SOUTH KOREA Law and Practice Contributed by: Byung Chang Lee, DR & AJU LLC
is used to evade liability for background own - ers, this is against the rule of equity and any background owner shall be liable for corporate liability (Supreme Court 2008da82490 Decision). The Reverse Application of Piercing the Corporate Veil The reverse application of corporate denial is the theory that, when a debtor invests property in order to avoid debt and establishes a new com - pany 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 substantially 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 system to achieve the illegal purpose of avoiding debt of the existing company (Supreme Court 93da44531 Decision; Supreme Court 97da21604 Decision; Supreme Court 2002da66892 Decision). Additionally, the Korean Supreme Court held that arguing that the above two companies have separate corporate personalities is not permis - sible in good faith; therefore, the creditors of the existing company will be able to claim the per - formance of their debts from either of the above two companies (Supreme Court 2002da66892 Decision). 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 com - pany can file a derivative lawsuit on behalf of the company against the liable directors of the company. The ownership 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 Commercial Act, enacted on 29 December 2020, a shareholder 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 lawsuit. The own - ership rate of 1% is lowered for a listed com - pany; therefore, a shareholder who owns 0.5% of shares of a parent company can file a deriva - tive 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 cat - egorised into two types based on the Civil Pro - cedure Act, one of which is a voluntary joinder by overseas parties who want to join a pend - ing fraud claim in Korea, and the other being notice of a pending fraud claim given to plausi - bly affected parties and providing them with the option of joining the pending litigation. In both cases, the parties who want to join the pend - ing claims or who are given notice of the claims should have a legal interest in the result of the claims that can justify the joinder of parties, and must get the court’s permission in this regard.
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