[Cooperative Member Litigation] Daeryun Law Firm Represented a Cooperative Member Client and Obtained a Refund of 1 Billion Won

When a member withdraws from a cooperative, the member may request a refund of that share as prescribed by the articles of association.

The share under paragraph (1) is determined based on the cooperative’s assets as of the end of the business year immediately preceding the year in which the date of withdrawal falls.

A cooperative shall set aside as a reserve at least one-tenth of the surplus for each business year until it reaches the amount prescribed by the articles of association.

The reserve under paragraph (1) shall be accumulated until it reaches at least one-half of the total amount of capital contributions.

In order to cover the costs of its business, a cooperative shall carry over to the following business year at least one-tenth of the surplus for each business year.

The defendant in the cooperative member litigation argued that, because it is governed by the Small and Medium Enterprise Cooperatives Act rather than the Commercial Act, one-half of the total capital contributions is not the upper limit but the lower limit of the accumulation obligation, and that the retained earnings the defendant accumulates beyond that amount are reserves whose accumulation is legally mandated.

However, the claim that funds that must be set aside as an obligation have no upper limit runs counter to common sense. The position that whatever the defendant cooperative accumulates in retained earnings without limit is legally mandated makes no sense at all.

In addition, if no matter how much the defendant cooperative accumulates that amount is not included in the share of a withdrawing member and is not refunded, then the members who remain at the end would ultimately take all of the accumulated amount, which likewise runs counter to common sense.

The defendant in the cooperative member litigation argued that the share refunds left unpaid to members who withdrew before the client constituted gains on capital reduction. However, this is also far from being a gain on capital reduction.

In the case of a stock company, a gain on capital reduction refers to the difference between the par value and the amount paid to shareholders when, upon a capital reduction, less than the par value of the shares is paid to the shareholders. Accordingly, where the par value is paid in full, no gain on capital reduction exists.

In the case of a cooperative such as the defendant, the capital of a stock company corresponds to the capital contributions, so a gain on capital reduction would refer to the difference between the amount paid to withdrawing members and their capital contributions. In the defendant cooperative’s case, the capital contributions and rotating capital contributions were all paid to the withdrawing members, and the unpaid amount is the share consisting of accumulated retained earnings, so no gain on capital reduction arises at all.