Standard for determining whether a crime of breach of trust is established against related persons who have led the acquisition of a company using so-called Leveraged Buy-Out

Articles 355(2) and 356 of the Criminal Act

Supreme Court Decision 2009Do6634 Decided April 15, 2010 (Gong2010Sang, 946) Supreme Court Decision 2010Do1544 Decided December 22, 2011

Defendant 1 and two others

Prosecutor

Law Firm International et al.

Busan High Court Decision 2010No669 decided December 29, 2010

All appeals are dismissed.

The grounds of appeal are examined.

1. The Defendants’ violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation)

The so-called so-called "loan purchase or LBO" is not a single legal concept, but is generally a business-based term in which corporate acquisition techniques, such as providing the assets of the recipient company as collateral or covering a considerable portion of the funds for corporate acquisition with the funds borrowed by the recipient company to repay the assets of the recipient company, and the considerable portion of the funds are covered with the assets of the recipient company, and its specific form is very diverse in the transaction reality. Unless there is a separate law regulating the purchase of loans, it is difficult to readily conclude that the crime of breach of trust is established or not established for the related persons who led the acquisition of the company by the method of borrowing. Whether the crime of breach of trust is established or not, depending on whether the act in the course of the purchase of loans constitutes the elements of the crime of breach of trust (see, e.g., Supreme Court Decision 2009Do6634, Apr. 15, 2010).

The summary of this part of the facts charged is that Defendant 2 and 3 provided capital reduction and dividends for the purpose of paying loans to acquire Nonindicted Co. 2 (hereinafter “Nonindicted Co. 1”) by Nonindicted Co. 1 (hereinafter “Nonindicted Co. 2”) under the direction of Defendant 2 and 3, and Defendant 1 provided capital reduction and dividends for consideration, which eventually led to Defendant 1’s public offering and solicitation of KRW 61.4 billion from the company, thereby allowing Nonindicted Co. 1 to obtain property gains equivalent to KRW 61.4 billion and causing property damage equivalent to the same amount to Nonindicted Co. 2. The court below determined that even if Defendant 2 and 3 reduced active property of Nonindicted Co. 2 due to capital reduction and dividends performed by Nonindicted Co. 2 as a director of Nonindicted Co. 2, this would not result in the exercise of shareholder’s right under our Constitution and the Commercial Act, the principle of private autonomy, and in light of the business profit or asset size of Nonindicted Co. 2 at the time of capital reduction, it cannot be viewed that some losses were inflicted upon Nonindicted Co. 22’s.

Based on the above judgment, the court below affirmed the judgment of the court of first instance that found Defendant 1 not guilty of this part of the charges against the Defendants without further review as to whether Defendant 1 conspired and conspired to commit the above acts by Defendants 2 and 3.

Examining the records in light of the relevant legal principles, the above determination by the court below is just, and contrary to the allegations in the grounds of appeal, there were no errors in the misapprehension of legal principles as to the establishment of occupational breach of trust, the occurrence of damages in occupational breach of trust, or the reduction of compensation and dividends, or in finding facts against logical and empirical rules.

2. The point of occupational embezzlement against Defendant 2 and 3

The prosecutor bears the burden of proving the intent of unlawful acquisition in the crime of embezzlement. Thus, even if the purpose of a certain money is specified abstractly, if the custodian is granted a broad discretion to use the money with respect to the specific purpose, purpose, time, etc. of use, and then the latter is not required to submit a post-report or evidence, the custodian shall not without permission for the use of the money, and if he/she does not properly explain the location or place of use, or fails to submit evidentiary materials, the intent of unlawful acquisition should not be inferred. It is natural that the prosecutor bears the burden of proving that there is sufficient circumstance to recognize the intention of unlawful acquisition, such as that the money was disbursed for personal interests, regardless of the original purpose of use, or spent excessive amount beyond the reasonable scope.

Meanwhile, a corporation or an organization has the nature of reimbursement of actual expenses, such as compensating for expenses incurred in performing its duties, which are paid under the articles of incorporation or other regulations for expenses incurred in performing its duties by compensating for expenses incurred in performing its duties, and the articles of incorporation or its payment standards do not place specific restrictions on its use or purpose. In a case where evidence, such as a receipt of payment, is not required even after its use, the determination on the use or scale of use, and whether it is related to the work is entrusted to the officer and employee, and such determination should be respected first. Therefore, in order to recognize the payment of the sales fund, etc. as embezzlement with the intent of unlawful acquisition, it should be proved that the sales fund, etc. was disbursed for personal benefits without connection with the work or excessive disbursement exceeding the reasonable scope even if it was related to the work, and the officer and employee who used the sales fund, etc. failed to properly explain its whereabouts or use, or failed to submit evidence on its use ex post facto, and thus, he embezzled it with an intent of unlawful acquisition (see, e.g., Supreme Court Decision 2007Do597).

Upon examining the records in light of the above legal principles, the court below’s decision to reverse the judgment of the court of first instance and acquitted the above defendants on the grounds that there is no proof of crime as to this part of the facts charged against the above defendants. Contrary to the allegations in the grounds of appeal, the court below did not err by misapprehending the legal principles as to the establishment of embezzlement on duty and the burden of proof

3. Grounds of appeal as to Defendant 1

A. Violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement) due to the use of funds by Nonindicted Company 2 and Nonindicted Company 3

In light of the records, it is acceptable for the court below to maintain the judgment of the court of first instance which acquitted Defendant 1 of this part of the facts charged on the grounds that the intention of unlawful acquisition is not recognized. Contrary to what is alleged in the grounds of appeal, the court below did not err by misunderstanding the legal principles as to the intention of unlawful acquisition in the crime of embezzlement on duty or misunderstanding the legal principles as to

B. Violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement) due to the payment of special bonus

Inasmuch as attorney fees that can be paid at the expense of an organization are limited to cases where the organization itself becomes a party to a lawsuit, barring any special circumstance, the attorney fees for civil and criminal cases which become a party to the lawsuit cannot be paid at the expense of an organization unless there are other special circumstances. However, as an exceptional case where a dispute arises in connection with a lawsuit or other legal procedure, or acts performed lawfully by an individual who is in the status of a representative for legal reasons, or acts performed by a representative due to the fact that he/she becomes a party to a lawsuit or other legal procedure, the pertinent legal dispute may be paid at the expense of an organization in case where there is a special need to conduct a lawsuit or respond to a complaint for the benefit of an organization in light of all the circumstances at the time when the legal dispute is deep related to the organization's work and at the same time (see Supreme Court Decisions 2004Do6280, Oct. 26, 206; 2009Do3982, Sept. 24, 2009).

Upon examining the records in light of the above legal principles, the court below’s maintenance of the judgment of the court of first instance which acquitted this part of the facts charged on the grounds as stated in its reasoning is acceptable. Contrary to the allegations in the grounds of appeal, the court below did not err by recognizing facts against logical and empirical rules or by misapprehending the legal principles

C. Violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) due to joint and several sureties by Nonindicted Company 2

Upon examining the records, we affirm the judgment of the court of first instance which acquitted Defendant 1 of this part of the facts charged, on the grounds as stated in its reasoning, on the ground that it did not recognize Defendant 1’s intent to obtain unlawful gains or did not cause any risk of property damage to Nonindicted Company 2. Contrary to the allegations in the grounds of appeal, the court below did not err by recognizing facts in violation of logical and empirical rules or by misapprehending the legal principles on the intention to obtain unlawful gains in the course of occupational breach

D. Violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation of Trust) due to the reduction of the capital for consideration by Nonindicted Company 2 in 2006

Examining the records in light of the relevant legal principles, we affirm the judgment of the court of first instance which acquitted the non-indicted 2 of this part of the facts charged on the grounds that it cannot be deemed that the non-indicted 2 suffered losses by obtaining unjust profits from the shareholders of the non-indicted 2's capital reduction in 2006, on the grounds as stated in its holding. In so doing, the court below did not err by misapprehending the legal principles on occupational breach of trust or reduction of capital for consideration, etc., or by misapprehending the law of logic and experience

4. Conclusion

Therefore, all appeals by the prosecutor are dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Ko Young-han (Presiding Justice)