[1] The meaning of the principle of shareholder equality and the validity of an agreement in violation of such principle (negative) / In a case where a company agrees to compensate for the total amount of the subscription price paid by the purchaser of new shares to the purchaser of the subscription price, or to pay a separate profit not paid to other shareholders, other than dividends under Article 462 of the Commercial Act, etc., whether such agreement is effective (negative) and whether the same applies to cases where an agreement was concluded prior to the acquisition of shareholder qualification or where a separate agreement

[2] The case holding that the above investment contract is null and void on the ground that it mainly aims at compensating for losses arising from the shareholder status of Eul et al., in a case where Gap corporation's investment contract entered into an investment contract with Eul et al. to use the investment fund as the price for subscription to capital increase with the third party Eul et al. to return the investment principal and to pay a prescribed amount of profit, and later sought return of unjust enrichment equivalent to the profits it received against Eul et al., since the investment contract is invalid against the principle of shareholder equality

[1] The principle of the equality of shareholders means that a shareholder ought to be treated equally according to the number of shares he/she owns in a legal relationship with the company. An agreement that a company grants superior rights or interests only to certain shareholders in violation of this principle is null and void, barring any special circumstance.

If a company agrees to compensate for the total amount of the money paid by the subscription price for new shares with a person who acquires a shareholder status by accepting new shares, or to pay a separate profit not paid to other shareholders, other than dividends pursuant to Article 462 of the Commercial Act, etc., such agreement is null and void in violation of the principle of shareholder equality, as it absolutely guarantees the recovery of invested capital only to the relevant shareholder, thereby granting superior rights to other shareholders, which are not recognized to other shareholders. As long as the content of such agreement mainly pertains to compensation for losses arising from the status as a shareholder, it is not deemed that the agreement was concluded prior to the acquisition of the shareholder status or that it was concluded by a separate contract from the subscription price

[2] In a case where Company A entered into an investment contract with Party B and some of the participants in the contract with Party B to use the money invested by Party B as the price for subscription for capital increase, return of investment funds after 30 days, and payment of profits accrued from the specified return rate of return on the investment principal, and offer a notarized bill of commitment or a stock issued as a security, etc., and thereafter Company A sought a return of unjust enrichment equivalent to the profits they received against Party B and et al., on the grounds that the said investment contract becomes null and void in violation of the principle of shareholder equality, the case holding that the above investment contract is a contract that grants Company B et al. to participate in capital increase with Party A and to compensate for the total amount of redemption of new stocks and thus, it is not deemed that the funds invested by Party B et al. were used as the price for acquisition of new stocks and thus, it cannot be deemed that the funds were actually used as the price for acquisition of new stocks and thus, it cannot be deemed that Party B et al. were in violation of the principle of equity between shareholders and shareholders.

[1] Article 105 of the Civil Act, Articles 369(1), 464, and 538 of the Commercial Act / [2] Article 105 of the Civil Act, Articles 369(1), 464, and 538 of the Commercial Act

[1] Supreme Court Decision 2018Da9920, 9937 decided September 13, 2018 (Gong2018Ha, 1977)

C&T Co., Ltd. (LLC, Kim & Lee LLC, Attorneys Kang Yong-tae et al., Counsel for the defendant-appellant)

Defendant 1 and two others (Law Firm Linon et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2017Na2058534 decided May 10, 2018

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

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. The principle of the equality of shareholders means that a shareholder ought to receive equal treatment in a legal relationship with the company according to the number of shares he/she owns. Barring special circumstances, an agreement that a company grants superior rights or interests only to certain shareholders in violation of this principle is null and void (see Supreme Court Decision 2018Da9920, 9937, Sept. 13, 2018).

If a company agrees to compensate for the total amount of the money paid by the subscription price for new shares with a person who acquires a shareholder status by accepting new shares, or to pay a separate profit not paid to other shareholders, other than dividends pursuant to Article 462 of the Commercial Act, etc., such agreement is null and void in violation of the principle of shareholder equality, as it absolutely guarantees the recovery of invested capital only to the relevant shareholder, thereby granting superior rights to other shareholders, which are not recognized to other shareholders. As long as the content of such agreement mainly pertains to compensation for losses arising from the status as a shareholder, it does not change solely because such agreement was concluded prior to the acquisition of the shareholder status, or that it was concluded by a separate contract from the subscription price

2. A. The reasoning of the lower judgment and the record reveal the following.

1) On March 23, 2010, the Plaintiff offered capital increase with the third party’s allocation method (hereinafter “instant capital increase”) and procured KRW 23,154,920,740 as a total on March 24, 2010, and approximately 30 persons, including the Defendants, participated in the instant capital increase.

2) On March 23, 2010, the Plaintiff and the Defendants: (a) invested KRW 1,49,99,99,300 in the Plaintiff; and (b) Defendant 2 invested KRW 99,99,99,99,90 in the Plaintiff; and (c) used the said investment amount as the price for subscription for capital increase; (b) the Plaintiff returned the said investment amount to the Defendants by April 22, 2010; and (c) paid the profits accrued from the specified return rate of profit as to the investment principal; (d) provided a notarized bill of commitment, shares issued, and cash assets equivalent to 30% of the investment principal as security; and (e) provided the Defendants and the Plaintiff with an investment contract with the content that “if investment profits accrue by disposing of the investment principal prior to the due date of redemption, it shall be allocated to the Defendants and the Plaintiff as 4:6” (hereinafter “instant investment contract”).

3) In accordance with the instant investment contract, the Defendants received the future deposit account (Account Number omitted) in the Plaintiff’s name on March 23, 2010, and received each of the proceeds of May 25, 2010, KRW 150 million, and KRW 50 million on June 8, 2010.

4) Meanwhile, at the time of capital increase with consideration, Nonparty 1 and Nonparty 2, the representative director of the Plaintiff, who carried out business with Nonparty 1 and Nonparty 1, etc., who had been engaged in the business as the chairperson of the so-called “○○○ Group” that controls various KOSDAQ-listed companies through the borrowed-name shares, was convicted of having been convicted of the facts constituting the crime, such as embezzlement using part of the price for capital increase with consideration for the purpose other

5) On January 12, 2016, the Plaintiff filed the instant lawsuit against the Defendants on the grounds that the instant investment contract violates the principle of capital adequacy and becomes null and void, and accordingly, the Defendants sought a return of unjust enrichment equivalent to the above profits received under the instant investment contract. The lower court added the allegation that the instant investment contract was null and void in violation of the principle of shareholder equality.

B. Based on the above factual basis, the lower court determined that the instant investment contract did not constitute a violation of the principle of shareholder equality, since it was not related to the legal relationship that the Defendants had against the company in the capacity of shareholder, but pertaining to other legal requirements.

3. However, it is difficult to accept such a determination by the lower court for the following reasons.

The instant investment contract provides that the Defendants, who participated in the instant capital increase and acquired the status of the Plaintiff’s shareholder, shall preserve the full recovery of the subscription price for new shares, and at the same time, a company absolutely guarantees the shareholders to recover the subscription price for new shares and grants superior rights to the other shareholders not recognized. In other words, as long as the funds invested by the Defendants in this case were expected to be used as the subscription price for new shares in the amount, and was actually used as it was actually used, so long as the Defendants became the Plaintiff’s shareholder, it cannot be denied that the instant investment contract aims to compensate for losses arising from the status of the Defendants as the shareholder, and thus, it cannot be avoided from subject to the regulation of the

This does not change even if the time of the conclusion of the instant investment contract was prior to the Defendants’ acquisition of shareholder qualification, or there is a circumstance that the instant investment contract was concluded separately from the new shares acquisition contract. Therefore, it is reasonable to deem that the instant investment contract violates the principle of shareholder equality.

4. Nevertheless, based on its stated reasoning, the lower court determined that the instant investment contract did not contravene the principle of shareholder equality. In so determining, the lower court erred by misapprehending the legal doctrine on the principle of shareholder equality. The Plaintiff’s ground of appeal assigning this error is with merit.

5. Therefore, without examining the remaining grounds of appeal by the Plaintiff, 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 Park Sang-ok (Presiding Justice)