Disguised subscription

Disguised subscription of paid-in capital (자본금 가장납입/資本金假裝納入) is one of the cases whether breach of trust by a promoter or director is against the business judgment rule in Korea. So it is necessary to read the cases below along with the article on breach of trust (배임죄/背任罪).

가장납입은 자본충실의 원칙을 해하기 때문에 상법은 이에 대해 엄격한 규제를 하고 있으며 발기인이 은행 등 금융기관으로부터 차입한 후, 그것을 설립 중인 회사의 예금으로 대체하여 주식의 납입을 가장하고, 한편 이 차입금을 변제할 때까지는 그 예금을 인출하지 않을 것을 약속하는 경우에는 납입을 취급한 은행 등 금융기관에 대한 제재가 있다.

대법원은 일시적인 차입금으로 단지 주금납입의 외형을 갖추고 회사설립이나 증자 후 곧바로 그 납입금을 인출하여 차입금을 변제하는 주금의 가장납입의 경우, 금원의 이동에 따른 현실의 불입이 있는 것이고, 설령 그것이 실제로는 주금납입의 가장 수단으로 이용된 것이라고 할지라도 이는 그 납입을 하는 발기인 또는 이사들의 주관적 의도의 문제에 불과하므로, 이러한 내심적 사정에 의하여 회사의 설립이나 증자와 같은 집단적 절차의 일환을 이루는 주금납입의 효력이 좌우될 수 없다고 하여 유효설을 취하고 있다.

Key words
disguised subscription, paid-in capital, penal provision, representative director

Case Study
Take an example of disguised subscription to paid-in capital. This act is subject to the penal provision of Article 628 (1) of the Commercial Act.
 * If a person set forth in Article 622 (1) has committed an act of disguising the payment for the subscription price or the fulfillment of the contribution in kind, he shall be subject to the imprisonment not exceeding five years or to a fine not exceeding 15 million won.

Judicial viewpoint
The Supreme Court ruled that when issuing new stocks, disguised subscription to paid-in capital conducted by a representative director does not constitute the separate breach of trust crime, not to mention of the so-called false payment under Paragraph 1 Article 628 of the Commercial Act.

The Court stated that the representative director is not in the status the one who is in charge of the business management of a company, doing business for general stockholders by conserving the existing stock value and subscription rights or cooperating the stockholder action to preserve the property, and also stated that disguised subscription to paid-in capital may diminish the existing stock value as the stake value to the corporate property, so it is hard to see it as the proprietary damage in breach of trust in business.

Review
Differentiating the case where disguised subscription to paid-in capital withdrawn by a representative director is used for the company from that is not, if the latter is false payment under the Commercial Code, it may constitute special breach of trust or breach of trust in business out of question. When the accused denies the mens rea to commit breach of trust, the facts being subjective element such as intention or motivation, etc. should be established by the way to prove indirect or circumstantial fact which has considerable relation to the intention, given the case and the object of breach of trust.

In the former case where a representative director used the withdrawn money for the corporation, whether it constitutes breach of trust or the false payment under the Commerce Act, the action in violation of the duty seems to exist as long as disguised funding is regarded as capital payment. However, any single action in breach of the law, articles of association, or good faith duty cannot constitute the breach of trust. If withdrawn fund is used for the corporation as is the of repayment of loan, there is no damage to corporation properties in general. Even if evaluating the damage is conducted at the time of disguised action, rather than that of withdrawing money, it is difficult to find the likelyhood of damage to the corporation.

The intent to commit breach of trust or mental state on the illegal profit is also hard to recognize, for the action is in the interest of the corporation.