Directors of companies, registered in Korea, many be held criminally and civilly liable for acts as a director (in limited cases even controlling shareholder can be held criminally liable). Many acts (or inactions) that would not be deemed criminal in the West are, often, deemed criminal in Korea. Additionally, matters that are considered in the West as mere “civil” matters, often, begin and end at the Korean prosecutor’s office.
A little due diligence, complying with corporate formalities, nuanced corporate governance practices and a little street smarts coupled with good liability insurance is a good start in succeeding in business in Korea.
We have been on both sides of matters were directors (and even controlling shareholders) have been prohibited from departing Korea, jailed and fined. In most cases, liability is unlimited and it is presumed that a director has complied with the decision of the Board of Directors if no dissent is noted in Board Minutes. However, exceptions exist.
Article 399 of Korean Commercial Code notes:
(1) If a director has intentionally or negligently acted in violation of any Act or subordinate statute or of articles of incorporation or has neglected to perform his/her duties, he/she shall be jointly and severally liable for damage against the company.
(2) If any act under paragraph (1) has been done in accordance with a resolution of the board of directors, the directors who have assented to such resolution shall take the same liability.
(3) Directors who have participated in the resolution mentioned in paragraph (2) and whose dissenting opinion has not been entered in the minutes shall be presumed to have assented to such resolution
Ordinary Prudent/Reasonable Person Standard
The standard of care, in Korea, is similar to the West. Article 382 of the Korea Commercial Act and Article 681 of the Civil Act of Korea notes that: “A person mandated the duty shall manage the affairs entrusted to him with the care of a good manager in accordance with the tenor of the mandate.”
The Korea Supreme Court has interpreted this clause to mean that a fiduciary shall be held to an “ordinary prudent” person standard.
This standard allows the Korean courts, (and Korean prosecutors – in some cases), to delve into the actual knowledge of the individual and the knowledge that a ordinary prudent person should have had.
Not being a director of a company does not relieve one of this potential criminal and civil liability.
Controlling shareholders have, also, been held criminally and civilly liable if the party acts as a de facto director.
- Fiduciary Duties of Korean Directors/Representative & Controlling Shareholders of Korean Companies
- Suing Directors for Company Loses in Korea: Korean Corporate Compliance Basics
- Involuntary Dissolution of a Company in Korea: Shareholder Disputes in Korean Companies
- Duty to Report Product Defects in Korea
- Tax Liability of Controlling Shareholders in a Korean Company: Tax Law Updates
- Participating and Exchangable Bonds Issuance by Non-listed Companies in Korea
- Limiting Director Liability in Korea under new KCC
- Director Liability Insurance in Korea: Follow the Oxy Reckitt Beckiser
- Korea’s Cyber Defamation Law: Basics of Libel and Slander in Korea
- Compliance Control Standards in Korea: Amended KCC