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業務事例

企業支配構造・経営権紛争

“Duel on the Green,” Final Victory Won by Shin & Kim

The dispute involved the management control of Lake Side, a first-rated golf course located in Korea.

The current senior management of Lake Side (the “Current Management”), which initially held 43.5% of its issued shares, acquired an additional 9% of its issued shares (the “Nine-Percent Shares”) from the other shareholder of Lake Side (the “Minority Shareholder”), resulting in a 52.5% holding of the issued shares. However, the Minority Shareholder filed civil and criminal suits against the Current Management, alleging that the Nine-Percent Shares were acquired by the Current Management by fraud. As a result of these allegations, in early 2006, the Current Management was indicted on fraud charges. In June of 2006, in a motion for preliminary injunction seeking prohibition of the exercise of voting rights by the Current Management with respect to the Nine-Percent Shares, the Current Management and the Minority Shareholder accepted a court-mediated mandatory interim settlement (the “Interim Settlement”) under which no voting rights would be exercised with respect to the Nine-Percent Shares until a case seeking the return of the share certificates with respect to the Nine-Percent Shares (the “Share Certificate Return Case’) was finally and conclusively decided. As a result, neither the Current Management nor the Minority Shareholder was able to independently appoint the directors of Lake Side as the Articles of Incorporation of Lake Side required the presence of shareholders representing a majority of its total issued and outstanding shares. Accordingly, the Current Management secured management control of Lake Side until the Share Certificate Return Case was finally and conclusively decided on the merits.

By April of 2007, the Mars Fund (a private equity fund of which the members were known to be the Korean Teachers’ Credit Union and other institutions solicited by the Korean Teachers’ Credit Union) purchased 47.5% of the shares of Lake Side held by some of the Current Management and the Minority Shareholder, and caused the company to hold an extraordinary general meeting of shareholders on August 13, 2007 (the “August 2007 EGM”).

During the August 2007 EGM, the Current Management exercised the voting rights attached to the Nine-Percent Shares under the assumption that (i) the validity of the Interim Settlement made in a preliminary injunction case extends to only the relevant shareholder under the Interim Settlement (i.e., the Minority Shareholder), and does not extend to the Mars Fund (the shareholder that succeeded the Minority Shareholder), and therefore (ii) the rights of the Current Management as a shareholder are not restricted. Also during the August 2007 EGM, the attorney present on behalf of the Mars Fund proceeded to approve a number of agenda items in a matter of seconds after arguing that he was appointed the temporary chairman of the meeting. As a result of this incident, two different conclusions were made with respect to the agenda items, and subsequently, the two sides competed to have their versions of the resolutions registered earlier with a competent court. As a result, the Current Management withdrew as the management team of Lake Side for the time being, and during the ensuing period of about two weeks, filed an objection to the registration of the resolutions, an appeal and a re-appeal. In the end, the Current Management succeeded in securing the registration of their version of resolutions and regained management control of Lake Side.

The Mars Fund argued that it would secure a management control of Lake Side if it won any one of the 9 cases (3 cases, namely a criminal case, and 2 civil cases, multiplied by 3 stages for each of such cases, i.e. a trial-court case, an appeal court case and a Supreme Court case). Representing the Current Management, Shin & Kim won all 9 of the 9 cases by the first half of 2009. With respect to the validity of the August 2007 EGM, the Supreme Court held in favor of the Current Management on January 28, 2010, ending the “Duel on the Green”.
During the course of the dispute, after July 19, 2005 when the Current Management first took management control of Lake Side, Shin & Kim predicted a protracted dispute and made lots of strategic judgments in a number of legal battles. In the first-instance trial seeking the non-existence of the resolutions of the August 2007 EGM, a decision was rendered against Shin & Kim with respect to the validity of the Interim Settlement made in the preliminary injunction case. However, Shin & Kim subsequently won all the stages of the Share Certificate Return Case on the merits, and won the case on appeal relating to the validity of the August 2007 EGM. Shin & Kim also established a new legal theory based on its victory in the Supreme Court case on appeal. More specifically, though the Current Management’s exercise of the voting rights attaching to the Nine-Percent Shares during the August 2007 EGM goes against the preliminary injunction decision (the Interim Settlement), the resolution resulting from such exercise of the voting rights should not be deemed to have been flawed given that the party claiming infringement of its shareholder’s rights (with respect to the Nine-Percent Shares) was later found (during the case on-the-merits), to have no right as a shareholder (with respect to the Nine-Percent Shares).

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