Background
Cancelling treasury shares reduces the number of shares outstanding and raises shareholder value; handing them to another company instead of cancelling them wipes that effect out. When a KOSDAQ-listed company entered into an agreement to "swap" its treasury shares with an outside company, minority shareholders objected that it was "avoiding cancellation and harming shareholder interests." Changchun represented the minority shareholders' coalition.
The Issue — Is Disposing of Treasury Shares on the Eve of a Shareholders' Meeting Legitimate?
The acquisition and disposal of treasury shares is an area the Commercial Act regulates strictly (art. 341 et seq.). The issue was whether a "treasury share exchange agreement" under which the company handed treasury shares to an outside party on the eve of a shareholders' meeting unfairly impaired existing shareholders' proportionate interests and could be treated as void. It is a matter drawing particular attention amid an active debate over making the cancellation of treasury shares mandatory.
How Changchun Helped
Acting for the minority shareholders' coalition, Changchun (attorneys Jaesun Yoon, Donghwan Shin and Jonghwa Kim) brought an action to have the treasury share exchange agreement declared void and set out its legal basis in concrete terms, on the grounds that ① the exchange avoided the effect of cancellation and impaired shareholder value; ② the timing and structure indicated an improper purpose such as defending management control; and ③ existing shareholders' proportionate interests were thereby impaired.
This matter is ongoing and raises important issues for the protection of shareholder interests where treasury shares are concerned. Changchun is seeing it through for the rightful interests of minority shareholders. (Related coverage: Money Today article) (Outcomes depend on the facts of each case and may differ.)