Atlas Legal published detailed commentary on a South Korean management dispute in which two lease contracts executed without board approval were declared void, and the court ordered full property recovery and damages against the former CEO and tenants.
Case Overview
Company X operated a swimming facility in South Korea. Its outgoing CEO, Y3, executed two unauthorized transactions before the company’s ownership changed hands: he leased the company’s sole office space (157 m²) to Y1 — an organization he effectively controlled — at below-market rent, and separately amended the swimming pool lease (794.25 m²) in terms heavily favorable to tenant Y2, all without any board resolution. After new management took over, both contracts were challenged in court. The Incheon District Court found both void under Article 393(1) of the Korean Commercial Act, and went on to assess director liability under Article 399(1) and joint tort liability of the tenant under Civil Act Article 760.
The “Important Asset” Threshold Under Commercial Act Article 393
Article 393(1) of the Korean Commercial Act requires board approval for any disposal of a company’s “important assets.” Whether an asset crosses that threshold depends on a multi-factor analysis: the asset’s monetary value, its proportion of total assets, the company’s overall scale, the asset’s business purpose, and whether the decision can reasonably be delegated to the CEO alone (Supreme Court Decision 2009Da47791, April 28, 2011). The court found the office to be X’s sole workspace and registered head office address, and the pool amendment to constitute a new and substantively different transaction rather than a routine modification — both qualifying as disposals of important assets requiring board approval.
Counterparty Knowledge: When Can a Company Assert Invalidity?
A void contract under Article 393 cannot be asserted against a counterparty who neither knew nor had reason to know that board approval was missing (Supreme Court Decision 2015Da45451, February 18, 2021). The burden of proving such knowledge — or gross negligence in not knowing — rests with the company. In this case, Y1 was a counterparty in which Y3 himself served as representative director, making knowledge of the missing resolution inevitable. Y2, as a company employee who personally participated in the amendment process, was found to have been on notice of the procedural defect. The court held both the office lease and the pool amendment void and opposable against Y1 and Y2 respectively.
Director Self-Dealing and Sublease Consent Under Article 398
Article 398 of the Korean Commercial Act requires board approval for any “transaction” between a director and the company. The term is construed broadly to include not only bilateral contracts but also unilateral acts and quasi-legal acts that alter legal rights and obligations. In this case, X’s consent to Y2’s sublease of the swimming pool to Y3 (the former CEO) constituted a self-dealing transaction: upon consent, Y3 would become directly obligated to X under Civil Act Article 630(1), and X would simultaneously lose its right to terminate the lease for unauthorized subletting under Civil Act Article 629(2). Because no board approval was obtained, the consent was void, Y2’s subletting was unauthorized, and X’s notice of lease termination was upheld as effective.
Director Liability (Article 399) and Joint Tort Liability (Civil Act Article 760)
The court held Y3 liable for breach of fiduciary duty under Commercial Act Article 399(1) in connection with the pool amendment. By eliminating Y2’s obligation to pay cleaning costs in full (KRW 38,078,700) and reducing management fee liability by 25% (KRW 99,081,293), Y3 caused X total damages of KRW 137,159,993 — and did so in circumstances of direct conflict of interest that precluded any business judgment rule defense. The damages claim arising from the office lease was, however, dismissed: the court found that both X and Y1 shared a common public-interest purpose and had historically shared the office space, and that Y3 had not acted for personal gain in that transaction. Tenant Y2, who was found to have been aware that the pool amendment would harm X, was held jointly liable in tort under Civil Act Article 760, though the parallel contract-based damages claim against Y2 was dismissed as Y2 was not a fiduciary of X.
Unjust Enrichment and Property Handover
With both leases declared void, the tenants’ continued possession became legally unjustified, triggering unjust enrichment liability for the rental value of the occupied premises. Y1 was ordered to vacate the office and pay KRW 1,580,000 per month from September 10, 2025 until handover (based on an independent appraisal). Y2 and Y3 were ordered to vacate the swimming pool and pay KRW 25,000,000 per month over the same period, equivalent to the contractual rent under the original lease.
Atlas Legal’s Practice in Corporate Disputes
Atlas Legal advises and represents clients in complex corporate disputes involving management conflicts, director accountability, and the intersection of Korean commercial and civil law. This case illustrates the firm’s capacity to analyze multi-layered disputes — combining board resolution requirements, self-dealing rules, fiduciary duty claims, and tort liability — and to pursue comprehensive judicial relief on behalf of clients undergoing corporate governance challenges.
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Lease Void Without Board Approval in South Korea — Commercial Act Articles 393, 398 & 399
Atlas Legal published detailed commentary on a South Korean management dispute in which two lease contracts executed without board approval were declared void, and the court ordered full property recovery and damages against the former CEO and tenants.
Case Overview
Company X operated a swimming facility in South Korea. Its outgoing CEO, Y3, executed two unauthorized transactions before the company’s ownership changed hands: he leased the company’s sole office space (157 m²) to Y1 — an organization he effectively controlled — at below-market rent, and separately amended the swimming pool lease (794.25 m²) in terms heavily favorable to tenant Y2, all without any board resolution. After new management took over, both contracts were challenged in court. The Incheon District Court found both void under Article 393(1) of the Korean Commercial Act, and went on to assess director liability under Article 399(1) and joint tort liability of the tenant under Civil Act Article 760.
The “Important Asset” Threshold Under Commercial Act Article 393
Article 393(1) of the Korean Commercial Act requires board approval for any disposal of a company’s “important assets.” Whether an asset crosses that threshold depends on a multi-factor analysis: the asset’s monetary value, its proportion of total assets, the company’s overall scale, the asset’s business purpose, and whether the decision can reasonably be delegated to the CEO alone (Supreme Court Decision 2009Da47791, April 28, 2011). The court found the office to be X’s sole workspace and registered head office address, and the pool amendment to constitute a new and substantively different transaction rather than a routine modification — both qualifying as disposals of important assets requiring board approval.
Counterparty Knowledge: When Can a Company Assert Invalidity?
A void contract under Article 393 cannot be asserted against a counterparty who neither knew nor had reason to know that board approval was missing (Supreme Court Decision 2015Da45451, February 18, 2021). The burden of proving such knowledge — or gross negligence in not knowing — rests with the company. In this case, Y1 was a counterparty in which Y3 himself served as representative director, making knowledge of the missing resolution inevitable. Y2, as a company employee who personally participated in the amendment process, was found to have been on notice of the procedural defect. The court held both the office lease and the pool amendment void and opposable against Y1 and Y2 respectively.
Director Self-Dealing and Sublease Consent Under Article 398
Article 398 of the Korean Commercial Act requires board approval for any “transaction” between a director and the company. The term is construed broadly to include not only bilateral contracts but also unilateral acts and quasi-legal acts that alter legal rights and obligations. In this case, X’s consent to Y2’s sublease of the swimming pool to Y3 (the former CEO) constituted a self-dealing transaction: upon consent, Y3 would become directly obligated to X under Civil Act Article 630(1), and X would simultaneously lose its right to terminate the lease for unauthorized subletting under Civil Act Article 629(2). Because no board approval was obtained, the consent was void, Y2’s subletting was unauthorized, and X’s notice of lease termination was upheld as effective.
Director Liability (Article 399) and Joint Tort Liability (Civil Act Article 760)
The court held Y3 liable for breach of fiduciary duty under Commercial Act Article 399(1) in connection with the pool amendment. By eliminating Y2’s obligation to pay cleaning costs in full (KRW 38,078,700) and reducing management fee liability by 25% (KRW 99,081,293), Y3 caused X total damages of KRW 137,159,993 — and did so in circumstances of direct conflict of interest that precluded any business judgment rule defense. The damages claim arising from the office lease was, however, dismissed: the court found that both X and Y1 shared a common public-interest purpose and had historically shared the office space, and that Y3 had not acted for personal gain in that transaction. Tenant Y2, who was found to have been aware that the pool amendment would harm X, was held jointly liable in tort under Civil Act Article 760, though the parallel contract-based damages claim against Y2 was dismissed as Y2 was not a fiduciary of X.
Unjust Enrichment and Property Handover
With both leases declared void, the tenants’ continued possession became legally unjustified, triggering unjust enrichment liability for the rental value of the occupied premises. Y1 was ordered to vacate the office and pay KRW 1,580,000 per month from September 10, 2025 until handover (based on an independent appraisal). Y2 and Y3 were ordered to vacate the swimming pool and pay KRW 25,000,000 per month over the same period, equivalent to the contractual rent under the original lease.
Atlas Legal’s Practice in Corporate Disputes
Atlas Legal advises and represents clients in complex corporate disputes involving management conflicts, director accountability, and the intersection of Korean commercial and civil law. This case illustrates the firm’s capacity to analyze multi-layered disputes — combining board resolution requirements, self-dealing rules, fiduciary duty claims, and tort liability — and to pursue comprehensive judicial relief on behalf of clients undergoing corporate governance challenges.
Click here for detailed information