Supreme Court Dismisses Appeal Without Full Hearing
Lower Court Rulings Upheld
Reduction of 17 Billion Won Severance Pay Unavoidable
Hong Wonsik, former chairman of Namyang Dairy Products, has ultimately lost a lawsuit seeking to nullify a shareholders' meeting resolution related to the controversy over 'self-approval of director compensation limits.'
According to industry sources on April 25, the Third Civil Division of the Supreme Court dismissed Hong's appeal without a full hearing, thereby upholding the lower courts' rulings that found a violation of the Commercial Act in the lawsuit he filed to nullify the shareholders' meeting resolution.
Dismissal without a full hearing is a Supreme Court procedure in which an appeal is rejected without substantive review when the grounds for appeal do not meet the legal requirements.
Previously, in May 2023, Hong voted in favor of an agenda item at Namyang Dairy Products' regular shareholders' meeting to set the compensation limit for directors at 5 billion won. At the time, Hong was the largest shareholder holding a majority stake and was also an inside director.
Subsequently, Sim Hyesub, an auditor at Namyang Dairy Products, filed a lawsuit demanding the nullification of the shareholders' resolution, arguing that the act violated the Commercial Act's regulation restricting voting rights of interested parties. Article 368, Paragraph 3 of the Commercial Act stipulates, "A person with a special interest in a resolution of the general meeting shall not exercise voting rights."
In May last year, the court of first instance accepted Auditor Sim's argument and ruled to nullify the resolution. In January this year, the appellate court also sided with Auditor Sim, rejecting Hong's appeal, even though he participated in the trial as an independent party.
With the Supreme Court's latest dismissal following the first and second instance rulings, the resolution in question has been definitively invalidated. The courts have consistently held that it was unlawful for Hong, as an interested party, to exercise voting rights on the resolution regarding his own compensation, and that the resolution is therefore void.
There is now a high likelihood that Hong's severance pay will be reduced. If the director compensation limit for 2023 is re-approved, the limit for Hong?who is currently engaged in a management dispute with the current leadership?could be lowered. Hong's severance pay had been estimated at around 17 billion won.
Namyang Dairy Products stated, "This ruling is an important precedent for ensuring the fairness of shareholders' resolutions and the transparency of corporate governance. It serves as a representative case demonstrating how the Commercial Act's voting rights restrictions for shareholders are applied in actual corporate management, and confirms the judicial oversight function against the abuse of voting rights by controlling shareholders or related parties."
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