Korean Supreme Court presents clear criteria about the requirements for inspection and transcription of books of account by minority shareholders
Supreme Court, has decided that the judgment of the court below shall be reversed and the case shall be remanded to the court below in a trial on an appeal of inspection and transcription of books of account between Chung Tae-Young, a vice chairman of Hyundai Card and his sister, as in favor of the plaintiff, Chung Eun-Mi.
On May 13th, The third division of Supreme Court has decided to reverse the original judgement of Seoul High Court which dismissed the claim from a plaintiff on the case of inspection and transcription of account books which Hannuri Law Firm, the second largest shareholder’s legal representative, filed against ‘Seoul PMC’ (See Seoul High Court Decision 2019Na2010079 delivered on August 23rd, 2019), and remanded the case to Seoul High Court.
Proceeding of the Case
Plaintiff of this case is a minority shareholder of ‘Seoul PMC’. In December 2017, when plaintiff found out the company’s improper fund management and the fact that executives, including Chung Tae-Young who is a major shareholder, executive director and at the same time vice chairman, violated the articles of incorporation, she requested inspection and transcription of account books and related documents from the company based on article 466 of Commercial Act for interrogating executives. However, Seoul PMC did not accept plaintiff’s request for inspection and transcription of account books.
The plaintiff filed lawsuit against the company, requesting inspection and transcription of account books and related documents, but it was dismissed in the first and second trial. The original judgment judged that when you make request for inspection and transcription of account books, “the reason provided should incur ‘reasonable doubt’ that it might be true, and especially when such request purports to claim irregularity of directors and inspection of affairs and status of company, ‘reasonable doubt that irregularity might exist’”.
Decision of Supreme Court
However, Supreme Court decided that there has been violation of acts which has affected the Court of Appeals‘ judgement and remanded the case to Seoul High Court after reversal as in favor of the plaintiff. Supreme Court judged, ’the grounds therefor is enough stated, when purpose of the request and how shareholders came to the request is specified so that it is possible to judge whether the company have obligation to comply to the request and confirm range of books of account to be inspected; and shareholders does not need to attach documents that arise reasonable doubt that the reason for the request might be true’.
Furthermore, Supreme Court added “If shareholders should present the reasons which cause resonable doubts, it is unfair, because it highly limits shareholders’ right as it overburdens shareholders who don’t have adequate information about the business, and this goes against the intent of Commercial Act which provides the right of inspection and transcription so that the shareholders can look into the information about the company.” (See Supreme Court Decision 2019Da270163 delivered on May 13th, 2022)
Supreme Court, made the decision to guarantee shareholders’ right of inspection and transcription, and clarified requirements for the right of inspection and transcription of account books which has been in debate in field of practice
Article 466 of Commercial Act specified that when shareholder request inspection and transcription of account books and related documents in written form with reasons, the company cannot reject this request unless the company can prove the request is improper. Yet some of the decision of lower courts has been judging that ‘minority shareholders should provide reason for the request so that reasonable doubt that it is true can be arose’, and such judgement led to many cases which limit minority shareholders’ right of inspection and transcription. The new Supreme Court decision understands the law as it guarantees shareholders’ right of inspection and transcription, so this decision is greatly meaningful since it has made things clear that the condition of the inspection and transcription requirements which has caused confusions in field of Commercial Act practice.
Ku, Hyun-ju (hjku@hnrlaw.co.kr)
