Types and Requirements of Injunctions Related to Shareholders’ Meetings in South Korea

1. Significance and Importance of Shareholder Meeting Injunctions

Injunctions related to shareholders’ meetings refer to temporary measures that provisionally determine the legal relationship between parties when disputes arise regarding the convening, resolutions, or effects of shareholders’ meetings. These injunctions fall under the category of “provisional dispositions to determine temporary status” as stipulated in Article 300(2) of the Civil Execution Act of South Korea.

The particular importance of shareholder meeting injunctions stems from the phenomenon of “injunctions replacing main proceedings.” Since shareholders’ meetings must be held at specific times and have an urgent nature, practical dispute resolution often occurs through injunction decisions alone. In many instances, disputes are concluded after an injunction decision without proceeding to a main lawsuit.

As corporations make crucial decisions at shareholders’ meetings regarding director appointments/dismissals, mergers, business transfers, etc., prolonged disputes over defects in such resolutions can severely impact corporate stability. Therefore, injunctions are utilized for swift and effective dispute resolution.

2. Injunctions to Prohibit Shareholders’ Meeting and Resolution

Purpose and Definition

An injunction to prohibit a shareholders’ meeting prevents the meeting itself from being held, while an injunction to prohibit resolutions prevents only specific agenda items from being voted on. These serve as preventive remedies when the convening procedures or resolution matters violate laws or articles of incorporation, preventing the formation of legal relationships through illegal shareholders’ meetings before main decisions.

Rights under Protection

The rights under protection for injunctions to prohibit shareholders’ meetings and resolutions vary depending on the specific dispute situation:

1. Unauthorized Convening: Rights to exclude interference by legitimate convening authority
2. Violation of Corporate Agreements: Rights to claim non-performance under agreements (e.g., Hana Bank-Korea Exchange Bank merger case)
3. Legal Violations in Procedures or Content: Legal rights to challenge defects in shareholders’ resolutions or rights to seek injunction against directors’ illegal acts

In practice, the mainstream position regards “legal rights to challenge defects in shareholders’ resolutions” as the protected rights.

Necessity of Preservation

Injunctions to prohibit shareholders’ meetings or resolutions are often filed shortly before meeting dates, leaving debtors with virtually no time to seek cancellation once granted. Therefore, these should be exceptionally granted only in the following circumstances:

• When illegal shareholders’ meetings may lead to additional legal disputes
• When the illegality of shareholders’ meetings is relatively clear
• When damages irreversible through subsequent remedies are anticipated

Practical Considerations

Due to the strict review of injunctions to prohibit shareholders’ meetings, courts often encourage applicants to change their petitions to suspension of shareholder resolution effects, or may issue injunctions to suspend future resolution effects without changing the petition itself.

3. Injunctions to Suspend Effects of Shareholders’ Resolution

Definition

When shareholders’ meetings have been held and resolutions made, but there are defects in the method, content, or convening procedures, this injunction temporarily suspends the effects of such resolutions.

Rights under Protection

As this challenges the effects of existing resolutions, the rights under protection are resolution cancellation claims or resolution nullity/non-existence confirmation claims based on defects in shareholders’ resolutions under the Commercial Act of South Korea.

Special Considerations

Lower courts tend to dismiss injunctions to suspend effects of director or auditor appointment resolutions for lack of preservation necessity. Reasons include:

• Essentially equivalent to seeking suspension of directors’/auditors’ duties
• Creates operational confusion without provisions for acting replacements
• Lacks disclosure methods in corporate registries, potentially harming third-party transaction safety

Filing Deadlines to Note

Shareholders’ resolution cancellation lawsuits must be filed within two months from the resolution date. If two months have passed from the application date, nullity or non-existence grounds must be claimed. Filing an injunction application alone does not satisfy the two-month filing deadline.

4. Injunctions for Shareholders’ Agenda Setting

Definition and Legal Basis

When minority shareholders exercise their proposal rights but the board unfairly rejects them, such shareholders may seek an injunction to include their proposals in convening notices and agenda items. This system ensures practical exercise of proposal rights under Article 363-2 of the Commercial Act of South Korea.

Requirements for Exercising Proposal Rights

1. Subject Requirements:

• Non-listed companies: Shareholders holding 3% or more of issued shares
• Listed companies: Shareholders holding 1% (0.5% for companies with capital exceeding 100 billion won) for 6 months or more

2. Content Requirements:

• Matters not violating laws or articles of incorporation
• No resubmission of proposals rejected with less than 10% approval within 3 years
• Exclusion of individual shareholder grievances
• Exclusion of defamatory or clearly false content

Recognition of Preservation Necessity

While rejected shareholders may exercise their right to request extraordinary shareholders’ meetings, considering that the Commercial Act separately recognizes proposal rights and the cost/time required for direct meeting convening, the mere possibility of extraordinary meeting convening cannot negate preservation necessity without special circumstances.

5. Effects of Actions Violating Injunctions

When shareholders’ meetings are held despite injunction decisions and resolutions are made, the theory of “provisional invalidity” is appropriate regarding such resolution effects.

Basis for Provisional Invalidity Theory

1. Injunctions have formative power, temporarily suspending debtors’ authority to convene/resolve shareholders’ meetings
2. Injunctions have provisional and subordinate nature regarding main proceedings
3. When main proceedings conclude in failure for debtors, injunction effects retroactively cease, allowing debtors to claim validity of violating actions

The Supreme Court’s Decision 2009Da3920 also held that when main proceedings confirm absence of protected rights, violations of injunctions become valid as they no longer infringe protected rights.

6. Practical Considerations

Key Practical Points

1. Party Standing: Shareholders’ meeting injunctions must name corporations as debtors; representative directors cannot be defendants (except for rights to seek injunction against illegal acts)
2. Swift Processing: Due to impending shareholders’ meetings, special service and urgent hearing date setting are necessary
3. Filing Deadline Compliance: Two-month filing deadlines must be strictly observed for resolution cancellation grounds
4. Specific Injunctions: Time, location, and resolution matters must be specifically identified

7. Conclusion

Shareholder meeting injunctions serve as effective means for swiftly resolving disputes regarding important corporate decisions. However, as satisfactory injunctions often serve as final dispute resolution mechanisms, careful hearings and strict requirement reviews are necessary.

Strategic use of injunction applications requires sufficient consideration of practical matters including clear proof of protected rights and preservation necessity, swift procedural progress, and filing deadline compliance.

8. Relevant Case Law

Major Supreme Court Decisions

Supreme Court Decision 2005Da4284 (May 10, 2007) – Adoption of Expansion Theory for Shareholders’ Meeting Authority

Even matters explicitly designated as board authority under the Commercial Act become non-board matters when articles of incorporation designate them as shareholders’ meeting matters, unless special circumstances such as unanimous shareholder consent exist.

Supreme Court Decision 2009Da92883 (March 29, 2012) – Remedies for Non-Performance Agreement Violations

When parties agree on non-performance obligations and debtors violate such agreements, creditors may seek performance enforcement and obtain alternative execution or indirect compulsion decisions to cease violations.

Supreme Court Decision 2009Da3920 (January 28, 2010) – Effects of Injunction Violations

When main proceedings confirm absence of protected rights, revealing substantial invalidity of injunctions, actions violating such injunctions become valid as they no longer infringe protected rights.

Supreme Court Decision 2005Da11626 (January 25, 2007) – Standards for Determining Preservation Necessity

Preservation necessity should be determined at court discretion considering parties’ interests based on injunction grant/denial, anticipated outcomes in main proceedings, and other relevant circumstances.

Major Lower Court Decisions

Seoul Central District Court Decision 2015KaHap80051 (February 4, 2015) – Shareholders’ Meeting Prohibition for Merger Prevention

Court granted injunction when Korea Exchange Bank’s labor union applied for prohibition based on non-performance rights under five-year merger suspension agreement despite bank’s preceding merger procedures.

Seoul Central District Court Decision 2018KaHap21610 (January 23, 2019) – Resolution Cancellation Filing Deadlines

Mere filing of injunction applications does not satisfy two-month filing deadlines; resolution cancellation rights expire after two months unless nullity or non-existence grounds are claimed.

Ulsan District Court Decision 2021KaHap10105 (March 23, 2021) – Preservation Necessity for Shareholders’ Agenda Setting

When agenda setting injunctions are filed with less than two weeks before shareholders’ meetings, preservation necessity should not be denied based solely on deadline proximity if proposed items maintain identity with notified agenda.

Kim&Park Law Firm has successfully handled recent shareholders’ meeting injunction cases related to corporate control disputes, particularly achieving positive outcomes in complex matters involving shareholders’ proposal rights exercise in public companies.