Where a director or auditor comprehensively delegates 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 duty 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)

In a case where a person appointed as a director or auditor at a general meeting of shareholders enters into a contract with a stock company and takes office as a director or auditor, he/she may receive remuneration by the amount, time, method of payment, etc. determined by the articles of incorporation or the resolution of 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 another director, etc. according to the explicit or implied agreement with the company and fails to perform the substantial duties as a director or auditor, he/she is legally liable as a director or auditor under Articles 399, 401, and 414 of the Commercial Act. Thus, unless there are special circumstances, such as where a resolution of the general meeting of shareholders that appoints a director or auditor or an auditor becomes invalid, or where a director or auditor performs his/her duties is contrary to the resolution of appointment and remuneration payment, the qualification as a director or auditor with only passive reasons for performing his/her duties, or it is difficult to deny the validity of the right

However, even if a director or auditor’s right to claim remuneration is recognized for the passive performance of duties, the remuneration of the director or auditor should maintain a reasonable proportional relationship between the consideration provided to the company and the remuneration paid by the director or auditor as compensation for the performance of duties. Thus, in special circumstances, the remuneration is so excessive that it goes beyond a reasonable level and has lost a considerable balance, or is appointed as a director or auditor as a means to pay the company’s funds to individuals in the form of payment of remuneration, the exercise of the right to claim remuneration is restricted, and the company may seek the return of remuneration paid in excess of the reasonable scope. In such cases, whether to restrict the right to claim remuneration and the scope of restriction shall be determined by comprehensively taking into account various circumstances revealed in pleadings, such as the details of benefits provided by the director or auditor who performs his/her duties, degree of performance of duties, the amount of remuneration received and the difference between the company’s financial status, the purpose of appointing directors or auditors who perform duties and the need to maintain qualifications.

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

Defendant 1 and one other (Attorney Choi Im-op, Counsel for the defendant-appellant)

Seoul High Court Decision 2014Na2014267 decided April 3, 2015

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. As to the grounds of appeal Nos. 2 and 3

A. Where a person appointed at a general meeting of shareholders as a director or auditor enters into a contract with a stock company and takes office as a director or auditor, he/she may receive remuneration by the amount, time, method of payment, etc. determined by the articles of incorporation or the resolution of 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 another director, etc. in accordance with the explicit or implied agreement with the company, and fails to perform a substantial duty as a director or auditor, he/she shall be held legally liable as a director or auditor under Articles 399, 401, and 414 of the Commercial Act. Thus, the validity of the resolution of the general meeting of shareholders that appointed a director or auditor is invalid, or the above passive duty is different from the duty expected to be performed at the general meeting of shareholders, and thus, it is difficult to deny the qualification of director or auditor as a director or auditor or to deny the effect of the resolution of the general meeting of shareholders.

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 limitation of the right to claim remuneration; (b) the degree of performance of duties or the degree of performance of duties; (c) the amount of remuneration paid by the director or auditor; (d) the difference between remuneration provided to the company and remuneration paid to the company; and (e) the purpose of appointing directors or auditors who perform duties and the need to maintain qualifications actively, in extenuating circumstances, such as where the remuneration is excessive beyond reasonable level and the company’s appointment of directors or auditors as a means to pay the company’s funds in the form of payment of remuneration; and (e) the purpose and scope of the right to claim remuneration should be determined by comprehensively taking into account various circumstances revealed in the oral proceedings.

B. The lower court: (1) (1) acknowledged the following facts: (2) The Plaintiff: (a) was a special purpose corporation established by the Busan Savings Bank in order to conduct real estate development projects; (b) Defendant 1 was appointed as a director of merat golf; and (c) Defendant 2 was appointed as an auditor of merat golf; and (d) paid KRW 69,670,000 in total from March 2006 to March 201; and (e) did not perform an incidental business under the name of director or auditor without performing any substantive duties; and (b) determined that the agreement was not valid on the grounds that the agreement was not in accordance with the above facts and the amount of money received by the Defendants, and thus, it is difficult to view that the agreement was not in compliance with the terms and conditions of the Defendants’ right to claim remuneration, but in light of the legal principles on the name lending of the Defendants’ right to claim compensation under the Civil Act.

C. Examining the reasoning of the judgment below in light of the aforementioned legal principles and evidence duly admitted, even though the Defendants did not actively perform their duties as directors and auditors, they are deemed to comprehensively delegate their duties as directors and auditors appointed at a general meeting of shareholders to other directors, and have legal responsibilities as prescribed in Articles 399, 401, and 414 of the Commercial Act. Thus, it is inappropriate to determine that the lower court’s determination on the premise that the Defendants did not regard the nominal money paid to the Defendants as the consideration for the passive performance of duties, but merely constitutes the nominal lending of the name, rather than merely deeming it as the consideration for the nominal performance of such passive duties. However, the lower court did not err in misapprehending the legal principles as to the Defendants’ right to claim remuneration, contrary to what is alleged in the grounds of appeal, since the resolution of the general meeting of shareholders that appointed the Defendants as directors and auditors or the above passive performance of duties is invalid, or contrary to the appointment and remuneration payment resolution set forth in the general meeting of shareholders, and thus, it cannot be deemed that the Defendants’ assertion and the Defendants’ claim of unjust enrichment of Article 16 of the Commercial Act.

2. Regarding ground of appeal No. 1

Article 388 of the Commercial Act provides that “The remuneration for directors shall be determined by a resolution of the general meeting of shareholders if the articles of incorporation do not determine the amount of remuneration for directors.” Article 415 of the Commercial Act shall apply mutatis mutandis to audits. Where the articles of incorporation stipulate the remuneration for directors and auditors as mandatory provisions by a resolution of the general meeting of shareholders, unless there is any evidence to prove that there was a resolution of the general meeting of shareholders relating to the amount, time of payment, method of payment, etc. (see, e.g., Supreme Court Decisions 2004Da25123, Dec. 10, 2004; 2012Da98720, May 29, 2014). The director and auditor bears the burden of proving that there was a resolution of the general meeting of shareholders.

Nevertheless, the lower court rejected the Plaintiff’s assertion that the payment of remuneration to the Defendants was null and void in violation of the mandatory provisions of the Commercial Act, on the erroneous premise that the Plaintiff ought to prove the fact that there was no resolution of the general meeting of shareholders on the amount of remuneration by the Defendants, on the ground that there was no evidence to acknowledge that there was no resolution of the general meeting of shareholders setting the amount of remuneration.

Therefore, the judgment of the court below is erroneous in the misapprehension of legal principles as to the burden of proof of a resolution by the general meeting of shareholders with which directors or auditors pay. The ground of appeal assigning this error is with merit.

However, in the case of a so-called one-called one-person company, even if there was no actual holding of the general meeting of shareholders, if the minutes of the general meeting of shareholders were prepared by such one-person shareholder, the resolution may be deemed to have been made, barring any special circumstances. Also, even if the minutes of the general meeting are not prepared, the resolution of the general meeting of shareholders may be deemed to have been made based on evidence. Such legal principles may be equally applicable to the case of a single-person company (see Supreme Court Decision 2004Da25123, supra). If the main golf is substantially recognized as a single-person company, such as the original adjudication, the court below after remanding the case, pointed out that it is necessary to examine whether it can be deemed to have been a resolution of the general meeting of shareholders

3. Conclusion

Therefore, the judgment of the court below is reversed, and 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 Kim So-young (Presiding Justice)