“Not All Company Lawsuits Require Disclosure”…Supreme Court Sets First Standard for ‘Securities Litigation’

Delayed Disclosure of Voluntary Factory Auction
Shareholders File for Damages
Lower Courts: "Significant Impact on Stock Price, Disclosure Obligation Breached"
Supreme Court: "Disclosure Applies Only to Litigation Directly Related to Securities"
First Supreme Court Interpretation on 'Significant Impact on Securities'

The photo and the article content are unrelated. Yonhap News Agency

The Supreme Court has ruled that even if a decision to commence a voluntary auction is made regarding a company's factory, this judgment does not immediately constitute a disclosure item under the Capital Markets Act. This is the first time the Supreme Court has made a decision regarding the scope of disclosure obligations for listed companies.

According to the legal community on January 5, the Supreme Court's Second Division (Presiding Justice Eom Sangpil) overturned the lower court's ruling in favor of the plaintiffs in a damages lawsuit filed by shareholders of Steel & Resources against the company's CEO, Mr. K, and internal directors.

The shareholders argued that the company's voluntary auction commencement decision had a significant impact on the stock price, yet the company failed to disclose it within the legal deadline, claiming that the CEO and directors violated their duty to protect investors. Both the first and second trial courts recognized the defendants' liability for damages, but the Supreme Court did not accept this.

The Supreme Court determined that the "litigation" stipulated as a subject of disclosure under the Enforcement Decree of the Capital Markets Act refers to lawsuits directly related to securities such as stocks or bonds. The Court clarified that not all lawsuits that could negatively affect company management are subject to disclosure. The Supreme Court stated, "If all lawsuits that could have a significant impact on securities were considered subject to disclosure, the criteria would be unclear, and corporations could be put in a situation where they must disclose all related lawsuits."

The panel stated, "It is difficult to conclude that the decision to commence a voluntary auction in this case falls under the disclosure obligations stipulated by the Enforcement Decree of the Capital Markets Act. The lower court's ruling, which recognized liability for damages due to delayed disclosure, was based on a misunderstanding of the law," and remanded the case to the appellate court.