[Design of Victory] Even 70% Approval Couldn't Change the Board... Oscotec's 'Toxic Articles of Incorporation' Overturned by Meticulous Argumentation

Proven by Empirical Data and Overseas Legislation
A Meticulous Strategy That Shattered 'Management Defense Practices'
Court Puts the Brakes on the '80% Rule' That Restricts Minority Shareholder Rights

"Even if 70% of shareholders agree, the inability to replace even a single director effectively grants the largest shareholder a veto right. Excessive restrictions that fundamentally undermine minority shareholders' rights to participate in management (public interest rights) have been ruled invalid by the courts."

Kwangsoo Lee, Partner Lawyer at Law Firm One (right), and Daye Lee, Lawyer at Law Firm One, are being interviewed on the 13th at Law Firm One in Gangnam-gu, Seoul. Photo by Jinhyung Kang

Kwangsoo Lee, Partner Lawyer at Law Firm One (Judicial Research and Training Institute, 27th class), explained the significance of winning the first trial in the lawsuit seeking to nullify the resolution of the shareholders' meeting of Kosdaq-listed Oscotec, representing minority shareholders. The legal community is paying close attention to the court's recognition of the "limits of supermajority resolutions," which had previously been considered a powerful tool for defending management rights.

'70% Approval' Supported by Empirical Data

The incident began with concerns over the so-called "split-off listing" of Oscotec's subsidiary, Genosco. Minority shareholders, worried that the subsidiary's listing would damage Oscotec's corporate value, attempted to check the management. However, they were blocked by Article 27 of the articles of incorporation. This provision stipulated a supermajority resolution, requiring "at least four-fifths (80%) of the total issued shares to approve the dismissal or appointment of directors by shareholder proposal at the general meeting of shareholders."

Normally, under the Commercial Act, the appointment of directors is possible if a majority of the voting rights of shareholders present and at least one-quarter of the total issued shares approve. However, Oscotec's standard was much higher. Oscotec argued that this was "to prevent hostile mergers and acquisitions (M&A)" and claimed that "private autonomy allows the articles of incorporation to increase the quorum for special resolutions under the Commercial Act, and a significant number of companies have adopted the so-called supermajority resolution system."

Daye Lee, Lawyer at Law Firm One (10th Bar Exam), pointed out, "The 80% requirement creates a structure where a major shareholder with just 20% equity can nullify the intentions of the remaining shareholders," adding, "This infringes upon the essence of voting rights and violates the principle of shareholder equality."

It was also effective to demonstrate, using empirical data, how shareholders' intentions were distorted. Despite more than 70% of the voting rights of shareholders present supporting the removal of the supermajority resolution and the appointment of directors at the general meeting, both proposals were rejected due to the 80% threshold. Law Firm One emphasized, through an analysis of voting rights at the regular shareholders' meeting, that this provision in the articles of incorporation went beyond a simple management defense mechanism and effectively nullified the rights of minority shareholders.

Sounding the Alarm on Management Defense Practices

The trial process was intense. There was no established Supreme Court precedent regarding the illegality of the supermajority resolution system. The court was so deliberative that, even after closing arguments, it requested the submission of commentaries, textbooks, and academic papers as reference materials. Law Firm One responded meticulously to the court's inquiries, with experts in management disputes, corporate governance, and capital markets working closely together.

Analyzing overseas legislative examples, such as California corporate law in the United States, and presenting the standard that even supermajority resolutions have upper limits, also contributed to the victory. Lawyer Lee stated, "With 13.8% (282 companies) of KOSPI and KOSDAQ-listed firms having adopted supermajority resolutions, the impact of this ruling will be significant," adding, "It has highlighted the need for improvements in corporate governance in the capital market."