Kyung-Hoon Chun, Can a Board of Directors Ratify Self-Dealing Transactions, KOREAN COMMERCIAL LAW ASSOCIATION, Vol.43, No.4(2025), pp.1-42.
<Abstract>
This article critically examines the Korean Supreme Courtʼs ruling that the boardʼs ratification (i.e., approval after the fact) of self-dealing is invalid. The grounds for criticism are as follows: (i) the phrase requiring the boardʼs approval ʻin advanceʼ does not necessarily invalidates the boardʼs ratification; (ii) the purpose of the 2011 amendment, as can be seen from the legislative materials, is to emphasize the obligation to obtain prior approval, not to prohibit or deny the effect of ratification; (iii) denying the validity of companyʼs ratification may, in some cases, actually harm the companyʼs interests; and (iv) denying the effect of ratification may lead to the Companyʼs ability to claim invalidation of the transaction even after post-approval, which may destabilize the legal relationship. It can be added that (v) as a matter of comparative law, laws of major jurisdictions honor the effect of the boardʼs ratification of self-dealing. If the directors have ratified the self-dealing after careful consideration, having been fully informed of the relevant information and being aware of the risk of damage to the company and the risk of liability arising from the ratification, it is reasonable to assume that the company is now bound by it.
<Keywords>
self-dealing, board approval, approval after the fact, ratification, conflict of interest.
Kyung-Hoon Chun, Can a Board of Directors Ratify Self-Dealing Transactions, KOREAN COMMERCIAL LAW ASSOCIATION, Vol.43, No.4(2025), pp.1-42.
<Abstract>
This article critically examines the Korean Supreme Courtʼs ruling that the boardʼs ratification (i.e., approval after the fact) of self-dealing is invalid. The grounds for criticism are as follows: (i) the phrase requiring the boardʼs approval ʻin advanceʼ does not necessarily invalidates the boardʼs ratification; (ii) the purpose of the 2011 amendment, as can be seen from the legislative materials, is to emphasize the obligation to obtain prior approval, not to prohibit or deny the effect of ratification; (iii) denying the validity of companyʼs ratification may, in some cases, actually harm the companyʼs interests; and (iv) denying the effect of ratification may lead to the Companyʼs ability to claim invalidation of the transaction even after post-approval, which may destabilize the legal relationship. It can be added that (v) as a matter of comparative law, laws of major jurisdictions honor the effect of the boardʼs ratification of self-dealing. If the directors have ratified the self-dealing after careful consideration, having been fully informed of the relevant information and being aware of the risk of damage to the company and the risk of liability arising from the ratification, it is reasonable to assume that the company is now bound by it.
<Keywords>
self-dealing, board approval, approval after the fact, ratification, conflict of interest.