further, there is no evidence to support that the non-party company's claim for damages against the defendants of the non-party company should occur on December 31, 200, and since the claim against the non-party company was extinguished by the prescription period of the non-party company, it cannot be viewed as an urgent cause for damages to the non-party company.

In light of the above legal principles, relevant statutes, and records, although the court below's explanation of some reasons is not appropriate, the conclusion of the court below which dismissed all of the lawsuits of this case on the ground that it failed to meet the requirements for filing a representative suit under Article 403 of the Commercial Act is justifiable. In so doing, the court below did not err by misapprehending the legal principles as to a representative suit by shareholders under Article 403 of the Commercial Act, by misapprehending the legal principles as to the correction of defects and the date of

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 Min Il-young (Presiding Justice)