Supreme Court Confirms Defeat in SillaJen Stock Option Claim Against Former Executives

Shinilajen has lost a lawsuit against a former executive over the issuance of stock options after six years.

According to the legal community on the 26th, the Supreme Court's First Division (Presiding Justice No Tae-ak) upheld the lower court's ruling that dismissed Shinilajen's appeal in the claim objection lawsuit filed against former executive A.

Supreme Court, Seocho-dong, Seoul.

The court stated the reason for dismissing Shinilajen's appeal was that there was no error affecting the judgment in the legal principles concerning the acquisition of treasury stock by a publicly listed company, the procedures for issuing new shares, or abuse of rights in claim objection lawsuits.

In August 2016, Shinilajen entered into a contract granting former executive A, who was then an executive director, stock options to purchase 75,000 shares with a face value of 500 won each at an exercise price of 4,500 won from March 24, 2018, to March 23, 2025.

However, on September 28, 2017, Shinilajen notified A of the expiration of his executive employment contract effective November 7 of the same year, and on February 23, 2018, the board of directors resolved to cancel the stock options granted to A and notified him accordingly.

In response, A filed a lawsuit against Shinilajen claiming delivery of shares upon exercising the stock options.

The first-instance court ruled in September 2018 that Shinilajen must receive 337.5 million won from A, corresponding to the exercise price, and deliver 75,000 shares. At that time, Shinilajen's stock price fluctuated around 100,000 won per share. Immediately after the first-instance ruling, A deposited 337.5 million won on the condition of receiving the 75,000 share certificates.

On November 15, 2018, based on the first-instance ruling, A attempted to enforce the judgment forcibly but was told by a Shinilajen employee that "the shares were unissued stock requiring board approval for new issuance procedures and that no share certificates were held, so delivery was impossible," and thus did not receive the share certificates.

In the appeal trial, A added a claim for substitute compensation related to the delivery of share certificates. On April 11, 2019, the appellate court modified the first-instance ruling, ordering "Shinilajen to deliver to A share certificates representing 75,000 registered common shares with a face value of 500 won each issued by Shinilajen upon receipt of 337.5 million won from A. If forced execution of these share certificates is impossible, Shinilajen shall pay A 5.7675 billion won." The amount of 5.7675 billion won was calculated based on the stock price at the conclusion of the appellate trial, approximately 76,000 won per share. This ruling was finalized on September 10, 2019. At the time of the final judgment, the stock price had fallen to around 10,000 won per share.

On September 10, 2019, the day the favorable final judgment was received, A filed for forced execution with the Seoul Southern District Court enforcement officer, attaching a repayment deposit certificate. On September 24 of the same year, the enforcement officer attempted forced execution but, upon hearing from an employee that "the shares are not held," issued a report of execution impossibility.

Meanwhile, after A's favorable final judgment in the stock delivery lawsuit against Shinilajen, the Act on Electronic Registration of Stocks and Bonds (Electronic Securities Act) came into effect on September 16, 2019. This law deemed the shares issued by the listed company Shinilajen as electronically registered shares, causing the previously issued share certificates to lose their validity and preventing Shinilajen from issuing valid share certificates or similar documents thereafter.

Unable to enforce the share certificates, A received an order for seizure and collection of claims amounting to approximately 5.7 billion won on October 4, 2019. Shinilajen, on October 23, 2019, deposited an electronic registration certificate representing 75,000 shares issued in A's name and filed this claim objection lawsuit, disputing the forced execution.

In court, Shinilajen clearly stated that if related documents such as the seal certificate, new share subscription form, and new share acquisition request form were submitted, they would deliver the shares through proper procedures, arguing that it could not be considered "impossible to enforce."

They also emphasized that since they fulfilled all obligations to deliver the shares in October 2019, the claim of approximately 5.7 billion won either never arose or was lawfully extinguished.

Shinilajen argued, "A's forced execution is an unfair act of abuse of rights, aiming solely to receive money despite the possibility of complete fulfillment by receiving the shares, and thus should be denied."

However, the first-instance court ruled, "Since the execution of share delivery was impossible, the monetary claim of approximately 5.7 billion won definitively arose, and the mere fact that shares were deposited in October 2019 does not mean the monetary claim was extinguished," adding, "There is no illegality in A's deposit, share delivery execution, or claim seizure and collection order."

Furthermore, the court stated, "Even if it is acknowledged that Shinilajen's stock price significantly declined compared to when A filed the stock delivery lawsuit, A's exercise of the claim (approximately 5.7 billion won) was due to concerns that Shinilajen would refuse forced execution of share delivery and cannot be seen as having an improper purpose," concluding, "A's forced execution cannot be regarded as an abuse of rights."

The appellate court and the Supreme Court also found no problem with the first-instance court's judgment.

Shinilajen, which engaged in legal battles for over six years over an issue that could have been resolved early by receiving 337.5 million won and delivering 75,000 shares, was ultimately ordered to pay the stock price equivalent of approximately 5.7675 billion won?much higher than Shinilajen's current stock price of 3,000 won per share?plus interest for delayed payment.

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