SOUTH KOREA Law and Practice Contributed by: Byung Chang Lee, D&A LLC
tion of law such as tax evasion in the running of the company, then the corporate form cannot be abused. Relevant Korean Supreme Court Cases The Korean Supreme Court has held that “as a stock company is a separate entity independent of its share - holders, its independent legal personality is not denied in principle. However, if an individual establishes a company with the same business purpose, physical equipment, and human members while conducting business without establishing a company, the compa - ny has the form of a corporation in appearance, but is merely borrowing the form of a corporation. In excep - tional cases where the company is merely a private enterprise of an individual who is completely behind the legal personality, or the company is used improp - erly as a means to avoid legal liability to the individual, we can deny the legal personality of the company and hold the individual responsible” (Supreme Court Deci - sion 2019Da293449). In another case, the Korean Supreme Court held that, if a corporate entity has its form as a company but is actually a personal entity or is used to evade liability for background owners, this is against the rule of equi - ty and any background owner shall be liable for corpo - rate liability (Supreme Court Decision 2008Da82490). The Reverse Application of Piercing the Corporate Veil The reverse application of corporate denial is the the - ory that, when a debtor invests property in order to avoid debt and establishes a new company and steals property, the newly established company should also be liable to the creditor. The Korean Supreme Court accepted this theory and held that if the existing company establishes a new company with substan - tially the same form and contents as the company for the purpose of avoiding debt, the establishment of the new company is an abuse of the company sys - tem to achieve the illegal purpose of avoiding debt of the existing company (Supreme Court Decision 93Da44531; Supreme Court Decision 97Da21604; Supreme Court Decision 2002Da66892). Additionally, the Korean Supreme Court held that arguing that the above two companies have sepa - rate corporate personalities is not permissible in good
faith; therefore, the creditors of the existing company will be able to claim the performance of their debts from either of the above two companies (Supreme Court Decision 2002Da66892). 3.3 Shareholders’ Claims Against Fraudulent Directors Derivative Lawsuits Pursuant to Article 403 of the Commercial Act, a shareholder who owns 1% of shares of a company can file a derivative lawsuit on behalf of the company against the liable directors of the company. The own - ership rate of 1% is lowered for a listed company, where 0.01% of shares is sufficient to file a derivative lawsuit pursuant to Article 542-6 (6) of the Commercial Act. Adoption of Multiple Derivative Lawsuits Additionally, according to Article 406-2 of the Com - mercial Act, enacted on 29 December 2020, a share - holder who owns 1% of shares of a parent company can file a derivative lawsuit on behalf of a subsidiary company against the liable director of the subsidiary company, which is called a multiple derivative law - suit. The ownership rate of 1% is lowered for a listed company; therefore, a shareholder who owns 0.5% of shares of a parent company can file a derivative lawsuit on behalf of the subsidiary company. This adoption of the multiple derivative lawsuit was initially controversial in Korea, as there were a lot of objections from the business sector. 4. Overseas Parties in Fraud Claims 4.1 Joining Overseas Parties to Fraud Claims Joinder of overseas parties can be broadly catego - rised into two types based on the Civil Procedure Act, one of which is a voluntary joinder by overseas par - ties who want to join a pending fraud claim in Korea, and the other being notice of a pending fraud claim given to plausibly affected parties and providing them with the option of joining the pending litigation. In both cases, the parties who want to join the pending claims or who are given notice of the claims should have a legal interest in the result of the claims that can justify
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