(1) The effects of the provisions of the articles of incorporation of a corporation (negative)

Article 388 of the Commercial Act provides that “The payment of retirement allowances for directors shall be governed by the rules on the payment of retirement allowances for directors as stipulated by the board of directors.” The Articles of incorporation provides that “The payment of retirement allowances for directors shall be governed by the rules on the payment of retirement allowances for directors, without limiting the scope of exercise of discretion on the determination of retirement allowances for directors within the reasonable scope based on certain standards, which allows the board of directors to pay retirement allowances and retirement allowances for directors without any control

Article 388 of the Commercial Act

Plaintiff (Law Firm Law Firm, Attorneys Sung-sung et al., Counsel for the plaintiff-appellant)

Defendant Co., Ltd. (Law Firm C & C, et al., Counsel for the defendant-appellant)

July 3, 2008

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The defendant shall pay to the plaintiff 578,162,40 won with 20% interest per annum from the day after the delivery of a copy of the complaint of this case to the day of complete payment.

1. Basic facts

A. Status of the parties

On December 19, 2003, the Plaintiff entered the Defendant Company as the executive officer, and served as the representative director from March 23, 2004 to March 6, 2006.

B. Grounds for payment of retirement allowances for executives of the defendant company, and partial revision thereof

(1) Article 40(1) of the Articles of incorporation of the Defendant Company provides that remuneration for directors and auditors shall be determined by a resolution of the general meeting of shareholders. Article 40(2) of the same Act provides that payment of retirement allowances for directors and auditors shall be made by a resolution of the general meeting of shareholders.

(2) The contents of the provision on payment of retirement allowances for executive officers before December 19, 2005 (Enforcement of August 5, 2002; hereinafter “former Provisions before December 19, 2005”) of the Defendant Company are as follows.

Article 2 (Persons subject to Payment) (1) Retirement allowances shall be paid to full-time directors, auditors and executive officers appointed at a general meeting of shareholders.

Article 3 (Calculation Method) (1) Retirement benefits shall be calculated by taking the payment coefficient corresponding to the position at the time of retirement as follows for each year of continuous service based on the amount equivalent to the basic salary of the monthly remuneration at the time of retirement: Provided, That the fraction less than one year when calculating the number of years of continuous service shall be calculated as the number of months, and the number of days less than 15 days for the number of days less than 15 days shall be reduced and less than 15 days shall be reduced:

The chairperson of the vice-president, the vice-president of the general affairs of all the directors included in the main sentence, shall be 4 months, 4 months, 5 months, 6 months, 7 months, and 7 months;

Where* an executive is reappointed, he/she shall not be deemed a retirement, and his/her continuous service period shall be calculated by adding up the consecutive terms.

Article 3-2 (Retirement Consolation Benefits) Any officer who has made a special contribution while in office may be paid separate retirement consolation benefits included in retirement allowances after obtaining a resolution of the board of directors.

(3) On December 19, 2005, the board of directors of the defendant company revised Paragraph (3) of the above provision on payment of the retirement allowance for officers to the effect that the standard amount includes not only basic pay but also position allowances and bonuses (hereinafter “the above provision”) as follows.

Article 3 (Calculation Method) (1) Retirement pay shall be calculated based on the amount equivalent to 1/12 of the annual salary, including basic salary, position allowances and bonuses, as at the time of retirement, by taking the relevant payment coefficient in the position as at the time of retirement as follows for each year of continuous service: Provided, That the fraction less than one year when calculating the number of years of continuous service shall be calculated as the number of months, and the number of days less than 15 days shall be reduced for less than 15 days and less than 15 days shall be reduced:

Two-month, three-month, four-month, four-month, five-month, and six-month, three-month, five-month, and six-month, of the president of the voting committee / senior executive director, who is included in the main sentence;

(4) At the time of February 15, 2006, the board of directors of the defendant company decided to pay the plaintiff, who was the representative director of the defendant company, the "ordinary wages for remaining term + one-year ordinary wages" as retirement consolation money.

C. Amendment of regulations on changes in controlling shareholders and payment of retirement allowances for officers of the defendant company

(1) The former largest shareholder of the Defendant Company was Sejong Chemical Co., Ltd. (the 1,800,000 shares owned, the holding ratio of 14.97%) but was changed on January 25, 2006 to Taeyang Industrial Co., Ltd. (the holding ratio of 9,00,000 shares owned, the holding ratio of 42.81%). The Plaintiff, as the controlling shareholder of the Defendant Company changed as above, was retired from office as representative director and director on March 6, 2006.

(2) On March 7, 2006, the board of directors of the defendant company decided to amend the above provision as of December 19, 2005, and on February 15, 2006, the board of directors of the defendant company revoked the resolution of the board of directors which decided to pay retirement consolation benefits to the plaintiff and revised Article 3 of the Rules on Payment of Retirement Allowances for Officers as follows (hereinafter “Rules on March 7, 2006”).

Article 3 (Calculation Method) (1) Retirement benefits shall be calculated by taking the payment coefficient corresponding to the position at the time of retirement as follows for each year of continuous service based on the amount equivalent to the basic salary of the monthly remuneration at the time of retirement: Provided, That the fraction less than one year when calculating the number of years of continuous service shall be calculated as the number of months, and the number of days less than 15 days for the number of days less than 15 days shall be reduced and less than 15 days shall be reduced:

Two-month, two-month, two-month, two-month, two-month, two-month, two-month, two-month, two-month, two-month, two-month, two-month, and two-month, two-month, and two-month, respectively.

Where* an executive is reappointed, he/she shall not be deemed a retirement, and his/her continuous service period shall be calculated by adding up the consecutive terms.

* With respect to the period of service after March 7, 2006, amendments shall apply to all executives.

* The service period of the existing officers (pre-existing officers on March 7, 2006) shall be subject to the provisions prior to the amendment on December 19, 2005.

* The payment formula: (Basic annual salary + basic performance pay + position allowance + bonus) ¡¿ 1/12

(3) The general meeting of shareholders of the defendant company approved the provisions of March 7, 2006, which were proposed as the subject of No. 6 of June 15, 2006.

D. The Defendant Company paid 87,918,980 won (=7,500,000 won + 7,000,000 x 6 x (2 + 3/12)) calculated pursuant to Article 3 of the “before the amendment of December 19, 2005” as retirement allowance to the Plaintiff.

[Reasons for Recognition: Facts without dispute, Gap evidence Nos. 1, 2, 4-1, 4-2, 5, 7, Eul evidence Nos. 1, 2, 3-1, 3-2, 4-1, 4-2, and 7; the purport of the whole pleadings]

2. The plaintiff's assertion and judgment as to the plaintiff

A. The plaintiff's assertion

The retirement allowance payment provision as of March 6, 2006 should be applied to the Plaintiff. The retirement allowance calculated pursuant to Article 3 of the Regulation of December 19, 2005, which was applied at the time at the time, was 242,158,40 won [=215,252,00 won x 1/12 x 1/12 x 6 x (2+ 3/12)]. The retirement allowance calculated by the resolution of the board of directors on February 15, 2006 at the above 430,504,00 won [215,252,00 won [ordinary wage for one year during the remaining term of one year] + (ordinary wage for one year) ＋ 215,252,00 won (ordinary wage for one year after the remaining term of one year]. Thus, the Defendant Company is obligated to pay retirement allowance from the above Defendant Company to the Plaintiff 94,500,507,407,405 won and damages for delay

(b) Markets:

(1) Validity of the articles of incorporation and the payment of retirement allowances for officers of the defendant company

(A) According to Article 388 of the Commercial Act, remuneration of a director of a stock company shall be determined by a resolution of the general meeting of shareholders when the amount of remuneration for the director is not determined by the articles of incorporation. Thus, retirement allowance and retirement allowance for the director is a kind of remuneration paid to a retired person from such office in return for the execution of his/her duties while in office (see Supreme Court Decision 2004Da25123, Dec. 10, 2004, etc.).

As such, Article 388 of the Commercial Act provides that a director’s remuneration shall be determined by the resolution of the articles of incorporation or the general meeting of shareholders because it is likely to undermine the corporate capital adequacy by paying excessive remuneration in advance of pursuing private interests if the director makes a decision on his/her remuneration. Thus, it is not permissible to strictly delegate the decision on the amount of retirement allowances and retirement consolation benefits to the board of directors by a resolution of the articles of incorporation or the general meeting of shareholders of the corporation, as contrary to the legislative intent of Article 388 of the Commercial Act. However, it is not permissible to delegate the amount of retirement allowances and retirement consolation benefits to the board of directors without any conditions. However, it is possible to delegate the board of directors to determine the amount within the scope of the maximum amount possible by a resolution of the general meeting of shareholders, and delegate to the board of directors the amount of retirement allowances and retirement consolation benefits

In light of the above legal principles, Article 40(2) of the Articles of incorporation of the Defendant Company, which provides that the payment of retirement allowances to directors shall be made by the resolution of the board of directors, does not limit the scope of exercise of discretionary power on the determination of retirement allowances for directors within a reasonable scope based on a certain standard, and provided that the board of directors may pay retirement allowances and retirement consolation benefits to directors without any control from shareholders by delegating the determination of the amount of retirement allowances to the board of directors on an unconditional basis. Thus, it is invalid in violation of Article 3

(B) On the premise of the above determination, Article 3 of the above provision prior to the amendment on December 19, 2005 explicitly provides for a certain standard which serves as the basis for the determination of the amount of retirement allowances of directors, such as remuneration, tenure of office, and positions in office, during the director’s employment. On the premise of the above provision which came into force from August 5, 2002, the payment of retirement allowances under the above provision is lawful. On the other hand, Article 3 of the provision of December 19, 2005 is not only by delegation of the invalid articles of association, but also by delegation of the provisions of the invalid articles of association, and since the plaintiff failed to obtain the approval of the general meeting of shareholders, the plaintiff cannot seek the payment of retirement allowances calculated under Article 3 of the provision of December 19, 2005.

(C) Next, Article 3-2 of the Regulations on the Payment of Retirement Allowances for Officers was enacted on the part of retirement consolation benefits as acknowledged earlier, as well as on the delegation of null and void articles of association, and the above provisions are merely limited to the restriction on the payment of "any officer who has made a special contribution during his/her re-election" (which means a "special contribution during his/her re-election" as referred to in the above provisions) and are very abstract and abstract to determine the amount thereof (e.g., whether to pay it in a lump sum, whether to pay it in cash or in cash, and whether to pay it in the form of Stockholm option) so that the board of directors can exercise broad discretion without any reasonable control by shareholders in determining retirement consolation benefits. Thus, the above provisions are null and void as they violate Article 388 of the Commercial Act, which is a mandatory provision.

In order for the payment of retirement consolation benefits to be lawful, a resolution of the general meeting of shareholders, which determines the amount under Article 388 of the Commercial Act, must be made in order to determine the amount under subparagraph 4-1. According to the statement in subparagraph 4-1 of the above Article, the defendant company, at the regular general meeting of shareholders on June 15, 2005, passed a resolution approving the execution of the amount of the directors' remuneration within the limit of one billion won for the pertinent fiscal year (from April 1, 2005 to March 31, 2006). However, the above resolution was only approved the total amount of the directors' remuneration for one year of the defendant company, so it cannot be deemed that the resolution was made or the payment of retirement consolation benefits was approved in advance.

Therefore, the resolution of the board of directors to pay 430,540,000 won to the plaintiff as retirement consolation money based on Article 3-2 of the above provision of retirement allowance for officers is not effective, and it also goes against the principle of capital adequacy as seen later.

(2) Violation of the principle of capital adequacy.

(A) The remuneration of directors is the remuneration for the performance of their duties and must maintain a reasonable proportional relationship with their duties and be appropriate in light of the company's financial status, and when the remuneration of directors is too large in light of the company's circumstances or business performance, a resolution that decides the payment of such remuneration in accordance with the principle of capital adequacy shall be null and void.

(B) In full view of the respective entries and arguments in the evidence Nos. 5-2, 8-1, 8-2, 13-3, and 13-4, the following facts may be recognized.

① According to the result of sector inspection conducted by the Financial Supervisory Service on June 30, 2005 with respect to the Defendant Company from July 18, 2005 to August 12, 2005, the following matters were pointed out as operational problems of the Defendant Company. The comprehensive evaluation rating of the result of management status evaluation was assessed as class 4, lower than September 30, 2004, and the Financial Supervisory Commission demanded improvement of management against the Defendant Company on September 30, 2005.

The management performance becomes worse due to the management dispute between major shareholders, and most of the management is composed of insurance non-professionals, and there is a limit to the formulation and promotion of management plans considering the characteristics of the insurance business, and there is a very low awareness of compliance with the management's management, and some managements have not complied with the relevant laws and procedures, and there is a problem in management such as several lawsuits and disputes, and it is urgent to prepare a wide-scale improvement plan throughout the whole management management such as the construction of a specialized management system.

As of June 2005, 2.1%p has been improved compared to 123.7% in the previous quarter, but the aggregate ratio (damage rate + business ratio) still exceeds 100%, and the business performance has deteriorated due to continuous reduction of raw-water insurance premiums, so the structure of profit and loss is weak, and the estimated loss of the market appraised assets (474 billion won) according to the trend of increase in interest rates in the future and the decrease in the amount of solvency margin of subordinated bonds (21.1 billion won) are expected to be significantly worse on June 2006.

○○ The profitability sector realized net income of KRW 5.6 billion through investment business profit (11.4 billion) in the first quarter of the FY “05, notwithstanding the insurance business loss (△△6.2 billion). However, the insurance business loss, such as the risk rate exceeds 98.1% (95.9%) and the net business loss is deemed difficult to be improved in a short period, as the actual business loss exceeds the estimated business expenses, considering the recent increase in the interest rate, the operating asset profit rate is likely to worsen, and thus, it is likely that the profitability will be converted to the current net loss structure if no appropriate measure is prepared.

The liquidity ratio among the liquidity sector of ○○ is 243.0% increased by 107.6%p compared to the motive of the preceding year as of June 2005 due to the expansion of the scope of liquidity assets, and the cash balance ratio is 1.9%, and 7.2%p improvement compared to the motive of the preceding year, but it still shows a very dangerous level (class 5) as the maintenance of the deficit of the insurance business (△ 17.0 billion won).

② On November 22, 2005, the Defendant Company submitted to the Financial Supervisory Commission a management improvement plan with the purport of improving project costs, human resources and organization management, building a specialized management system, and promoting a sale to a sound domestic company with a mid- and long-term strategy to manage the Defendant Company for a long time. The management improvement plan included the content that the Plaintiff faithfully performs its duties as representative director of the Defendant Company until the sale of the Defendant Company is completed and the new management is organized, and that the new management will be organized according to the transferee’s decision.

③ On December 9, 2005, the Financial Supervisory Commission concluded a sales contract with a third party on the shares of the Defendant Company, which is a major shareholder of the Defendant Company, with respect to the management improvement plan submitted by the Defendant Company, and notified the Defendant Company of the purport that the third party is approved on the condition that the third party is qualified as a major shareholder by the Financial Supervisory Commission.

④ Examining the financial statements of the Defendant Company during the period from March 1, 2004 to March 31, 2006, when the Plaintiff was in office as the representative director of the Defendant Company, the net operating income of the said period (from April 1, 2004 to March 31, 2005) was temporarily in black at KRW 6,061,345,808, while the operating income of the said period was temporarily in black at KRW 6,485,072,427, the operating loss of the said period was significantly aggravated above the said KRW 53,36,92, and the net operating loss of the said period (from April 1, 2005 to March 31, 2006) was increased to KRW 25,212,922,598, and the operating loss was increased to KRW 287,2384,286,416.

C) The following circumstances revealed by the above facts were revealed: (a) the management performance and financial status of the defendant company were continuously difficult while the plaintiff was working as the representative director of the defendant company; (b) at the time of the resolution of the board of directors on December 19, 2005, the management dispute and the sale problems of the defendant company have deteriorated; (c) the defendant company has already submitted a management improvement plan to sell the defendant company to a third party on November 22, 2005; and (d) the Financial Supervisory Commission approved on December 9, 2005, the members of the defendant company including the plaintiff must immediately change the board of directors' meeting at the time of the resolution of the board of directors; and (e) it was sufficiently predicted that this photograph will be replaced; and (e) if the amount of retirement allowance paid by the plaintiff is calculated in accordance with Article 3 of the Regulations on the Payment of Retirement Allowances for Officers as amended by the board of directors on December 19, 2005, the amount of retirement allowance paid by the plaintiff is increased to more than two times the total amount of retirement allowance paid by the plaintiff, and the controlling shareholder.

(c) Conclusion

Therefore, Article 3 of the Regulations of December 19, 2005, which was applied at the time of retirement of the plaintiff, shall be null and void as seen earlier, and it shall also be null and void by the resolution of the board of directors on February 15, 2006, which decided to pay retirement consolation money to the plaintiff. Thus, the plaintiff's assertion seeking payment of difference in retirement allowance and retirement consolation money based on the above regulations and the resolution of the board

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and it is so decided as per Disposition.

Judges Egreh Jin-Jin (Presiding Judge)

1) In light of the fact that Article 40(2) of the Articles of incorporation of the Defendant Company provides otherwise with regard to the method of payment of retirement allowances by directors and auditors, “compensation” under Article 40(1) of the above Act means only remuneration that a director or auditor receives while in office.