[1] Whether it is permissible to additionally claim the new grounds for invalidation after the lapse of the period of release in a lawsuit seeking nullification of the issuance of new stocks (negative)

[2] Criteria to distinguish the method of allocating shares from the method of allocating shares to the third party in the issuance of new shares

[3] Whether a company may dispose of forfeited new stocks to a third party by a resolution of the board of directors due to a shareholder’s waiver of acceptance or failure to make an offer while issuing new stocks by means of a shareholder allocation method (affirmative); and whether the articles of incorporation should provide for the issuance of forfeited new stocks to a third party (negative)

[1] Article 429 of the Commercial Act provides that the invalidation of issuance of new shares may be asserted only by a lawsuit within six months from the date of issuance of new shares only to shareholders, directors, or auditors. This is intended to early determine complicated legal relations that may arise from the issuance of new shares. In light of the fact that the legal relationship becomes unstable if a new ground for invalidation can be asserted even after the expiration of the period of release, and the purport of the above provision becomes worse, it is reasonable to interpret the above provision as limiting the timing for claiming the grounds for nullification. Thus, the above provision cannot be asserted in addition to the new grounds for nullification after the lapse of six months from the date of issuance of new shares in the lawsuit seeking invalidation

[2] The criteria for distinguishing the method of allocating new shares from the method of allocating new shares, etc. shall be objectively determined depending on whether a company, while issuing new shares, etc., gives shareholders an opportunity to preferentially acquire new shares, etc. in accordance with their share ratio, and it shall not depend on whether the shareholders granted the right to subscribe to new shares, etc. have been allocated by exercising the right to subscribe to new shares, etc

[3] In a case where a company loses its right to underwrite new shares through a shareholder allocation method by failing to waive its subscription or make an offer (Article 419(4) of the Commercial Act), the company may freely dispose of the shares without subscription to a third party by a resolution of the board of directors (Article 419(4) of the Commercial Act). In such a case, the articles of incorporation does not necessarily require a provision regarding the issuance of forfeited new shares to a third party

[1] Article 429 of the Commercial Act / [2] Articles 416, 418 (1) and (2) of the Commercial Act / [3] Articles 416, 418 (1) and (2), and 419 (4) of the Commercial Act

[1] Supreme Court Decision 200Da37326 Decided June 25, 2004 (Gong2004Ha, 1207) / [2] Supreme Court en banc Decision 2007Do4949 Decided May 29, 2009 (Gong2009Ha, 1079)

Plaintiff (Law Firm LLC, Attorneys White-chul et al., Counsel for the plaintiff-appellant)

LACC Co., Ltd.

Seoul High Court Decision 2009Na24264 decided May 27, 2010

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. As to the misapprehension of legal principles as to the assertion of confession and the allocation of burden of proof

A. Article 429 of the Commercial Act provides that the invalidation of issuance of new shares may be asserted only by a lawsuit within six months from the date of issuance of new shares only to shareholders, directors, or auditors. This is intended to early determine complicated legal relations that may arise from the issuance of new shares. In light of the fact that the legal relationship becomes unstable if a new ground for invalidation can be asserted after the lapse of the period of release, and the purport of the above provision becomes extinct, it is reasonable to interpret that the above provision limits the timing of assertion of the grounds for nullification. Thus, it cannot be asserted by adding a new ground for nullification after the lapse of six months from the date of issuance of new shares in a lawsuit seeking nullification of issuance of new shares (see Supreme Court Decision 200Da37326, Jun. 25, 2004, etc.).

B. According to the records, on April 14, 2008, the plaintiff filed a lawsuit against the defendant company for nullifying the issuance of new shares in this case. On November 30, 2009, the plaintiff had the defendant company transferred the purchase price of new shares to the non-party 1 and the non-party 2, who is the shareholder on February 1, 2008 and caused them to acquire new shares listed in the list No. 3 and the same list No. 4 of the status of the issuance of new shares in the attached list of the judgment below. This is obvious that the procedure for issuing new shares is remarkably unfair, infringing the plaintiff's preemptive right to new shares, and is null and void since it violated the principle of capital adequacy. The time when the above assertion was submitted is six months after the date on which the issuance of new shares became effective.

In light of the legal principles as seen earlier, it is not allowed to additionally assert new grounds for invalidation after the lapse of the period of release from a lawsuit seeking nullification of the issuance of new shares. Thus, this part of the argument cannot be accepted without further review.

Although it is inappropriate for the court below to decide on the validity of the plaintiff's above assertion on the premise that it is allowed to additionally claim a new ground for invalidation even after the expiration of the period of release of a lawsuit seeking nullification of issuance of new shares, the court below did not err by misapprehending the legal principles on the admission of confession or allocation of burden of proof, etc. as otherwise alleged in the ground of appeal, thereby affecting the conclusion of the judgment.

2. As to the misapprehension of legal principles as to the allocation of new shares to a third party

A. In the issuance of new stocks, etc., the criteria for distinguishing between the method of allocating new stocks, etc. from the method of allocating new stocks, etc. ought to be objectively determined depending on whether the company given the shareholders an opportunity to preferentially acquire new stocks, etc. according to their respective shares in issuing new stocks, etc., and it does not necessarily depend on whether the shareholders granted the right to subscribe have been allocated new stocks, etc. by exercising the right to subscribe (see, e.g., Supreme Court en banc Decision 2007Do4949, May 29, 2009). In a case where a company intends to issue new stocks, etc. by the method of allocating new stocks, etc., but loses the right to subscribe due to the failure of the shareholders to waive their subscription or not giving their subscription (Article 419(4) of the Commercial Act). In such a case, the company may freely dispose of the forfeited stocks, etc. to a third party by a resolution of the board of directors.

B. Examining the reasoning of the lower judgment in light of the aforementioned legal principles and the records, each of the instant new shares is divided in proportion to the shares held by the shareholders of the Defendant Company in accordance with the resolution of the board of directors of the Defendant Company, and is found to have been issued to a third party, including the shareholders of the Defendant Company, by failing to give up or give up new shares, etc., so it may be deemed that the forfeited new shares were issued to the third party, including the shareholders of the Defendant Company. As such, it does not necessarily require the provisions of the

In addition, even though the other shareholders of the defendant company given up all new shares at the time of the issuance of new shares as alleged by the plaintiff, although the plaintiff did not waive the subscription of new shares, there is no evidence to deem that the plaintiff offered to the defendant company the subscription of new shares within the prescribed period and paid the subscription price, the effect of the forfeiture of the right to the new shares allocated to the plaintiff in this case does not change. Thus, as alleged by the plaintiff, each of the new shares of this case does not constitute a third party allocation or become null and void.

Although it is inappropriate for the court below to determine that most underwriters who subscribed to new shares at the time of issuance of new shares in this case are shareholders of the defendant company as not requiring the provision on the third party allocation of new shares in the articles of incorporation of the defendant company, the conclusion that the defendant company's articles of incorporation does not require the provision on the grounds that they are the shareholders of each of the new shares in this case is justifiable. Therefore, the court below did not err in the misapprehension of legal principles

3. As to the misapprehension of legal principles as to the interpretation of delegation intention on the allocation of new shares to a third party

The argument in the grounds of appeal on this part is merely a dispute over the legitimacy of the court below's interpretation as to whether the plaintiff specified a third party at the time of delegation of the issuance of new shares to the defendant company, on the premise that each of the new shares in this case constitutes the third party allocation, and thus, it cannot be affected by the judgment. Thus, we cannot accept it without any need to further examine.

4. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Shin (Presiding Justice)