[1] Whether the number of directors to be appointed shall be stated in a notice of convening a general meeting of shareholders when a corporation that did not exclude a concentrated vote under the articles of incorporation appoints multiple directors (affirmative)

[2] Whether a candidate to appoint a director at the stage of convening a general meeting of shareholders of an unlisted company should be separately notified as a director, outside director, or other non-executive director (negative)

[3] The case holding that although there is a defect in the number of directors to be appointed in the process of convening a notice for convening a general meeting of shareholders, there is no need to preserve the respondent appointed as a director at the general meeting of shareholders is highly likely to be appointed again, since the respondent is highly likely to be appointed again at the general meeting of shareholders, and there

[1] In the appointment of directors, a stock company that does not exclude the cumulative voting from the articles of incorporation must state the number of directors to be appointed in a notice and public notice of the general meeting of shareholders with respect to the appointment of directors. This is because shareholders will decide whether to demand the concentrated voting on the company depending on the number of directors to be appointed (e.g., the election of five directors may have influence on the appointment of directors with their shares, but, if two directors are elected, shareholders who are not entitled to exercise any particular influence on the appointment of directors may separately decide whether to demand the concentrated voting depending on the number of directors to be appointed). Therefore, if a stock company that did not exclude the cumulative voting under the articles of incorporation stated that the “case of appointment of directors” is the subject of the meeting at the general meeting of shareholders, it shall be deemed that it is an appointment of a single director, and if multiple directors are elected, the number of

[2] The Commercial Act and other relevant statutes do not stipulate that a notice of convening a general meeting of shareholders shall be given separately to a director, outside director, or other non-executive director, and the listed company shall individually specify the relevant candidate prior to the general meeting of shareholders for the appointment of executive officers (Article 542-4(2) and Article 542-5 of the Commercial Act). However, given that there is no separate provision as to the unlisted company’s notice of convening a general meeting of shareholders, there is no obligation to separately notify a director candidate to be appointed at the stage of convening a general meeting of shareholders as an internal director, outside director, or other non-executive director. According to Article 317(2)8 of the Commercial Act, a stock company shall register “in-house director, outside director, or other director who is not engaged in regular business, and the name and resident registration number of the auditor” in registering the establishment of a general meeting of shareholders. However, the above provision provides for the registration method in cases where a company is selected and appointed separately as above, it cannot be deemed that the above provision provides separate notice of the notice of convening a general meeting of shareholders.

[3] The case holding that since the notice of convening a general meeting of shareholders for the appointment of four directors only indicated "the case of appointing four directors" rather than "the case of appointing four directors," there is no defect in the notice of convening a general meeting of shareholders as to the number of directors for concentrated voting, but even if the general meeting of shareholders and the board of directors is held again, the respondent selected and appointed as directors at the general meeting of shareholders seems highly likely to be appointed as directors again, and therefore there is no need to preserve them to suspend the performance of duties as directors by provisional disposition

[1] Articles 363 and 382-2 of the Commercial Act / [2] Articles 317(2)8, 363, 542-4(2), and 542-5 of the Commercial Act / [3] Articles 363 and 382-2 of the Commercial Act; Article 300(2) of the Civil Execution Act

Co., Ltd. (Law Firm Jeong-Seng, Attorney Kim Jong-sik, Counsel for the plaintiff-appellant)

Debtor 1 and one other (Law Firm Won, Attorneys Lee Tae-chul et al., Counsel for the defendant-appellant)

Seoul Western District Court Order 2010Kahap548 dated May 20, 2010

1. The creditor's appeal is dismissed;

2. Costs of appeal shall be borne by the creditor.

The decision of the court of first instance shall be revoked. The duties of the directors and representative directors of the Korea Ptept Co., Ltd. (hereinafter referred to as “in-service company”) of the debtor 1 shall be suspended until the judgment of the court of first instance is rendered.

1. Details of the decision of the first instance;

According to the records, on April 7, 2010, the creditor filed an application for provisional disposition as stated in the purport of the application and the purport of the appeal against the debtor on April 7, 2010, Seoul Western District Court 2010Kahap548, but the above court made a decision of the first instance that dismissed the creditor's application for provisional disposition on May 20, 2010.

2. Basic facts

According to the records, each of the following facts is proved:

A. A creditor is a shareholder holding 68,289 Shares (33.8%) out of 1,975,750 shares issued by a company other than an unlisted company.

B. On March 10, 2010, the non-applicant company held a board of directors (hereinafter “board of directors”) and passed a resolution to propose that four successors, including the debtor, non-applicant 1, and non-applicant 2, who are the existing directors whose term of office expires, be elected at a general shareholders’ meeting, are the above four persons. On March 11, 2010, the company notified shareholders of the holding of a general shareholders’ meeting (hereinafter “instant general shareholders’ meeting”).

C. A creditor, as a shareholder holding not less than 3/100 of the total number of shares issued by a company other than the applicant company, requested that a director be appointed by means of a concentrated vote at the general meeting of shareholders of this case pursuant to Article 382-2(1) and (2) of the Commercial Act, and sent to the company other than the applicant on March 17, 2010, a written recommendation of candidates for inside directors to recommend 3 and 4.

D. Around 16:40 on March 26, 2010, the general meeting of shareholders of the instant case held at 1,975,750 shares, 42 shareholders (total shareholders 44 shareholders) holding 1,916,971 shares out of the total number of outstanding shares, were present. The general meeting of shareholders, other than the debtors, 1, 2 and 3, and 4 recommended by the creditors as the candidates for the intra-corporate directors at the meeting of the instant case, was added to the candidates as directors by the creditors, but decided to change the candidates for the intra-corporate directors recommended by the creditors as the candidates for the intra-corporate directors at the meeting of the instant general meeting of shareholders, with the consent of the shareholders holding 65% shares at the meeting of the shareholders, to change the candidates for the non-corporate directors recommended by the creditors to the candidates for the non-corporate directors, the debtors, the non-applicant 1 as the candidates for the intra-corporate directors, the non-corporate directors 3, 4, and 2 as other non-executive directors.

E. On the same day immediately after the completion of the instant general meeting of shareholders, the non-applicant company held the board of directors around 19:15 on the same day. The said board of directors attended the meeting of 12 directors including 10 directors, including 3 members newly appointed among 12 directors, and appointed the debtor 1 as joint representative director with the consent of 8 members (the non-applicant 3). With the consent of 7 members (the dissenting opinion of 3) the debtor appointed at the general meeting of shareholders of this case as an internal director, 3, 2 as other non-executive directors.

3. Determination

(a) the existence of preserved rights;

1) Creditor's assertion

Since multiple directors are selected and appointed, the number of directors should also be indicated in the notice for convening the general meeting of shareholders in case of appointing several directors. The non-applicant company simply stated the number of directors to be appointed without indicating the number of directors to be appointed in the notice for convening the general meeting of shareholders, and then appointed four directors at the general meeting of this case. In addition, this is a resolution on matters other than the purpose of the meeting. In addition, there is a procedural defect in the notice for convening the general meeting of shareholders without indicating the number of directors to be appointed separately as internal directors, outside directors, and other non-executive directors.

In addition, although the board of directors of this case decided to appoint three inside directors and one non-corporate director, the general meeting of shareholders of this case decided to revise the bill to appoint two inside directors and two other non-corporate directors at will. The creditor violated the shareholder proposal right and made an illegal resolution to circumvent the centralized voting system by changing the non-applicant 3 and 4 recommended as the candidate for the intra-corporate director to other non-corporate directors by a simple majority. Thus, the resolution of the general meeting of shareholders of this case should be revoked, and therefore, the execution of duties as the representative director and the director of the debtor appointed as the director at the general meeting of this case should be suspended.

2) Determination

A) Whether the convocation procedure was defective

(1) In the appointment of a director, a stock company that does not exclude the cumulative voting from the articles of incorporation must state the number of directors to be appointed in a notice and public notice of the general meeting of shareholders. This is because a shareholder decides whether to demand a concentrated voting on the company depending on the number of directors to be appointed (e.g., five directors may have influence on the appointment of directors with their shares, but, if two directors are elected, shareholders who are not entitled to exercise any particular influence may differently decide whether to demand a concentrated voting depending on the number of directors to be appointed). Therefore, if a stock company that did not exclude the cumulative voting under the articles of incorporation stated the "case of appointment of directors" as the subject matter of the meeting in the notice of convening a general meeting of shareholders, it shall be deemed that it is a single director, and if multiple directors are elected, the number of directors shall be expressed in the notice of convening a general meeting of shareholders, and since other companies than the company stated only the "election of directors" rather than the "election of directors" in the notice of convening a general meeting of this case, the general meeting of shareholders in this case shall be held.

(2) However, the Commercial Act and other relevant statutes do not stipulate that a director who is appointed in convening a notice of convening a general meeting of shareholders shall be divided into internal directors, outside directors, and other non-executive directors, and the listed company shall individually specify the relevant candidate prior to the general meeting of shareholders for the appointment of executives (Article 542-4(2) and Article 542-5 of the Commercial Act). However, given that there is no separate provision as to the unlisted company’s notice of convening a general meeting of shareholders, it appears that there is no obligation to separately notify a candidate who is appointed in the stage of convening a notice of convening a general meeting of shareholders by the unlisted company as internal directors, outside directors, and other non-executive directors. Thus, in convening a general meeting of shareholders of a company other than the unlisted company, the notice does not constitute a violation of the statutes or the articles of incorporation.

According to Article 317 (2) 8 of the Commercial Act, a creditor shall register "the name and resident registration number of a director, outside director, other director, and auditor who are not engaged in regular business." This is not only the listed company but also the unlisted company. According to this, when applying for the registration of the appointment of director, a stock company applies for the classification of director, outside director, and other non-executive directors. Thus, when appointing a director, a notice of convocation should be given separately. However, the above provision stipulates the method of registration when a company appoints a director separately as above, and it is difficult to view that the above provision does not have a duty to notify the director separately from internal director, outside director, or other non-executive director in the notice of convening a general meeting of shareholders. Thus, the creditor's above assertion is rejected.

B) Whether the method of resolution was defective

However, Article 363-2(1) of the Commercial Act provides that "any shareholder who holds shares equivalent to 3/100 or more of the total number of issued and outstanding shares shall be entitled to propose that the director be an object of the general meeting of shareholders in writing or by electronic document six weeks or before the date of the general meeting of shareholders (in the case of an ordinary general meeting of shareholders, the relevant day of the year in which the amount invested in the immediately preceding year is corresponding to the amount invested in the general meeting of shareholders)." The creditor shall request that the director be selected by means of a concentrated vote, and the document stating the shareholder proposal 3 and 4 as the candidate is sent to the company other than the applicant on March 17, 2010. The non-applicant company added 2 as the candidate recommended by the creditor at the general meeting of shareholders to the 3rd general meeting of shareholders, and the above 10th general meeting of shareholders as the result of the 2nd general meeting of shareholders present at the 3rd general meeting of shareholders, and the 3rd general meeting of shareholders as the above list."

According to the above facts, since the document written by the creditor's proposal was not exercised at least six weeks before March 20, 2010 by the amount invested in the company immediately preceding the year belonging to the applicant company, and the requirement for exercising the shareholder's proposal right under Article 363-2 of the Commercial Act was not satisfied, the non-applicant company is not bound by the creditor's recommendation of the non-applicant 3 and 4 as the candidate for the intra-company director, and the purpose of the centralized voting system is not to guarantee the right to appoint the "director" to the minority shareholder. The board of directors of this case decided to appoint four directors whose term of office expires, but the board of directors of this case decided to appoint the non-corporate director and other non-executive directors separately with the consent of the majority of the shareholders present at the general meeting of the shareholders of this case. Ultimately, as long as the non-party 3 recommended by the above creditor was elected as other non-executive directors, it is difficult to view the above resolution of the general meeting of shareholders of this case as unlawful resolution that dis

B. Necessity of conservation

1) As seen above, there is a defect that the general meeting of shareholders of this case does not specify the number of directors to be appointed in the course of convening a convocation notice, and this is not likely to constitute grounds for cancelling the resolution of the general meeting in relation to the centralized voting system, but there is no room to regard all preservative measures as constituting grounds for revoking the resolution of the general meeting. However, in all preservative measures, the existence of the right to be preserved and the need for preservation should be explained, and these two requirements should be independently examined regardless of the right to be preserved (see Supreme Court Order 2005Ma972, Jul. 26, 2007

2) The provisional disposition to determine a temporary position is an urgent and provisional disposition which is allowed by the person having the right to a provisional disposition for the purpose of preventing the present significant damages or imminent spread of the disputed legal relationship until it becomes final and conclusive through the lawsuit on the merits. Whether such provisional disposition is necessary or not shall be determined on the basis of the court’s discretion in consideration of the relationship between the parties who have the right to a provisional disposition to accept the application in question, the future winning failure in the lawsuit on the merits, and other circumstances. In the case of an application for provisional disposition on the grounds of a defect in the resolution to appoint an officer of a stock company or other organization, if the applicant has won a lawsuit on the merits and has a legitimate appointment resolution on the grounds of a defect in the resolution on the appointment of an officer of the corporation or other organization, it shall be considered whether the respondent is likely to be appointed as an officer again (see Supreme Court Order 97Ma1473, Oct. 14, 197).

On the other hand, the debtor was appointed as internal director of the company other than the applicant company with the consent of the majority shareholder, and the open board of directors immediately following the appointment of the debtor 1 as representative director with the consent of the majority shareholder, although the non-party 3, who was appointed as a candidate for the creditor or other non-executive director, was present. Although the creditor is the largest shareholder of the non-applicant company, the remaining shareholders, excluding the creditor, take the opposing position with the creditor, and as long as the shares held are similar twice as the shares held by the creditor are similar to twice the shares held by the creditor, it is highly probable that the debtor will be appointed as internal director and representative director of the company other than the applicant company even if the general meeting of shareholders and the board

3) Although the number of directors at the time of the convocation notice of the general meeting of this case did not specify the number of directors at the time of the convocation notice of the general meeting of this case, an obligee appears to have attended the general meeting with prior knowledge that four directors will be appointed due to the expiration of the existing director’s term of office, and an obligee raised suspicion that there was a misappropriation transaction between the obligor 1 and his family members with all shares, but the records alone cannot be readily concluded that there was such illegal transaction. In addition, it is difficult to view that there was a need to preserve the obligor’s provisional disposition to suspend the performance of duties as the representative director and director of the company other than the obligor’s application at the present stage.

4. Conclusion

Therefore, the application for provisional disposition of this case shall be dismissed as it is without merit due to lack of vindication of the necessity of preservation. The first instance court decision is justified as the conclusion is consistent with this, so the creditor's appeal shall be dismissed. It is so decided as per Disposition.

Judges Lee Jong-ok (Presiding Judge)