Applicant 1 and one other (Attorney Han-chul, Counsel for the plaintiff-appellant)

Dadia Coar (LLC, Kim & Lee LLC, Attorneys Ahn Young-soo et al., Counsel for the plaintiff-appellant)

주식회사 씨디네트웍스 (소송대리인 법무법인 (유한) 태평양 담당변호사 안영수 외 2인)

Seoul Central District Court Order 2014 non-conforming41 dated January 29, 2015

1. All appeals filed by applicants and respondents are dismissed.

2. Expenses for appeal shall be borne by each person respectively;

1. Applicant's purport of request and appeal

The decision of the first instance shall be revoked. The purchase price of the shares issued by the principal of the case for which the applicant has requested the respondent to purchase shall be forty thousand won per share.

2. Purport of appeal by the respondent

The decision of the first instance shall be revoked and the application of this case shall be dismissed.

1. Basic facts

The following facts are vindicateed according to records or are obvious to this court:

A. The principal of the case was a company established on May 27, 200 and listed stocks to the KOSDAQ on July 29, 2005, while engaging in the business of transmitting and processing Internet contents as its major business. On September 23, 2009, the principal of the case was delisted on September 23, 2009. Of the total 14,30,000 shares issued by the principal of the case, the applicant 1 owns 5,924 shares (0.0414%), and the applicant 2 owns 945 shares (0.066%). The respondent owns 12,149,768 shares of the principal of the case (84.96%), and the principal of the case owns 1,879,468 shares (13.14%).

B. On January 6, 2014, the applicants filed a claim with the respondent to purchase the shares owned by the applicants (hereinafter “instant shares”) pursuant to Article 360-25(1) of the Commercial Act, and the notification was sent to the respondent on January 8, 2014. On February 25, 2014, the applicants filed an application for determination of the sales price of the instant shares as Seoul Central District Court 2014 non-conforming41, which did not reach an agreement on the sales price.

C. On January 29, 2015, the court of first instance determined the sales price of the instant shares as KRW 9,331 per share by applying Article 54 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”).

2. Determination on this safety defense

A. Summary of the assertion

When the respondent and the principal of the case are in a relationship with the parent company and the subsidiary company pursuant to Article 342-2(1) of the Commercial Act, and when the respondent's own shares (84.96%) are combined with the principal's own shares (13.14%) pursuant to Article 360-24(2) of the Commercial Act, the respondent filed an application for the purchase of the shares against the respondent on the ground that the principal's own shares (13.14%) are 98.1% (=84.96% + 13.14%) of the principal's own shares (=84.96%) and the principal's own shares (84.96%) are controlling shareholders. Accordingly, the respondent must be excluded from the calculation of the number of shares owned by the controlling shareholder, while

B. Determination

The respondent shall be deemed to be the controlling shareholder of the principal of the case as shown below, and the respondent's argument is without merit.

1) Articles 360-24 through 360-26 of the amended Commercial Act (amended by Act No. 10060, Apr. 14, 201) introduced the so-called system of compulsory acquisition of minority shares by prescribing the controlling shareholders' right to demand sale and minority shareholders' right to demand purchase. However, the amended Commercial Act defines controlling shareholders who can enforce compulsory purchase of shares as shareholders holding 95% or more of the total number of outstanding shares of a company on their own account (Article 360-24(1)), and defines the method of calculating the number of shares held by specially related persons (Article 360-24(2)), and it is interpreted that including the shares held by a subsidiary as the basis for controlling shareholders since the type of shares held by a subsidiary is not limited (Article 360-24(2)).

2) On the other hand, the respondent asserts that the only standard under Article 360-24(1) of the Commercial Act is whether to hold the shares that can be added when determining the controlling shareholder among the shares in another person’s name, and that the treasury shares acquired by the company are obviously not owned by the controlling shareholder’s account. As such, the respondent asserts that the treasury shares are not subject to summing-up

However, it seems that the provision that the parent company and the subsidiary shall aggregate the shares of the parent company and the subsidiary when calculating the number of shares held by the controlling shareholders in Article 360-24 (2) of the Commercial Code is that the parent company may exercise substantial control over the subsidiary company by holding more than 50/100 of the total number of shares issued by the subsidiary. Therefore, even if the parent company's funds are not acquired by the parent company in type, it is in accord with the legislative intent to interpret that the shares acquired by the parent company through distributable profits are held by the parent company's account.

3) In addition, the respondent asserts that, as a matter of principle, the acquisition of the unlisted company’s own stocks was prohibited, it is difficult to see that the majority shareholder’s withdrawal of minority shareholders by mediating the acquisition of the company’s own stocks is unconstitutional because it is difficult to see that the conflicting interests between the controlling shareholder and minority shareholders were properly adjusted, and that it is likely to be unconstitutional as an obvious infringement on the company’s property rights.

However, introducing the revised Commercial Act’s compulsory acquisition system of minority stocks causes the reorganization of the corporate structure that enables efficient decision-making by lowering the cost to be increased due to minority shareholders holding extremely minor shares while controlling and managing the company, and allowing minority shareholders to recover by prompt realization of outstanding shares that cannot affect the company’s management. Therefore, it cannot be said that a minority shareholder’s purchase and sale of shares out of his/her own will is essentially infringing on the property rights of minority shareholders as long as fairness in purchase and purchase of shares is guaranteed as a result of the inevitable acquisition system of the controlling shareholder’s exercise of the right to demand sale of shares, and this is also the same in cases where the parent company holds 95% or more of the total number of outstanding shares as a result of the total sum of treasury shares of the subsidiary company without voting rights and substantially controls the subsidiary company.

4) Rather, when excluding treasury stocks under the name of a subsidiary from the calculation of the number of shares held, the parent company can enjoy the benefit of maintaining control over the subsidiary even if the shares of 5% or more of the total number of shares issued are owned as treasury stocks of the subsidiary company, and make it impossible at all times to exercise the appraisal rights of minority shareholders, while purchasing some shares from the subsidiary at any time, holding 95% of the total number of outstanding shares, and then exercising the claim for sale of shares against minority shareholders. This is inconsistent with the purport of recognizing the appraisal rights of minority shareholders in response to the controlling shareholder’s claim for

3. The assertion by the parties on the merits;

A. Applicants

It should be reflected in the calculation of the value of the business prospects and the possibility of profit-making in the principal of this case. Considering that the business type identical to the principal of this case is selected as the comparison, and the stock value of the principal of this case is assessed by the market value assessment method, it shall be assessed to be inside and outside of 40,000 won per share when the value of the principal of this case is assessed by the market value assessment method. The respondent purchased the shares of the corporation from the person other than the applicant who is the representative director of the principal of this case in 2013 to KRW 33,671 or KRW 31,500 per share, the appropriate sales value of the shares of this case shall be deemed to be at least KRW 40,00 per share.

B. Respondent

For the following reasons, the purchase price of the shares of this case determined by the first instance court cannot be deemed unfair.

① The future profit value of the principal of the case at issue after the minority shareholder withdraws from the shareholder relationship by exercising the appraisal right shall not be reflected in the calculation of the purchase price of the shares. ② Since the purchase price of shares between the respondent and the person other than the applicant is calculated at a higher level reflecting compensation for business performance of the person other than the applicant who was the representative director of the principal of the case, the objective exchange value of the principal of the case cannot be deemed to be the normal transaction price that reflects the adequate transaction value of the principal of the case. ③ The applicant’s evaluation of the value of the shares of the case by the market value method is arbitrary, and thus, it is unreasonable

4. Determination

(a) Method of assessing unlisted stocks;

Minority shareholders of a company which has a controlling shareholder may request the controlling shareholder to purchase their shares (Article 350-25(1) of the Commercial Act), and where the court determines the purchase price of shares, it shall calculate the fair price by taking into account the financial status and other circumstances of the company (Article 360-25(5) of the Commercial Act).

In assessing the value of unlisted stocks, if there is an example of normal transactions that properly reflects the objective exchange value of the stocks, the relevant transaction price should be determined at the market price. However, in the absence of such transaction cases, a number of appraisal methods such as the market value method generally recognized as to the evaluation of unlisted stocks, net asset value method, profit value method, etc. However, it cannot be readily concluded that any one evaluation method should be applied at all times, and a fair price should be determined by comprehensively taking into account the company’s situation, characteristics of business, etc. (see Supreme Court Order 2001Ma375, May 16, 201; Supreme Court Order 2004Ma102, Nov. 24, 2006, etc.).

B. Value assessment of the shares of this case

1) Base date for value ratings

Since appraisal rights of minority shareholders are established by the exercise of the right to purchase shares, it is reasonable to set the base date for calculating the purchase price as of the date of filing the request for purchase, barring special circumstances. In this case, there is no evidence to deem that there were special circumstances, such as that there was a change of situation affecting the principal's share price before and after the filing date of the applicant's request for purchase, and thus, the applicant's intent to purchase the shares reached the respondent as of January 8, 2014

(ii)market value;

A) First, whether there exists a normal transaction example that reflects an objective exchange value as to the instant stocks properly. Since the market price means an objective exchange price formed through a general and normal transaction, in order to be recognized as the market price, circumstances should be acknowledged that the relevant transaction is made in a general and normal manner and properly reflects the objective exchange value at the time of the transaction day (see Supreme Court Decision 2010Du26988, Apr. 26, 2012). Meanwhile, where shares issued by a company are transferred together with a company’s right to manage, the transaction price cannot be deemed as a general market price that reflects the objective exchange value where only shares are transferred (see Supreme Court Decisions 88Nu9565, Jul. 25, 1989; 2004Ma1022, Nov. 24, 2006, etc.).

According to the records of this case, the respondent purchased 3,500 won per share of 18,500 won per September 9, 2001, 33,671 won per May 201, and 31,500 won per share of 33,671 won per October 2013. However, considering that there is a significant difference between the net asset value per share of the stock of this case and the profit value per September 9, 2001, the price of each of the above transactions closely related to the closing point of the non-applicant who served as the representative director of the case from May 200 to September 2013, the non-applicant appears to be reflected in the compensation for business performance or management right, it is difficult to view that the objective exchange value of the stock of this case is a normal transaction price and there is no other data to recognize that there is no other data to prove the market price of the stock of this case.

B) The applicants submitted a stock value assessment report (No. 7) that is reasonable to evaluate the shares of the principal of this case as USD 106, USD 205, USD 206, USD 205, USD 206, USD 205, USD 106, USD 205, USD 206, USD 205, USD 206, USD 205, USD 206, KRW 205, KRW 205, KRW 206, KRW 122, KRW 30, KRW 40, KRW 205, USD 206, KRW 206, KRW 196, KRW 205, KRW 206, KRW 196, KRW 205, KRW 196, KRW 205, KRW 196, KRW 205, KRW 206, KRW1965, KRW 205, KRW196,294,2196.

Therefore, the price calculated by the above evaluation method cannot be considered as the market value necessary for calculating the sales price of the shares of this case, and it is difficult to find a similar company to calculate the market value of the principal of this case, and thus, the market value should not be considered in determining the sales price of the shares of this case.

(iii)profit value;

The net value of profit and loss calculated in accordance with the Enforcement Decree of the Inheritance and Gift Tax Act is calculated by reflecting the net value of profit and loss for the last three years in order to calculate the value of profit and loss on the premise that the past profits will continue in the future.

According to the purport of the record and examination, the amount of net profit and loss per share for each business year from 2011 to 2013 from 2013 to 2013 is proved to be the cause of 1,534, 1,138 won in 2012, and 2,480 (-) in 2011 (Records 521 pages, 589 pages). Based on this, when calculating the profit value as of January 8, 2014 in accordance with Article 56 (1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, the amount is 11,463 won per share [1,534 won x 3] + (1,138 won x 2 x 00 won x 1, the proviso to Article 56 (1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act]; or 10% per share (see the net value of profit and loss x 6% per share].

Meanwhile, the method of calculating shares of an enterprise that is expected to continue to grow in the future while running an information and communications-related business that is anticipated to rapidly develop, based on the net asset value or net profit value of the enterprise at the base point of time, may reflect the objective value of the shares in question, rather than the method of calculating based on the net asset value of the enterprise at the base point of time or the net profit and loss value of the past (see Supreme Court Decision 2004Du7153, Jun. 9, 2005

However, the following circumstances revealed in the records: (a) only the stock value assessment report (Evidence A7) was submitted on the ground that there was no objective data to assess the future cash flow or profit value of the principal of the case; and (b) the applicant did not secure data; and (c) the principal of the case was established in 2000 and completed the initial investment necessary for the Internet content transmission and processing service business, which was already established in 2005, and it is difficult to see that the initial investment factors are already reflected in the net profit and loss for the past three years and distorted in the calculation of net profit and loss; and (d) the principal of the case’s operating profit in 2013 was reduced to KRW 16.6 billion and its operating profit in 2014 was reduced to KRW 15.9 billion, it is difficult to conclude that the future profit and loss value per share for the last three years is calculated on the basis of the net profit and loss value per share.

4) Net asset value

According to the records, in calculating the net asset value of the instant shares as of January 8, 2014 according to the method prescribed by Article 55(a) of the Enforcement Decree of the Inheritance and Gift Tax Act, it can be seen that 6,134 won per share [the net asset value of 87,711,585,899 won (property 113,416,754,894 - Debt 25,705,705,168,995 won)]/the total number of shares issued 14,30,000 shares];

5) Sub-decisions

According to Article 54(1) of the Enforcement Decree of the Inheritance and Gift Tax Act, the valuation of unlisted stocks shall be weighted average of 3:2 of the net asset value in the valuation of the value of unlisted stocks. In light of the circumstances such as the business situation, characteristics, and scale of the principal of the case as indicated in the record, the purchase price of the stocks of this case is deemed appropriate in the above-mentioned ratio. Therefore, the purchase price of the stocks of this case shall be determined by 9,331 won per share (net profit and loss 11,463 x 3) + (net asset value 6,134 x 5) ± 5).

5. Conclusion

Therefore, the decision of the first instance court is legitimate, and all appeals by the petitioner and respondent are dismissed. It is so decided as per Disposition.

Judge Lee Jin-do (Presiding Judge)