Newsletter
LITIGATION AGAINST DIREC-TORS REQUIRES SHAREHOLD-ERS' MEETING'S RESOLUTION
In an interpretation dated 29 June 2005, in which it cited a 1980 judgment of the Supreme Court, the Ministry of Economic Affairs stated that litigation between a company and its directors, as referred to in the Company Act, means litigation against a director instituted by resolution of a shareholders' meeting. This is because the shareholders' meeting is the highest organ of power in a company, and it has the sole authority to decide whether the company should institute litigation against a director (or a supervisor). A supervisor who believes that a director is unlawfully failing in his duties can merely con-vene a shareholders' meeting in accordance with the provisions of the Company Act, and then it is subject to the shareholders' meeting's decision by resolution whether to institute litigation against the director.
Thus in principle litigation by a company against its own directors requires a resolution of a shareholders' meeting. However, to convene and conduct a shareholders' meeting, certain proce-dural requirements must be complied with, and thus the process takes a considerable time. To address situations in which delay in determining the liability of a director through litigation would adversely affect the overall interests of a com-pany, the Company Act also gives minority shareholders the right to make a written request to a supervisor to institute litigation against a director on the company's behalf, in this case without the need for a resolution of a sharehold-ers' meeting.
The MOEA also stated that if a company has instituted litigation against a director without a resolution of a shareholders' meeting, the ques-tion of whether a resolution can be passed ret-roactively is a matter for the court to decide.