Whether the representative director's delegation of all of his/her duties to another director, etc. and failure to perform his/her duties as the representative director constitutes an act violating the duty of loyalty and duty of care (affirmative)

Article 399 of the Commercial Act

Supreme Court Decision 2002Da70044 Decided April 11, 2003 (Gong2003Sang, 1167) Supreme Court Decision 2006Da21880 Decided September 8, 2006 (Gong2006Ha, 1662) Supreme Court Decision 2007Da60080 Decided December 13, 2007 (Gong2008Sang, 25)

Plaintiff (Attorney Park Jae-ju et al., Counsel for the plaintiff-appellant)

Defendant

Korea Technology Finance Corporation (Law Firm LLC, Attorneys Jeongyang-yang et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2008Na18033 decided Nov. 20, 2008

The judgment below is reversed and the case is remanded to Seoul High Court.

We examine the grounds of appeal.

Article 399 of the Commercial Act provides that when a director commits an act in violation of the Acts and subordinate statutes or the articles of incorporation or neglects his duties, the company shall be liable for damages. The representative director delegates all of the business as the representative director to another director, etc., and the failure of the representative director to perform his duties at all constitutes an act in violation of the duty of loyalty and duty of care of the director (see, e.g., Supreme Court Decisions 2002Da70044, Apr. 11, 2003; 2007Da6080, Dec. 13, 2007).

After compiling the adopted evidence, the court below found the facts as stated in its decision. However, although the defendant is liable for damages suffered by the non-party 2 corporation due to unfair deposit withdrawal, there is no evidence to acknowledge that the non-party 1 participated in the above management as the representative director or director of the non-party 2 corporation, and the defendant did not work at the non-party 2 corporation as the family registry, and the non-party 1 ordered the accounting and banking operations of the non-party 2 corporation as the actual representative director. The plaintiff's representative director and the appointment of the director were unilaterally determined and recorded in the corporate registry. Accordingly, the defendant was at a location where the non-party 2 corporation did not participate in the management as the representative director or director of the non-party 2 corporation and it cannot be seen that the non-party 2 corporation itself bears the responsibility of violating the duty of care for the non-party 1 corporation, regardless of whether the defendant is liable for the third party.

However, such determination by the court below is difficult to accept for the following reasons.

According to the evidence duly admitted by the court below, the defendant is the head of the non-party 1's punishment; the defendant sent to the non-party 2's non-party 2's certificate of contents on November 8, 2006, stating that "the defendant was registered as the representative director on the registration of the company, but it was registered as the non-party 1's personal seal impression and seal impression as the representative director on December 6, 2004; it was registered as the non-party 1's personal seal impression and seal impression; the defendant's request for national tax appeal prepared on September 28, 2006, stating that "the non-party 1 did not own the company as the head of the household; it was not easy for the defendant to conduct the business failure at the request of the non-party 1; it was stated that the non-party 1 provided the above applicant's personal seal impression and seal to the non-party 2's representative director on the apartment and certificate of the claimant; the defendant paid the defendant's money to the non-party 26."

In light of the above legal principles and the above facts, even though whether the defendant directly participated in the management of the company, it is clear that the non-party 1 has accepted the appointment of the defendant as the representative director or director of the non-party 2 corporation and accepted the registration in the corporate register, so if the defendant was legally appointed the representative director or director, the fact that the defendant did not delegate all the duties to the non-party 1 and did not perform all the duties as the representative director is the act in violation of the duty of loyalty and duty of care of the representative director.

Nevertheless, under the premise that Nonparty 1 unilaterally appointed the defendant as the representative director and the director of Nonparty 2 and registered in the corporate register, the court below rejected the plaintiff's claim for damages on the ground that the defendant, who was merely a nominal representative director who did not participate in the management of the company, did not bear the responsibility for violation of the duty of care in relation to the withdrawal of the company's funds from Nonparty 1, and thus, it is erroneous in the misapprehension of the rules of evidence beyond the limit of the principle of free evaluation of evidence and in the misapprehension of the legal principle as to the liability for damages to the company of nominal representative director.

Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Shin Young-chul (Presiding Justice)