[1] In case where a director of a corporation issues new shares, etc. at a price lower than the market price by the method of allocating shareholders, whether the crime of breach of trust is established (negative)

[2] Criteria to distinguish between the method of shareholder allocation from the method of third party allocation in the issuance of new shares, etc. of a corporation

[3] Whether the act of a director, which was issued under the same condition as the case of a third party by failing to accept the forfeited part due to the failure of a shareholder, constitutes a breach of duty against the company (negative)

[4] The case affirming the defendants not guilty of the charges of violating the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) that the defendants issued the convertible bonds of Gap corporation to a lower price than reasonable price and damaged the company

[5] Whether a director of a stock company's transfer of control over the company to a third party against the intention of the existing stockholder constitutes a breach of duty (negative with qualification)

[6] The case rejecting the special prosecutor's ground of appeal stating that the defendants' act of issuing convertible bonds, etc. for the purpose of transferring control over a stock company is an abuse of the issuing authority by itself and constitutes a breach

[7] The meaning of "act of breach of trust" in the crime of breach of trust

[8] Where a director of a corporation issues new shares, etc. at a price significantly lower than the market price by means of a third party allocation, whether the crime of breach of trust is established (affirmative)

[9] The case holding that the court below erred by misapprehending legal principles in finding not guilty of the charge of violating the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) that the Defendants issued the bonds with warrants of Gap corporation to a third party allotment method and inflicted loss on the company

[10] The meaning and criteria for determining “when property damage is inflicted” in the crime of occupational breach of trust (=economic and substantial perspective) and the method of calculating the existence and scope of “negative damage”

[11] The method of calculating property damage suffered by a company where bonds with warrants are issued at a remarkably low price

[12] The meaning of "Fraud and other unlawful acts" under Article 9 of the Punishment of Tax Evaders Act

[13] Requirements for concealing income using the borrowed account to constitute “Fraud and other unlawful acts” as stipulated in Article 9 of the Punishment of Tax Evaders Act, and whether the existence of tax payment obligation is a premise for recognizing the corresponding nature of the above “Fraud and other unlawful acts” (affirmative)

[14] The case affirming the judgment below which acquitted the Defendant of the part concerning the acquisition of stocks prior to the enforcement of the regulation on taxation of transfer income tax of listed stocks among the facts charged against the violation of the Act on the Aggravated Punishment, etc. of Specific Crimes (tax) that the Defendant evaded transfer income

[1] Articles 35 (2) and 356 of the Criminal Act, Article 416 of the Commercial Act / [2] Article 416 of the Commercial Act / [3] Articles 355 (2) and 356 of the Criminal Act, Article 513 of the Commercial Act / [4] Articles 30, 355 (2) and 356 of the Criminal Act, Article 3 (1) of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes, Article 513 of the Commercial Act / [5] Articles 35 (2) and 356 of the Criminal Act / [6] Article 35 (2) and 356 of the Criminal Act, Article 513 of the Commercial Act / [7] Article 355 (2) of the Criminal Act / [8] Article 355 (2) and 356 of the Act on the Aggravated Punishment, etc. of Specific Crimes, Article 416 of the Commercial Act / [30, Article 56 (2) of the Punishment Act

[1] [2] 3/58/101] Supreme Court en banc Decision 2007Do4949 Decided May 29, 2009 (Gong2009Ha, 1079) / [5] Supreme Court Decision 2001Da36580 Decided February 13, 2004 (Gong2004Sang, 451) 2003Do7645 Decided June 17, 2004 (Gong2004Ha, 181), Supreme Court Decision 2010Do387 Decided October 14, 2010 (Gong2010Ha, 207) / [306Do48108 Decided June 19, 2008] Supreme Court en banc Decision 2005Do10679 Decided June 27, 2010 (Gong207308Do10810 Decided June 2019)

Defendant 1 and seven others

Defendants and Special Prosecutor

Attorney Cho Jae-sop et al.

Seoul High Court Decision 2008No1841 decided Oct. 10, 2008

Of the judgment of the court below, the part on the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation of trust) regarding Samsung SDR Co., Ltd., Samsung Es., Ltd., and the guilty part on the defendant 1, 4, and the crime of violation of the Act on the Aggravated Punishment, etc. of Specific Crimes (tax) on May 31, 2003 and May 31, 2004 are reversed, and this part of the case is remanded to the Seoul High Court. The remainder of the special prosecutor's remaining appeals are dismissed.

We examine the grounds of appeal.

1. As to the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) regarding the issuance of Samsung C&T convertible bonds

A. According to the reasoning of the judgment below, the court below, based on the evidence, adopted a resolution on October 30, 1996 on the issuance of non-indicted 2 convertible bonds with non-registered bonds by opening the board of directors. The major contents were 9,954,590,00 won of total amount of convertible bonds, facility funds and allocation method of bonds are preferentially allocated to shareholders as of November 14, 1996, but the number of shares calculated by dividing the total amount of convertible bonds into non-indicted 1’s convertible bonds with non-indicted 6’s convertible bonds with non-indicted 9% of the total subscription price was issued as a registered common stock and the conversion price was 7,70 won per share, and shareholders of Samsungland were affiliated companies or affiliated companies of Samsung Group 1’s non-indicted 2 at the time of the issuance of the instant convertible bonds with non-indicted 9’s own convertible bonds with non-indicted 1’s own shares, which were 9% of the total subscription price for non-indicted 1’s shares.

Then, the court below held that the transaction of new shares and bonds with warrant (hereinafter “new shares”) with the nature of new shares or potential shares constitutes capital transaction because the transfer of assets between the company and investors takes place, and thus, even if the company’s manager issues new shares at a lower price than the reasonable price in issuing new shares, it is irrelevant to the company’s profits and losses, the principle of capital adequacy under the Company Act is merely the fact that the amount of shares acquired by the investors should be actually invested in the company’s incorporation or issuance of new shares, and it is also a matter belonging to the board of directors’ business judgment regarding whether to increase capital, etc., and the amount of new shares, etc. for the purpose of transferring control over the transfer of shares, such as gift tax, etc., should be determined at a reasonable price for the issuance of new shares, etc. to the manager of the company, and thus, it cannot be deemed that there was a violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (the duty of the company prior to the issuance of new shares at a lower price than the reasonable price for the company’s issuance of new shares).

B. We examine whether the low-price issuance of the instant convertible bonds constitutes a breach of duty as a director, and thereby, thereby causing damage to the company.

According to the Supreme Court en banc Decision 2007Do49 Decided May 29, 2009, the issue price, etc. is not necessarily determined at the market price in cases where a company issues new shares, etc. according to the method of allocating shareholders, i.e., the number of shares held by shareholders, but can freely determine the issue price pursuant to the business judgment in consideration of the overall interest of shareholders and the necessity and urgency of financing of the company. Thus, the issue price, etc. is lower than the market price, and thus, the company cannot be deemed to have violated its duty of protecting the company’s property, i.e., breach of its duty, because it failed to attract funds from shareholders as much as possible. In this case, the criteria to distinguish whether new shares, etc. are a method of allocating shareholders or a third party allocation should be objectively determined depending on whether the company grants shareholders an opportunity to take over new shares, etc. in accordance with its share ratio, and whether the company has received new shares, etc., by exercising its right to subscribe for new shares, etc., in a case where a shareholder issues new shares by the same method, cannot be freely accepted.

Examining the facts acknowledged by the court below in light of the above legal principles, it is clear that the issuance of the convertible bonds of this case is based on the shareholder allocation method, and it was due to the choice of the existing shareholders not to subscribe for subscription to the forfeited convertible bonds to non-indicted 2, etc. through the resolution of the board of directors. Thus, the court below acquitted the company on the ground that it cannot be deemed that the low price of the convertible bonds of this case did not cause any damage to the company Inland, the conclusion is justified, although it was inappropriate in its reasoning.

This part of the grounds of appeal by the special prosecutor is without merit.

C. We examine whether the issuance of convertible bonds with the purpose of transferring control constitutes a breach of director’s duty.

A director’s transfer of control over a stock company to a third party against an existing shareholder’s will is an act of infringing on the interest of the existing shareholder, and cannot be deemed an act of infringing on the interest of the stock company, which is the object of the control, and the director of the stock company is in the position of a person who administers the business of the stock company, but is not in the position of a person who directly administers his business in relation to the stock company and the separate individual shareholders (see Supreme Court en banc Decision 2003Do7645 delivered on June 17, 2004). Since the transfer of control rights is merely an incidental effect from securing control shares (see Supreme Court Decision 2001Da36580 delivered on February 13, 2004), if a change in the ratio of shares of the company is due to an existing shareholder’s own choice, the director’s breach of duty in relation to the transfer of

Therefore, the special prosecutor's allegation in this part of the grounds of appeal that the issuance of convertible bonds, etc. aimed at transferring the control of a corporation is an abuse of the issuing authority and constitutes a director's breach of duty.

D. We examine whether the progress of the procedure for issuing convertible bonds constitutes a breach of duty, even though a resolution by the board of directors for the issuance of convertible bonds is invalidated.

In breach of trust, breach of duty does not mean any case in violation of the law formally, but means any act in violation of the law, which is likely to cause property damage to the principal from an economic and substantive perspective by comprehensively taking into account the specific types of act in question, the type of transaction, the protected legal interest, etc. (see Supreme Court en banc Decision 2006Do4876, Jun. 19, 2008, etc.

In light of the above legal principles, since the issuance of the convertible bonds of this case was made by the shareholder allotment method, it is difficult to deem that any damage has occurred to the company, and even if there was no resolution of the board of directors on the issuance of new shares or any defect in the resolution, a resolution of the board of directors is merely an internal decision-making of the company (see, e.g., Supreme Court Decision 2005Da77060, 77077, Feb. 22, 2007). In full view of the above facts, there is no evidence suggesting that there was any defect in the resolution of the board of directors on Dec. 3, 196 by the resolution to allocate forfeited convertible bonds of this case to non-indicted 2, etc., it cannot be deemed that the Defendants’ failure to suspend the issuance of the convertible bonds of this case and the progress of the

Therefore, the special prosecutor’s ground of appeal that a resolution by the board of directors for the issuance of convertible bonds is invalid and that the procedure for the issuance of convertible bonds constitutes a breach of duty as a director is also groundless.

E. Ultimately, the special prosecutor’s ground of appeal regarding the convertible bonds of Ireland is without merit.

2. As to the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) in relation to the issuance of Samsung SPD bonds with warrants

A. According to the reasoning of the lower judgment, the lower court determined that: (a) Nonindicted 2 acquired Samsung 1’s shares at the time of the instant Samsung 2’s issuance of Samsung 2’s new shares to the 6th of February 25, 199; and (b) Nonindicted 2’s transfer of Samsung 2’s shares to the 9th of February 26, 199; and (c) Nonindicted 2’s transfer of the instant new shares to the 1st of March 23, 199; and (d) Nonindicted 2’s transfer of the instant new shares to the 1st of March 26, 199; and (e) Nonindicted 3’s transfer of the instant new shares to the 1st of March 23, 2000, the total amount of the instant new shares to the 6th of KRW 100,000,000,000,000,000,000,000.

Then, the court below found Defendant 1, 3, 4, 6, and 7 not guilty on the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) regarding Samsung SDR bonds, on the ground that, even if the instant bonds with warrants were issued at a price lower than the reasonable price as stated in the facts charged, the purpose of the issuance is not to raise funds, but to transfer the company's management right while avoiding taxes. Thus, the court below found Defendant 1, 3, 4, 6, and 7 not guilty on the ground that it cannot be deemed that any damage was incurred to Samsung SDR companies, either in the case of the method of distributing the shares or in the case of the third party distribution.

Furthermore, the lower court rejected the special prosecutor’s assertion that Samsung SDR issued the instant warrant bonds with low price of KRW 55,00,00, deducting KRW 7,150,00, the exercising price of the preemptive right, and suffered passive damages equivalent to the amount calculated by multiplying the amount of KRW 3,216,780, which was issued by the exercise price of the preemptive right, by the amount of KRW 3,216,780, which was the exercising price of the preemptive right, and that Samsung SDR’s claim against the special prosecutor’s above passive damages should be acknowledged. In order to find that Samsung SDR suffered such passive damages, the lower court should have acknowledged that it was probable that it issued the bonds with warrant issued by the manager of Samsung SP at the market price of Samsung SP stocks at that time and acquired them by Nonindicted 2, etc. or third parties. In light of the purpose of

B. We examine whether the low-price issuance of the instant bonds with warrants constitutes a breach of duty as a director, and thereby, thereby causing damage to the company.

According to the Supreme Court en banc Decision 2007Do499 Decided supra, where a company issues new shares, etc. to a third party rather than a method of allocating shareholders, a third party newly acquires the company's shares by exercising preemptive rights. Since the relationship with the third party cannot be deemed the same as that of shareholders, if a director issues new shares, etc. at a price considerably lower than the market price, the company's relationship with the third party may not be deemed as equal to that of shareholders. Thus, if a director issues new shares, etc. at a price considerably lower than the market price, the company's increase of company's assets may be caused by the difference between the fair issue price and the actual issue price under the Company Act by multiplying the difference between the issue price and the actual issue price by the number of issued shares. Accordingly, the act of issuing new shares, etc. to a third party remarkably unfair price constitutes a breach of duty of directors, and thereby preventing the company from acquiring funds equivalent to the difference with the fair issue price, the company can be held liable for the crime of breach of trust against the director (see, e.g., Supreme Court Decision 20005Do3975. 297.

Upon examining the facts acknowledged by the court below in light of the above legal principles, since the issuance of the instant bonds with warrants is clear by the third party allocation method, if 7,150 won per share, the exercising price of the instant bonds with warrants, is considerably lower than the market price, the Defendants conspired to act in violation of the occupational duty on the issuance of the instant bonds with warrants, thereby causing losses to the company, thereby resulting in the breach of trust. However, the court below held that the facts charged related to the instant bonds with warrants with warrant constitutes a case where there is no proof of a crime under different premise is based on the misapprehension of legal principles as to the breach of trust and damages arising from the misapprehension of legal principles as to the breach of trust.

The special prosecutor’s ground of appeal pointing this out is with merit.

C. We examine the calculation of the amount of damages sustained by the company due to the issuance of the instant bonds with warrants.

The crime of occupational breach of trust is established when a person who administers another's business obtains, or has a third party obtain, pecuniary benefits by an act in violation of his/her duty and thereby causes loss to the principal. Here, the term "in cases of causing loss to his/her property" refers to cases where the person inflicts, in a comprehensive view, damages to his/her property, and includes cases where not only realistic damage but also the risk of actual damage to his/her property arises from an economic point of view. Determination of whether such property damage occurred or not must be based on legal judgment, but also on an economic point of view. This includes not only cases where active damage such as the reduction of property due to the disposal of property or the burden of debt, but also cases where he/she fails to obtain pecuniary benefits due to an act in violation of his/her duty even though he/she is expected to obtain from an objective perspective, but also cases where he/she did not obtain pecuniary losses (see Supreme Court Decisions 71Do234, May 23, 1972; 2003Do3516, Oct. 10, 2003).

Upon examining the reasoning of the judgment below in light of the above legal principles, the court below was just in reviewing and determining whether there was a possibility that a third party will take over the price of KRW 55,00 per share as indicated in the trading case of the instant facts charged on the premise that the bonds with warrant for which the manager of Samsung SDR was granted the preemptive right of KRW 3,216,780, issued at the time of the issuance of the bonds with warrant at the time, and that Nonindicted 2, etc. and other third parties have taken over the bonds with warrant.

However, according to the opinion adopted by the Supreme Court en banc Decision 2007Do499 Decided the above, damages suffered by the company by issuing the bonds with warrants of this case at a remarkably low price shall be calculated according to the amount calculated by multiplying the difference between the fair exercise price of the warrant of this case and the actual exercise price of the warrant of this case by the number of stocks to be issued according to the exercise price of the warrant of this case. In this case, the fair exercise price of the warrant of this case refers to the reasonable price determined by comprehensively considering various circumstances, such as the financial structure of the company, business prospects, appraisal thereof, financial market conditions, possibility of acquiring new stocks, etc., as well as the reasonable price which reflects the market price of the existing stocks of this case, the fair exercise price of the warrant of this case without examining and determining the degree of damages caused by the issuance of the bonds with warrants of this case without examining and determining the degree of damages caused by the breach of trust.

The special prosecutor’s ground of appeal on this part is with merit.

3. As to the violation of the Act on the Aggravated Punishment, etc. of Specific Crimes (taxes)

Article 9 of the Punishment of Tax Evaders Act and Article 8 of the Act on the Aggravated Punishment, etc. of Specific Crimes provides for the crime of evading tax as an act that enables the evasion of tax, i.e., acts which are recognized as unlawful under social norms, i.e., deceptive schemes or other affirmative acts to the extent that the imposition and collection of tax is impossible or considerably difficult, and where no tax return is filed simply without accompanying any other acts (see Supreme Court Decisions 2004Do5649, Jun. 23, 2005; 2007Do5577, Oct. 11, 207; 2007). In general, it is not readily concluded that the deposit account in another person’s name constitutes an active act of concealing income or an act of concealing income, but it is considerably difficult to see the Supreme Court Decision 97Do979, Sept. 16, 209 as the name of the owner or the name of another person, even if deposit account is concealed or made.

The court below affirmed the judgment of the court of first instance which acquitted Defendant 1 of the part of the charges by each taxable year of violation of the Act on the Aggravated Punishment, etc. of Specific Crimes (tax) of this case on the grounds that it cannot be deemed that Defendant 1 did not constitute fraud or other unlawful act of tax evasion because it did not constitute a taxable object of capital gains tax, since it could not have predicted the liability to pay capital gains tax for the transfer of the major shareholder’s listed stocks at the time of acquisition of stocks through a borrowed account before December 31, 1998, and since there was an act of holding the relevant stocks in a borrowed account after January 1, 1999 when the regulations on taxation of capital gains tax for listed stocks were enforced, the court below held that Defendant 1 was not guilty of the part acquired through the borrowed account on or before December 31, 198. In light of the above legal principles, the judgment of the court below is justified.

The court below did not err in the misapprehension of legal principle as alleged in the grounds of appeal.

The precedents invoked by the special prosecutor (Supreme Court Decision 95Do2653 delivered on May 9, 1997, Supreme Court Decision 2006Do5041 Delivered on August 23, 2007, etc.) are all related to a case in which the existence of the duty of taxation pursuant to the law is obvious from the beginning, and it is not appropriate to be invoked in the instant case.

Therefore, this part of the grounds of appeal by the special prosecutor is without merit.

4. Scope of reversal

According to the above, the part concerning the defendant 1, 3, 4, 6, and 7's violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) related to Samsung SP's bonds with warrants cannot be reversed. The defendants did not appeal all. However, the special prosecutor appealed together with the above part concerning the non-guilty part of the defendant 1, 3, and 4, and filed an appeal against the non-guilty part of the violation of the Act on the Aggravated Punishment, etc. of Specific Crimes (tax) against the defendant 1, 3, and 4, and the conviction part of the above non-guilty part of the violation of the former Securities and Exchange Act, which is related to the defendant 1's guilty part, was determined as one type of punishment for the violation of the former Securities and Exchange Act (see Supreme Court Decision 2003Do1256, May 30, 2003). Therefore, the part concerning the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes related to Samsung S. 30, and the defendant 2501.

5. Conclusion

Therefore, among the judgment of the court below, the part on the defendant 1, 3, 4, 6, and 7's violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation of trust) related to Samsung SDR bonds with respect to bonds with warrants and the part on the guilty against the defendant 1, 4, and the part on the defendant 3's violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (tax) on May 31, 2003 and May 31, 2004 are reversed and remanded to the court below for a new trial and determination, and all remaining appeals by the special prosecutor are dismissed. It is so decided as per Disposition by the assent of all participating Justices.

Justices Yang Chang-soo (Presiding Justice)