In a case where a director or auditor of a corporation comprehensively delegated his/her duties to another director, etc. in accordance with an agreement entered into with the company and performs only passive duties without performing a substantive duties as a director or auditor, whether his/her qualification as a director or auditor may be denied or the validity of the right to claim remuneration determined by the resolution of the general meeting of shareholders may be denied (negative in principle)

Articles 382(1), 388, 399, 401, 409(1), 414, and 415 of the Commercial Act

[Plaintiff-Appellant] Plaintiff 1 and 1 other (Law Firm Han-sung, Attorneys Park Jong-soo et al., Counsel for plaintiff-appellant)

Bankrupt Bank in Busan Savings Bank (Law Firm Jeongjin, Attorneys Kim Tae-young et al., Counsel for the plaintiff-appellant)

Defendant 1 and one other (Law Firm Man, Attorneys Lee Sang-soo et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2014Na2035868 decided April 16, 2015

The part of the lower judgment against the Defendants is reversed, and that part of the case is remanded to the Seoul High Court.

The grounds of appeal are examined.

1. Where a person appointed at a general meeting of shareholders as a director or auditor enters into a contract with a company and takes office as a director or auditor, he/she may receive remuneration by the amount, time, and payment method determined by the articles of incorporation or the general meeting of shareholders pursuant to Articles 388 and 415 of the Commercial Act. In light of the foregoing, even if a director or auditor appointed at a general meeting of shareholders comprehensively delegates his/her duties to other directors, etc. according to the explicit or implied agreement with the company, and fails to perform a substantial duty as a director or auditor, even if the director or auditor was appointed at the general meeting of shareholders, he/she is legally liable as a director or auditor under Articles 399, 401, and 414 of the Commercial Act. Therefore, the validity of the resolution of the general meeting of shareholders that appointed the director or auditor is null and void, or the above passive duty is contrary to the resolution of appointment and payment of remuneration at the general meeting of shareholders, barring special circumstances, such as where the above passive duty is contrary to the above passive reason.

However, even if a director or auditor’s right to claim remuneration is recognized for the passive performance of duties, it is reasonable to view that the director or auditor’s remuneration is limited to the exercise of the right to claim remuneration, and that the company can seek the return of remuneration paid in excess of the reasonable scope, in full view of the following: (a) the scope of restriction on the right to claim remuneration; (b) the amount of remuneration that the director or auditor provides or received as compensation for the performance of duties (see Supreme Court Decision 77Da1742, Nov. 22, 197, etc.); and (c) the reasonable proportional relationship between the consideration that the director or auditor provides to the company and the remuneration that the director or auditor provides should maintain; (d) the remuneration is excessive to the extent that it goes beyond reasonable level; or (e) the reason why the director or auditor appoints the director or auditor as a means to pay the company’s funds in the form of payment for remuneration; and (e) the purpose of appointing directors or auditors who perform duties and the need to maintain qualifications ought to be comprehensively considered.

2. The court below determined as follows: (a) Busan Savings Bank established or acquired a special purpose corporation by lending another person's name and recording it as a shareholder or officer in order to avoid the limitation of the Mutual Savings Bank; (b) conducted a real estate development project directly with the funds of the special purpose corporation; (c) Defendant 1 was one of the special purpose corporations accepted for such a purpose; (b) Defendant 2 was appointed as the representative director of Maiam, and Defendant 2 as Maiam's auditor; and (c) completed its registration; (d) Defendant 1 was paid a sum of 307,00,000,000 won for the benefit from October 206 to March 201; and (e) Defendant 2 was paid a representative director for the total amount of 78,385,000 won for the representative director of Maiam and the representative director of Maiam, who did not perform his/her duties as a director's right to request remuneration under the Commercial Act; and (e) Defendant 2 did not perform his/her duties as a director's right to request remuneration and auditor's.

3. However, in light of the reasoning of the lower judgment and the record, the Defendants, as directors and auditors appointed and registered at a general meeting of shareholders, bear legal responsibilities prescribed in Articles 399, 401, and 414 of the Commercial Act. Although they did not actively perform their duties, they can find the fact that they comprehensively delegate their duties to the side of the Busan Savings Bank and process incidental duties under the name of directors and auditors.

Examining these circumstances in light of the legal principles as seen earlier, if the Defendants received remuneration in accordance with the requirements stipulated in Articles 388 and 415 of the Commercial Act, barring any special circumstance, such as that the resolution of a general meeting of shareholders or the resolution of payment of remuneration by which the Defendants were appointed as directors or auditors is null and void, or that the above passive performance of duties is contrary to the contents of duties scheduled in the general meeting of shareholders to appoint directors and auditors, and thus constitutes a breach of trust in violation of the resolution of appointment and payment of remuneration by the general meeting of shareholders, the Defendants’ right to claim remuneration is not denied solely on the ground of the Defendants’ passive performance of duties,

Nevertheless, the lower court denied the Defendants’ right to claim remuneration for e-mail. In so determining, the lower court erred by misapprehending the legal doctrine regarding the right to claim remuneration for directors and auditors of a stock company and the legal act of anti-social order stipulated in Article 103 of the Civil Act.

4. Therefore, without examining the remaining grounds of appeal, the part of the judgment below against the Defendants is reversed, and that part of the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee In-bok (Presiding Justice)