Corporate Legal Advisory | A Corporate Attorney Case Responding to Abuse of Shareholder Rights and Leading to Management Stabilization

The client in this case was the representative of Company A, a domestic mid-sized enterprise, and as conflict with certain shareholders who had been with the company for a long time intensified, the management’s decision-making was continually being obstructed.

In particular, a specific shareholder demanded inspection of a wide range of materials, citing the securing of transparency, including not only the accounting books but also personnel-related documents and details of major transactions.

The company was already having its financial materials regularly verified through external audits, but the shareholder repeatedly requested materials of the same scope on multiple occasions, and circumstances were even detected suggesting that internal information was being conveyed to outside persons.

Recognizing the possibility of an abuse of shareholder rights beyond the ordinary purpose of verifying information, the client requested corporate legal advisory from an attorney specializing in corporate matters in order to obtain a legal review and establish a response strategy.

The corporate attorney closely reviewed the legal basis for and limits of a shareholder’s right of inspection and copying under the Commercial Act.

As a result, it was made clear that a repeated request, or one whose purpose was unclear, runs counter to the principle of protecting the company’s trade secrets and risks infringing on management control.

On this basis, a response standard was established that allowed the company to limit the submission of unnecessary materials while maintaining proper procedures.

The corporate attorney advised that, so that the refusal of inspection would not be misunderstood as an arbitrary decision by management, all measures be carried out in accordance with board of directors’ resolution procedures.

The attorney also managed the response details for each inspection request using a standardized document format, thereby establishing a system that could be presented as objective evidence in the event of a legal dispute.

Through this management structure, the company was able to respond to repeated requests with consistent standards and to prepare for future investigations by supervisory authorities.

A strategy was established to preemptively block the possibility that the shareholder’s external statements could damage the company’s trust.

The corporate attorney reviewed fact-based media response language and advised that, where necessary, a formal legal warning letter be used in parallel.

Through this, the company secured a legal basis for responding to defamation and the dissemination of false information, and managed its external reputation in a stable manner.

For the company’s refusal to be justified, it must prove that the shareholder’s request was not based on a ‘legitimate purpose.’

The court comprehensively considers the following factors.

► See Supreme Court Decision 2017Da270916, rendered on February 28, 2018

► Cases Recognized as Abuse of Shareholder Rights

In light of the above standard, in cases such as the following, the shareholder’s exercise of rights is assessed as an abuse.

In such cases, the company may refuse the exercise of the right of inspection and copying on the basis of the ‘impropriety of the request.’