JAPAN Law and Practice Contributed by: Akira Matsushita and Hideki Ben, Mori Hamada
violate laws and regulations or the articles of incor- poration or are conducted in a grossly improper manner; • where the contents of the resolution at the general shareholders’ meeting violate the articles of incor- poration; or • where a grossly improper resolution is passed as a result of a person with a special interest in the resolution at the general shareholders’ meeting exercising a voting right. Even if the calling procedures or the method of resolu- tion of the general shareholders’ meeting are in vio- lation of the applicable laws and regulations or the articles of incorporation, the court may dismiss the claim if it finds that the violations are not serious and will not affect the resolution. Invalidation of Material Corporate Actions A shareholder in place from the effective date of a material corporate action – such as a merger, compa- ny split, share exchange or share transfer – may assert an invalidation of the corporate action due to mate- rial defects of the process by filing an action with the court within six months from the effective date (Article 828 of the Companies Act). A shareholder may also file an action with the court asserting an invalidation of a demand for a share cash-out (squeeze-out right) within six months (one year for a private company) from the effective date of that share cash-out (Article 846-2 of the Companies Act). Enjoinment of Material Corporate Actions A shareholder has a right to enjoin an issuance of shares or stock acquisition rights, if either of the fol- lowing events occurs and the shareholder is likely to suffer a disadvantage as a result of that issuance (Arti- cles 210 and 247 of the Companies Act): • the issuance of shares or stock acquisition rights violates laws and regulations or the articles of incorporation; or • the issuance of shares or stock acquisition rights is implemented through an extremely unfair method. Other than the foregoing cases for enjoinment, as a general rule, shareholders may be permitted to enjoin certain material corporate activities under the
Companies Act. A merger, a company split, a share exchange, a share transfer or a share delivery may only be permitted if the corporate action violates laws, regulations or the articles of incorporation (and if shareholders may experience disadvantages); viola- tions of duties of care and loyalty by directors are not deemed to constitute violations of laws in the context of enjoinment by shareholders. However, in the case of a short-form merger, company split, share exchange or demand for a share cash-out (squeeze-out right), if the conditions of that corporate action (eg, merger ratio) are extremely improper in light of the financial status of the parties thereto and shareholders of the controlled company are likely to suffer disadvantages, the shareholders may enjoin the With respect to mergers or other corporate restructur- ings, certain shareholders have appraisal rights. For instance, shareholders who objected to a merger at the general shareholders’ meeting may demand that the company purchase their shares in the company at a fair price. If dissenting shareholders and the com- pany are unable to reach an agreement on the price of the shares within a specific period of time, either the dissenting shareholders or the company may file a petition to the court for a determination of the fair price. Shareholder activists frequently exercise their appraisal rights, asserting that the purchase price in a merger or other corporate restructuring is lower than the fair price that should be determined by the court. Monetary Claim A company is liable for damages caused to third par- ties by the company’s representative directors or oth- er representatives during the course of performance of their duties (Article 350 of the Companies Act). A shareholder may also make claims for damages against the company, based on tort claims. 10.2 Remedies Against the Directors Enjoinment of Acts of Directors If a director of a public company with a statutory auditor, an audit and supervisory committee or three committees (nomination, audit and remuneration) engages, or is likely to engage, in any act in violation corporate action. Appraisal Rights
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