Background
At a company founded and run jointly by three people holding a third each as co-representatives, the other two-thirds joined forces and removed our client as representative director and director. Voting power alone left our client with no recourse, and there were signs that the two remaining representatives were using company funds improperly. Changchun represented the removed one-third shareholder.
The Issue — Can a Shareholder Without the Votes Check the Management?
A two-thirds stake carries the power to decide almost every significant matter of the company, including removing directors and amending the articles of association. In a structure where a contest of votes could not be won, the key was to use the legal rights available to a minority shareholder to press into the unlawful conduct.
How Changchun Helped
Changchun (attorney Donghwan Shin) ① established through Supreme Court precedent that the grounds for removal invoked by the other side did not amount to "just cause" under the Commercial Act, and claimed damages equal to the remuneration and severance for the remaining term as wrongful removal; ② identified an abnormal increase in short-term loans in the financial statements as a possible "director self-dealing" and applied for an injunction for inspection and copying of the accounting books under article 466 of the Commercial Act; and ③ applied for inspection and copying of the board minutes to confirm whether board approval had been given for those transactions — laying the foundation for transparent scrutiny of the management's use of funds.
The case shows that even a minority shareholder at an overwhelming disadvantage in voting power can pursue management misconduct by making comprehensive use of the monitoring and oversight tools the law provides. (Outcomes may differ depending on the facts of each matter.)