Case Law on Director Remuneration Shifts in Earnest, Heightening the Risk of Restitution for Payments Made Without a Shareholders' Resolution

This provision is construed as a mandatory provision, and according to the Supreme Court, Decision of April 9, 2020, 2018 Da 290436, the defect can hardly be cured by subsequent approval or an internal agreement alone.

This mandatory nature derives from the following purposes.

Director remuneration is determined in substance, regardless of its designation.

According to the Supreme Court, Decision of April 9, 2020, 2018 Da 290436, special performance-based pay also constitutes remuneration insofar as it is paid as consideration for a director's performance of duties.

In addition, the Supreme Court has consistently held that retirement pay is likewise included in director remuneration, viewing it as a payment made as consideration for the performance of duties during tenure.

Taken together, the recent line of case law indicates that the regulation of director remuneration is changing in the following directions.

• The concept of remuneration continues to expand on a substance-based standard

• Liability for procedural violations is being strengthened

• The scope of voting-rights restrictions on interested parties is expanding

In particular, according to the Supreme Court, Decision of April 24, 2025, 2025 Da 210138, a director who is also a shareholder constitutes a person with a special interest even in a resolution on the remuneration cap, so that such a shareholder's voting rights are restricted.

This is assessed as applying stricter control to the remuneration resolution structure, which had previously been relatively relaxed.

This trend is continuing in a direction that affects the overall remuneration-determination structure of companies.

Director remuneration must, in principle, be determined through a resolution of the general meeting of shareholders, and where this step is not taken, the claim for remuneration itself may be denied.

The Supreme Court has held that the burden of proving the existence of a resolution of the general meeting of shareholders rests with the director (Supreme Court, Decision of September 10, 2015, 2015 Da 213308), and that remuneration paid without a resolution becomes subject to the return of unjust enrichment (Supreme Court, Decision of April 9, 2020, 2018 Da 290436).

This line of case law is construed to mean that a procedural defect can hardly be remedied by subsequent approval or an internal agreement alone.

In practice, it is common to adopt a structure in which the general meeting of shareholders approves only the aggregate amount of remuneration and delegates individual remuneration to the board of directors.

While the Supreme Court has held that this structure is itself permissible, it has determined that delegation to the board of directors is possible only within a specific scope and that a comprehensive delegation is not permitted.

With respect to director remuneration paid without a board resolution, the lower courts have shown a tendency to view it as a payment lacking a legal basis and therefore subject to the return of unjust enrichment.

In fact, the Seoul Western District Court, Decision of November 4, 2021, 2020 Gadan 306634 and the Seoul Southern District Court, Decision of December 15, 2022, 2022 Gadan 237856 likewise viewed, to the same effect, remuneration paid without a board resolution as unlawful.

Taking these determinations together, the following structure can be derived.

This may have a considerable impact on the remuneration payment practices that have customarily been followed in practice.

Under Article 741 of the Civil Act, a person who has obtained a benefit without a legal cause must return that benefit.

In the case of director remuneration, where payment is made in the absence of a resolution of the general meeting of shareholders or the board of directors, the legal basis for that payment is not recognized.

In this case, the relevant remuneration is assessed as a payment without a legal cause, and the amount paid becomes subject to return.

Ultimately, a defect in the procedure for resolving on director remuneration constitutes a ground for denying the basis of the payment itself, and it may lead to the issue of returning the entire amount already paid.

In the process of resolving on director remuneration, the voting rights of a shareholder who has a direct interest in that remuneration may be restricted.

Recently, this restriction on voting rights has been construed as applying broadly not only to the determination of individual remuneration but also to fundamental resolution stages, such as the remuneration cap.

• The possibility of a dispute arising over the validity of the remuneration cap resolution itself

• The denial of the basis for remuneration payment on the ground of a defect in the resolution

• A reexamination of the validity of existing resolutions and an expanded possibility of disputes

This interpretation leads to a result that strengthens the level of control over remuneration resolutions as a whole, and it may bring about the legal impacts described above.

Where the following defects exist in the resolution process, the relevant resolution may be null and void or revoked.

In particular, where actual payment has been made customarily while only the remuneration cap was set, a legal problem may arise under recent standards, so an advance review is advisable.

The attorneys handling corporate matters at Daeryun Law Firm LLP provide overall legal advisory services, including reviewing remuneration systems, restructuring resolution frameworks, and establishing dispute-response strategies.