Further to its decision to purchase Daewoo Shipbuilding & Marine Engineering (“DSME”) by way of contribution in kind, Hyundai Heavy Industries (“HHI”) carried out a corporate spin-off of its shipbuilding and offshore departments to a new wholly-owned subsidiary that would become a holding company of certain other shipbuilding companies.   The implementation of the spin-off, inter alia, required consultation with the workers/labor union and the approval at a general meeting of the shareholders.

HHI made continuous attempts to consult with the workers and the labor union.  However, the workers, in order to prevent the shareholders’ meeting from being convened, carried out a strike and illegally occupied an HHI-owned building for five days prior to the shareholders’ meeting date mobilizing some 1,000 persons.  On the day of the meeting, they physically blocked the officers and employees of the company as well as the shareholders from entering the venue for the meeting.  Once it became clear that convening the meeting at the scheduled site was physically impossible, HHI changed the venue, proceeded to convene the meeting, and ultimately obtained the shareholders’ approval for the spin-off.

In response, the labor union filed a petition for injunction requesting the court to invalidate the shareholders’ approval and the spin-off, claiming that the shareholders’ meeting was invalid and unlawful.  At the time the petition was filed, there had been several cases where the courts had found procedural defects in the change of venue for a shareholders’ meeting due to opposition from a labor union or dissenting shareholders.

Despite the prior cases, the court in this case held that the shareholders’ meeting convened at the changed venue was lawful and valid, marking the first instance where a Korean court recognized the change of venue as being valid in such circumstances.  On appeal by the labor union, the appellate court also upheld the lower court’s decision.  The case is currently pending before the Supreme Court.

According to previous Supreme Court cases, strict requirements apply for changing the venue for a shareholders’ meeting, and in most cases where the shareholders’ meetings were held in changed venues in the face of opposition from the union or dissenting shareholders, the Court has ruled the resolutions unlawful.  As a result, there have been cases where the dissenting shareholders and other parties of interest have attempted to invalidate a shareholders’ resolution by, for example, occupying the notified venue.

This was the first case in which a shareholders’ meeting held in a changed venue was ruled lawful.  As such, it will provide significant guidance for future procedures and requirements to ensure shareholders’ right to attend a shareholders’ meeting in case of a change in venue.  It may also serve as an incentive for dissenting shareholders and other parties of interest to take alternative measures, such as raising a dissenting opinion at meeting, rather than exerting physical force to disrupt the convening of a shareholders’ meeting.