Court Rules "Agreement Granting 'Prior Consent Right on Important Management Matters' During New Share Subscription Is Invalid"

"Existing Shareholders and Subsequent Investors Must Not Violate the 'Principle of Shareholder Equality'"

Seoul High Court, Seocho-gu, Seoul. / Photo by Honam Moon munonam@

[Asia Economy Reporter Kim Daehyun] A court ruling has declared that agreements granting 'prior consent rights' on key management matters to subscribers of newly issued shares are invalid.

According to the legal community on the 29th, the Seoul High Court Civil Division 16 (Presiding Judge Cha Munho) ruled in the appeal trial of a repayment claim lawsuit worth about 4.6 billion KRW filed by the CEO of Company A against Company B, stating, "All claims of the plaintiff are dismissed."

Previously, computer system manufacturer and seller Company B faced financial difficulties in 2016. Company B attempted to raise funds by newly issuing 200,000 shares, and Company A contracted to purchase them for 2 billion KRW. At that time, a 'preferential agreement' was also concluded. According to this agreement, Company B had to obtain prior written consent from Company A before issuing additional new shares, and if violated, it would have to repay the investment early and bear a penalty equivalent to the investment amount. The purpose was to secure the recovery of investment funds.

Two years later, Company B issued a total of 260,000 new shares without prior written consent from Company A. Consequently, Company A filed a lawsuit demanding early repayment of the investment and penalties.

The first trial partially accepted Company A's claim, but the second trial ruled against the plaintiff. The court judged that the preferential agreement granting investors prior consent rights on important company policy decisions is invalid.

The court pointed out, "(This preferential agreement) grants the plaintiff, who only obtained shareholder status through new share subscription, superior rights, allowing them to exert strong and absolute influence over the company's management." The court added, "It grants the right to receive more than double the invested capital at any time upon violation, effectively guaranteeing absolute recovery of invested capital to the shareholder. This violates the principle of shareholder equality and is therefore invalid."

A court official stated, "If this ruling is finalized, contracts that impose management obligations directly on investors when a stock company raises funds through new share issuance will be prohibited," adding, "The management rights of stock companies will be protected, and the inequality in status between existing shareholders and subsequent investors will be partially resolved." However, the official also noted, "There may be concerns that this could hinder investment activation or cause side effects that make corporate fundraising more difficult."

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