SOUTH KOREA Law and Practice Contributed by: Ho Joon Moon, Tae Jung Kim, Do Kyeom Kim and Ji Geon Park, Lee & Ko
which, if breached, will subject them to various liabilities, as detailed hereafter. 4.8 Consequences and Enforcement of Breach of Directors’ Duties Civil Charges and Compensation for Damages According to the KCC, directors who intention - ally or negligently violate the articles of incorpo - ration of the company or applicable laws, or omit to perform their duties, are jointly and severally liable for damages resulting from such acts or omissions. Furthermore, if a director’s violation of their duties as a director also constitutes a violation of applicable laws, the civil code requires adequate compensation for any damages resulting from such illegal actions. Whilst the Business Judge - ment Rule is considered when the court decides on any compensation for damages, if the direc - tor is considered to have violated their duties as a director in violation of the applicable laws, the Business Judgement Rule does not apply according to precedents. Criminal Charges If a director is found to intentionally have acquired, or caused any third party to acquire, any assets such as money or property as a result of any violation of their duties, resulting in any losses or damages to the company, the director shall be considered to have committed a breach of their Fiduciary Duties. This carries a prison sentence of 10 years or less, or a fine of KRW30 million or less. If the value of the assets, such as money or property, acquired by the director or caused to be acquired by a third party is equal to or above KRW500 million but less than KRW5 billion, the applicable prison sentence will be three years
or more. If the value of the assets is equal to or above KRW5 billion, the applicable prison sen - tence will be five years or more (with up to life imprisonment). It should be noted that a director owes their Fiduciary Duties only towards the company, and losses or damages to the company only (and not to the shareholders) will be used as a basis for determining the applicable penalties. In cases of breach of duty by directors, breach of Fiduciary Duties is mainly at issue, but directors can also be held criminally liable for jeopardising the company’s assets (Article 625 of the KCC) or for misrepresenting payments (Article 628 of the KCC). 4.9 Other Bases for Claims/Enforcement Against Directors/Officers A director may also be liable for damages to any third party resulting from their intentional or grossly negligent conduct. Liability of a director can be limited, as follows: • Indemnification: under the KCC, a company may indemnify a director by unanimous approval of the shareholders; or in accord - ance with its articles of incorporation, a company may indemnify an amount of liability incurred by a director that exceeds up to six times (or three times for outside directors) their remuneration for the year; however, this shall not apply in respect of loss or damage caused by the wilful misconduct or gross negligence of a director. • Exemption: liability of a director may be exempted by the unanimous approval of the shareholders. • D&O liability insurance: Directors’ and offic - ers’ liability insurance is permitted under the
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