"‘Employment Restriction’ on Retired CEO Approved at General Meeting... Supreme Court Rules 'Void Due to Serious Defect'"

1st and 2nd Trials: "No Authority to Convene Shareholders' Meeting Does Not Invalidate Resolution"
Supreme Court: "No Significant Defect in Meeting Formation, Legally Valid"

[Asia Economy Reporter Heo Kyung-jun] The Supreme Court has ruled that resolutions made at an extraordinary general meeting of shareholders held with the participation of retired CEOs who were under employment restriction periods are invalid.

The Supreme Court's Second Division (Presiding Justice Cho Jae-yeon) announced on the 22nd that it overturned the lower court ruling, which had dismissed shareholder A's lawsuit seeking to nullify the resolution of the extraordinary general meeting of shareholders convened by a media company in which A held shares, and remanded the case to the Jeju District Court.

B, who was the CEO, was sentenced to four years in prison in 2014 after being found guilty of crimes including fraud and embezzlement under the Act on the Aggravated Punishment of Specific Economic Crimes related to the media company he belonged to. Although B's term as CEO and director ended before the verdict was finalized, no successor had been appointed.

Meanwhile, B convened the company's board of directors as a retired director and retired CEO. The basis for convening the board was a provision in the Commercial Act stating that "when a vacancy occurs in the board of directors, retired directors have the same rights and obligations as before." Ultimately, an extraordinary general meeting of shareholders was convened in 2019 to appoint new directors.

In response, shareholder A filed a lawsuit seeking to confirm the invalidity of the general meeting resolution, arguing that B, who had no authority to convene the meeting, had procedural defects in convening the meeting.

Both the first and second instance courts ruled that even if B did not have the legitimate authority to notify the convening of the meeting, this alone did not constitute grounds for cancellation of the resolution, and therefore the resolution was not invalid or non-existent.

However, the Supreme Court overturned the lower courts' decisions, stating, "Unless there are special circumstances, even if a general meeting and resolution can be considered to have factually existed, if there is a serious defect in the process of its formation, it should be regarded as legally non-existent."

The court ruled, "When a vacancy occurs in the number of directors at the end of the term or a successor CEO is not appointed, a person who was a retired director and has been convicted of a specific property crime loses the rights and obligations as a retired director of the company closely related to the criminal act."

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