Director’s Liabilities and Obligations in Korea

Abstract

In recent years, a number of CEOs of big Korean conglomerates are being prisoned or sentenced longer period than ever before. Legally, since executive officer system was introduced, executive function of BOD has been separated and appeared to more focus on supervisory function. In addition, in terms of directors’ responsibility, legislative policies, which strengthen, alleviate or decrease that responsibility by taking account of the specialty of position of directors, have been considered. Problematic behaviors of directors which may be harmful to the interests of persons concerned including companies and shareholders may be roughly classified into the followings when a director: 1) is negligent in fulfill their duty to care when he or she fails to take reasonable care in making decisions; 2) acts according to his or her independent interest in it; 3) commits a discriminatory act against persons concerned who must be equally treated; 4) maliciously violates other laws and regulations or commits a fraudulent act deceiving its company or shareholders. Even after the revision of the Commercial Act(April 2011), mitigating the directors’ liability is more hard to be introduced. Part of the revision was focused upon the rehabilitating the market economy and enhancing the challenging activities of the private enterprises by alleviating the directors’ liability. For that purpose limiting the indemnification of directors was becoming a part of the commercial Act(Article 400-2). However in reality the article was hardly to be inserted as a part of articles of corporation because of the concerns from the society. Still Korean companies are under crossfire when it comes to the directors liability issues are concerned. However any rules mitigating liability where their liabilities are coming from the decisions in order to do something good for the company and future prosperity and those decisions are based upon a resourceful backup documents and scrutiny have to be considered in court cases. In this perspective, internal control rules newly adopted in Commercial Act and business judgment rules in the courtroom could be the ones utilized as a foundation of the mitigating the directors’ liabilities and setting up the roles of in-house counsel in Korea for the better rules for the companies and shareholders, and society as well. New Commercial Act’s rule(Article 400 paragraph 2) also has to be more actively contemplated and implemented in the Korean companies articles of corporation to this effect. Business Judgment Rule are still considered as a hot potato in Korean director’s liability lawsuits and legal criteria is in flux. That is another difficult homework for Korean law society has to deal with.