1. Case Overview
Atlas Legal achieved a complete victory in a shareholder derivative lawsuit. The Seoul Southern District Court ordered the return of all director’s compensation paid without a general shareholders’ meeting resolution, plus delay damages at an annual rate of 12%.
2. Key Issues
- Article 40 of Articles of Incorporation: Director’s compensation shall be determined by the board of directors within the scope established by the general shareholders’ meeting
- Problem: Compensation paid from January 2023 to August 2024 without shareholders’ meeting resolution
- Defendant’s Argument: Implicit approval at meetings in February and March 2021
- Plaintiff’s Argument: Violation of Article 388 of the Commercial Act due to absence of lawful shareholders’ meeting resolution
3. Legal Basis
Article 388 of the Commercial Act: Director’s compensation must be determined by shareholders’ meeting resolution when not specified in the articles of incorporation (mandatory provision)
Article 403 of the Commercial Act: Shareholders holding 1% or more of issued shares may file a shareholder derivative lawsuit
4. Defendant’s Arguments and Court’s Judgment
The defendant claimed ① implicit approval ② substantive approval ③ substantive shareholders’ meeting function ④ abuse of rights, but the court rejected all arguments.
Court’s Reasoning:
- No record of compensation resolution in meeting minutes
- No specific amount or scope determined
- Unanimous consent of shareholders cannot substitute for shareholders’ meeting resolution
- Article 388 of the Commercial Act is a mandatory provision that cannot be waived by party agreement
5. Key Precedents
Supreme Court Decision 2016Da241515: Delegation of specific matters to the board after determining total amount/limit is permissible, but comprehensive delegation is prohibited
Supreme Court Decision 2018Da290436: Article 388 of the Commercial Act is a mandatory provision to prevent conflicts of interest by directors
6. Significance of the Judgment
- Reaffirmation of the mandatory nature of Article 388 of the Commercial Act
- Informal agreements cannot substitute for shareholders’ meeting resolutions
- Resolutions not recorded in minutes have no legal effect
- Validation of shareholder derivative lawsuits as an effective means of protecting minority shareholder rights
- Clarification of the prohibition on comprehensive delegation
7. Practical Implications
Companies must strictly follow a two-step procedure when determining director’s compensation: ① Resolution on total amount/scope at shareholders’ meeting → ② Determination of specific amounts by the board of directors, with clear documentation in meeting minutes.