[1] The case holding that the part of a resolution of appointment of an auditor made at a temporary general meeting of shareholders permitted to convene a meeting by the court for the purpose of meeting the "election of a new director" is unlawful on the grounds that it defects

[2] In a case where the articles of incorporation of a stock company contains a blank space as to the amount and conditions of convertible bonds, the contents of shares to be issued due to the conversion, and the period during which the conversion can be demanded, whether the company may issue convertible bonds to a person other than a shareholder by the resolution of the board of directors without a special resolution

[1] The case holding that the part of a resolution of appointment of auditor made without the resolution by the board of directors or the permission of the court at the above temporary general meeting of shareholders is unlawful on the ground that the convocation procedure is defective, although the court was permitted to convene a temporary general meeting for the purpose of meeting the

[2] In a case where the articles of incorporation of a stock company disturbs the amount and conditions of convertible bonds, the contents of shares to be issued due to the conversion, and the period during which the conversion may be requested, most of the matters to be stipulated in the articles of incorporation for the issuance of convertible bonds to a person other than shareholders pursuant to Article 513(3) of the Commercial Act cannot be deemed to have been properly stipulated in the articles of incorporation. Thus, in this case, convertible bonds shall not be issued to a person other

[1] Articles 362, 366(1) and (2), and 376(1) of the Commercial Act / [2] Article 513(3) of the Commercial Act

[2] Supreme Court Decision 2000Da37326 decided Jun. 25, 2004 (Gong2004Ha, 1207)

Plaintiff (Attorney Lee Young-hoon, Counsel for the plaintiff-appellant)

Defendant (Attorney Kim Jong-young, Counsel for the defendant-appellant)

Suwon District Court Decision 2006Gahap9602 decided May 9, 2007

July 2, 2008

1. The part against the plaintiff falling under paragraphs (a) and (b) below among the judgment of the first instance shall be revoked.

A. The decision that the Defendant appointed Nonparty 1 as the auditor among the resolutions made at the special shareholders’ meeting on September 19, 2006 is revoked.

B. It is confirmed by the resolution of the board of directors of Sep. 27, 2006 that the issuance of the convertible bonds in the total amount of KRW 120 million issued by the Defendant on Oct. 10 of the same year is null and void.

2. The plaintiff's remaining appeal is dismissed.

3. Two minutes of the total costs of the lawsuit are assessed against the Plaintiff, and the remainder is assessed against the Defendant, respectively.

1. Purport of claim

The resolution of the general meeting of shareholders that the Defendant appointed Nonparty 2 and Nonparty 3 as a director and Nonparty 1 as an auditor at the special meeting of shareholders on September 19, 2006 shall be revoked. The Defendant confirmed that the issuance of convertible bonds with the total amount of KRW 120 million issued by the Defendant on September 10, 2006 by the resolution of the board of directors on September 27, 2006 is null and void (the Plaintiff withdrawn the claim to revoke the resolution at the general meeting of shareholders on September 30, 2006).

2. Purport of appeal

The decision of the court of first instance is revoked. The resolution of the general meeting of shareholders that the Defendant appoints Nonparty 2 and Nonparty 3 as an auditor at the special meeting of shareholders on September 19, 2006 shall be revoked. The resolution of the general meeting of shareholders held on September 30, 2006 by the Defendant shall be revoked. Each resolution of the Defendant’s general meeting of shareholders held on September 30, 2006 shall be revoked. The Defendant confirms that the total amount of KRW 120 million issued on September 27, 2006 by the resolution of the board of directors is invalid.

1. Basic facts

The following facts are not disputed between the parties, or may be recognized by comprehensively taking account of the descriptions of Gap evidence 1 to 8, Eul evidence 2 and 3, and the whole purport of pleadings:

A. On July 30, 2004, the Defendant, as a company aimed at manufacturing semiconductors, was established by investing respectively KRW 30 million by Nonparty 4, the Plaintiff’s KRW 20 million, and Nonparty 5, the Plaintiff’s husband, respectively. Nonparty 4 was appointed as a director by the representative director, the Plaintiff’s auditor, and the Plaintiff’s husband.

B. As of June 30, 2006, the total number of the Defendant’s outstanding shares is 50,000 shares, Nonparty 4, who is the share ratio at the time of establishment, owns 60% of the total outstanding shares, and Nonparty 4 owns 190,000 shares (the total number of outstanding shares; hereinafter the same shall apply), Nonparty 1’s wife Nonparty 4, 100,000 shares (20%), Nonparty 6, who is the land of Nonparty 4, owned 190,00 shares (2%), the Plaintiff’s 190,00 shares (38%) and Nonparty 7, who is the Plaintiff’s self-employed, owns 10,00 shares (2%).

C. As the representative director and Nonparty 4 did not make a resolution of the board of directors for the convocation of a general meeting of shareholders due to disputes between Nonparty 4 and Nonparty 5, Nonparty 1’s wife Nonparty 4 requested the Defendant’s representative director Nonparty 4 to convene a provisional general meeting of shareholders on July 24, 2006. Nevertheless, as the Defendant did not take the procedure for convening a general meeting, the Defendant filed an application for a temporary general meeting of shareholders with the Sungwon District Court for the permission to convene a temporary general meeting of shareholders on August 30, 206 with the Defendant for the temporary general meeting of shareholders for the purpose of appointing new directors on August 30, 206.

D. On September 4, 2006, Nonparty 4 sent notice to the Defendant’s shareholders on September 19, 2006 to the effect that a temporary shareholders’ meeting is held for the purpose of meeting to appoint two directors and one auditor. On September 19, 2006, at the meeting room of the Defendant’s headquarters, Nonparty 4 attended by Nonparty 4 shareholders and resolved to appoint Nonparty 2 and Nonparty 3 as directors and one auditor, respectively.

E. On September 27, 2006, the Defendant held a board of directors at the meeting room of the head office of Nonparty 4, Nonparty 2, and Nonparty 3 attended, and decided to issue convertible bonds of KRW 120 million in total among Nonparty 5’s non-indicted 5, and issued convertible bonds of KRW 120 million in total (the period for claiming conversion of bonds shall be 20 million from the date of issuance of bonds) on October 10 of the same year, and on October 13, 2006, the convertible bonds issued on October 13, 206 were entirely converted into stocks.

2. The allegations and judgment of the parties

A. The plaintiff's assertion

(1) On September 19, 2006, the extraordinary general meeting of shareholders did not go through a resolution of the board of directors, or (2) if it is based on the court's permission to convene a meeting, the notice of convening a meeting was given by Nonparty 4, not Nonparty 1, but Nonparty 1, and the representative director with the permission to convene the meeting, and (3) the court only permitted the convocation of a general meeting for the purpose of appointing directors and auditors, but there is a procedural defect in the process of giving a notice of convening a meeting and appointing directors and auditors. Thus, the above extraordinary general meeting of shareholders should be revoked.

(2) In order to issue convertible bonds, the Defendant issued convertible bonds pursuant to Article 513(3) of the Commercial Act, following a special resolution of the amendment of the articles of incorporation as to the amount, conditions of conversion, and the period for which the Defendant may request the conversion of the shares to be issued due to the conversion, but the Defendant issued convertible bonds on October 10, 2006 only by the resolution of the board of directors without such special resolution. As such, the convertible bonds are invalid; (2) the issuance of convertible bonds is invalid; (3) the Defendant’s issuance of convertible bonds is invalid due to the defect in the resolution of the board of directors that issued the convertible bonds; and (4) the Defendant’s issuance of convertible bonds is obvious that the purpose is to exclude the Plaintiff’s preemptive right to new stocks and increase the Defendant’s shareholding ratio to the extent that the Plaintiff’s stock holding ratio constitutes a quorum for a special resolution for

B. Defendant’s assertion

(1) On September 19, 2006, the extraordinary general meeting of shareholders was convened by Nonparty 1, who is a minority shareholder, by applying for permission to convene a general meeting of shareholders to the court, and it is not necessary to make a resolution of the board of directors in convening a general meeting of shareholders. ② The actual notice of convening a general meeting of shareholders was convened by Nonparty 4, who is the representative director of the defendant, on behalf of Nonparty 1 with the delegation of Nonparty 1, and was convened by the court on behalf of Nonparty 1, and it is not a requirement to state the fact that

(2) Inasmuch as convertible bonds are legitimately issued by the resolution of the board of directors pursuant to Article 17 of the Defendant’s Articles of Incorporation, they cannot be deemed as contrary to statutes or the articles of incorporation, and contrary to social order.

(c) Markets:

(1) Determination as to the legitimacy of a resolution to appoint directors at a special shareholders' meeting on September 19, 2006

As seen earlier in the “basic fact”, although Nonparty 1, who held 20% of the Defendant’s shares, requested the Defendant to convene an extraordinary general meeting, Nonparty 4 and Nonparty 5, who were not convened by the board of directors due to disputes between Nonparty 4 and Nonparty 5, the director of the board of directors, and Nonparty 1 applied for the issuance of an extraordinary general meeting at Sungwon District Court branch of Sungwon District Court, Nonparty 1 decided on August 30, 2006 that “the above court shall permit Nonparty 1 to convene an extraordinary general meeting of shareholders for the purpose of the Defendant’s meeting to appoint a new director against Nonparty 1, who is the Defendant’s representative director, and Nonparty 1 delegated Nonparty 4, who is the Defendant’s representative director, to convene an extraordinary general meeting of shareholders by Nonparty 4’ notice.

According to the above facts, the above provisional general meeting is legitimately convened by Nonparty 4, who is the legitimate authority to convene the general meeting of shareholders, and the above resolution for the appointment of director is valid. Thus, the plaintiff's above argument is without merit. ① The Commercial Act provides that "the notice must be sent in writing or by electronic document to each shareholder two weeks prior to the day set for the meeting," and "the notice under the preceding paragraph shall contain the purpose of the meeting (Article 363 (1) and (2)" (Article 363). According to the evidence No. 11, Article 22 (1) of the defendant's articles of incorporation provides that "the date, place, and purpose of the meeting shall be sent to the shareholders two weeks prior to the date of the general meeting." Thus, it is difficult to view that there is any defect in the convocation notice even if the plaintiff did not state such matters with the permission to convene the general meeting of shareholders with the permission of the court asserted by the plaintiff. ② The defendant sent a notice of convening the general meeting from 200 days prior to the general meeting.

(2) Determination as to the legitimacy of a resolution to appoint an auditor at a special shareholders' meeting on September 19, 2006

Except as otherwise provided in this Act, the Commercial Act provides, “the convocation of a general meeting of shareholders shall be decided by the board of directors (Article 362), “any shareholder who holds no less than 3/100 of the total issued and outstanding shares may request a meeting by submitting to the board of directors a document stating the purpose of the meeting and the reasons for convening the general meeting,” and “the shareholder who has requested the meeting may convene the general meeting with the permission of the court if he fails to take the procedure for convening the general meeting without delay after a request under paragraph (1) is made (Article 366(1) and (2)” (Article 366(1) of the Commercial Act provides, “The meeting of the general meeting of shareholders may be convened by the representative director according to the resolution of the board of directors, except as otherwise provided in Acts and subordinate statutes.”

Examining the case, as seen earlier, Nonparty 1, a minority shareholder, was only permitted by the court to convene a general meeting of shareholders for the purpose of appointing a new director, did not obtain a convocation permit from the court for the convocation of a general meeting of shareholders for the purpose of appointing an auditor, and there was no dispute between the parties as to the fact that there was no resolution by the defendant for the convocation of a general meeting of shareholders for the purpose of appointing an auditor. Therefore, the part of a resolution for appointing an auditor among a temporary general meeting of shareholders was made without the approval of the board of directors or the convocation of the court. This part of the resolution is against the purport that the Commercial Act provides that the right to convene a general meeting of shareholders shall belong to the board of directors for the prudentness and adequacy of the convocation of the general meeting of shareholders, unless otherwise provided for in the Commercial Act. Thus, this part of the resolution is unlawful because it was defective in the convocation procedure, and thus, it does not constitute 60% of the defendant's issued stocks and 40% of the plaintiff's issued stocks, and it is difficult for the plaintiff to hold a temporary general meeting of shareholders and its importance.

(3) On October 10, 2006, judgment on October 10, 2006 on the invalidity confirmation of the issuance of convertible bonds

Article 513(3) of the Commercial Act provides that "where convertible bonds are issued to a person other than a shareholder, the amount and conditions of convertible bonds to be issued, and the period during which a request for conversion of the contents and conversion of the shares to be issued may be made, unless otherwise provided in the articles of incorporation, a resolution under Article 434 (Special Resolution for Amendment of Articles of Incorporation) shall be made." Article 434 of the Commercial Act provides that "Article 433 (1) of the Commercial Act (Article 433) provides that "the resolution shall be at least 2/3 of the voting rights of the shareholders present at the meeting and at least 1/3 of the total number of issued shares." The defendant's issuance of the above convertible bonds shall be made at the board of directors on September 10, 206 by the resolution of the board of directors on September 27, 2006 without the resolution of the general meeting of shareholders." Thus, for the issuance of the above convertible bonds, the defendant's articles of incorporation shall meet the requirements under Article 513(3) of the Commercial Act.

According to the defendant's articles of incorporation (No. 11 and No. 8-1) of the company which was in force at the time of the above resolution, Article 17 of the defendant's articles of incorporation at the time the defendant's articles of incorporation provides that "the company may issue convertible bonds to persons other than shareholders to the extent that the total face value of the bonds does not exceed the total face value of the bonds. 1. Where convertible bonds are issued by public offering, "(1) where convertible bonds are issued by public offering for foreign investment under the Foreign Investment Promotion Act which is necessary for management; 2." (2) "where stocks are issued by public offering, and the conversion price shall be determined by the board of directors at the time of issuance of the bonds." (3) "The total face value of the stocks issued by public conversion shall be ordinary stocks, and the conversion price shall be determined by the board of directors at the time of issuance of the bonds, and it is difficult to say that there are errors in the issuance of convertible bonds at the face value or above the face value of the stocks," (3) period of issuance of the bonds after the date of the issuance of the bonds, and three (3).

In addition, once convertible bonds are issued, there is a need to consider the profits of underwriters, and as shares issued by the exercise of convertible bonds or convertible rights are distributed as securities, it is necessary to protect the safety of trading. In light of the fact that the lawsuit for invalidation of the issuance of convertible bonds is against the remedies for such issuance, and thus it is highly likely to undermine the safety and legal stability of trading, it should be strictly interpreted as much as possible. Accordingly, it is against the essence of the corporation or the basic principles of the Company Act or has significant influence on the interests of the existing shareholders and the management rights or control of the company, even if it is considered that the total amount of the shares issued by the board of directors would be 00 billion won and 10 billion won, and the shares issued by the 60% amendment of the company's capital and 40% amendment of the company's shares issued by the 60% amendment of the company's shares, which is 40% of the company's total amount of shares issued by the 160% amendment of the company's capital and 40% of the company's shares'.

(4) Conclusion

Therefore, the defendant's resolution of the appointment of auditor at the provisional shareholders' meeting on September 19, 2006 is unlawful and revoked, and the defendant's issuance of the convertible bonds with the total amount of KRW 120 million as of October 10, 2006 shall be null and void.

3. Conclusion

Therefore, the plaintiff's claim shall be accepted only within the extent of the above recognition, and the remaining claims shall be dismissed as it is without merit. Since the judgment of the court of first instance is unfair with a different conclusion, it is so decided as per Disposition by accepting part of the plaintiff's appeal.

Judges Signature Number (Presiding Judge) Kim Dong-dong-Appellee