Supreme Court: "Even if Stocks Are Redeemed Early, One Remains a Shareholder Until Payment Is Received"

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[Asia Economy Reporter Kim Hyung-min] The Supreme Court has ruled that if the timing of losing shareholder status is not separately specified, the shareholder status is maintained until the redemption payment is received, even if the redemption right for the shares is exercised early.

The Supreme Court's First Division (Presiding Justice Park Jung-hwa) overturned the lower court ruling that dismissed the lawsuit filed by Company A against Company B to confirm the invalidity of a board resolution, and remanded the case to the Seoul High Court on the 29th.

The court stated, "Since there is no provision in Company B's articles of incorporation or contract specifying the timing of loss of shareholder status when Company A exercises the redemption right, Company A remains a shareholder of Company B until it receives the redemption payment from Company B, even if it has exercised the redemption right."

It added, "The lower court should have examined whether Company A received the full redemption payment, considering the ongoing dispute between Company A and Company B regarding the redemption amount. The lower court's judgment that Company A is no longer a shareholder of Company B upon exercising the redemption right is unlawful."

In March 2011, Company A acquired 3,334 redeemable preferred shares with an early redemption clause from Company B for a total of 15 billion KRW, entering into a contract that allowed Company A to appoint one non-executive director.

Subsequently, in March 2014, Company A requested early redemption of the shares. Company B proposed that Company A accept 23 billion KRW based on an appraisal by an accounting firm, but Company A disputed the redemption amount and refused to accept it.

Company B deposited 23 billion KRW with the court and filed a lawsuit against Company A claiming non-existence of the redemption payment obligation. When the first and second instance courts determined the redemption amount to be 26.5 billion KRW, Company B withdrew the deposit and recalculated the redemption payment, deducting withholding tax, and re-deposited 25.1 billion KRW. Company A claimed the deposit release in September 2016 and received the deposit.

In July 2014, during the ongoing lawsuit, Company B held a shareholders' meeting and unanimously dismissed the director appointed by Company A.

Company A filed a lawsuit to confirm the invalidity of the board resolution, arguing, "Since we have not received the full redemption payment for the shares, we are still shareholders of Company B," and "The dismissal of the director appointed by Company A without consent is a breach of contract and therefore invalid."

The first instance court ruled, "Exercising the early redemption right does not immediately cause Company A to lose shareholder status," but dismissed Company A's claim, stating, "Company A holds only 5% of the total issued shares, so it does not appear that it could have prevented the director's dismissal."

The second instance court dismissed Company A's claim, ruling that Company A lost shareholder status and thus lacked standing to file the lawsuit.

The court ruled, "In the case of this early redemption right, once the plaintiff notifies the company of its intention to withdraw from shareholder status and convert to the status of a creditor entitled to the redemption payment, it should be regarded as having changed to the status of a creditor entitled to the redemption payment."

This content was produced with the assistance of AI translation services.