K&P Law Firm has successfully represented Company X in an injunction case concerning the suspension of effectiveness of new stock issuance.
Case Overview
- A was a shareholder who owned 8,000 shares out of Company X's total issued shares of 20,000 (40% ownership stake).
- On August 20, 2024, Company X held a board meeting and resolved to issue new shares.
- B, who owned 8,000 shares of Company X, and C, who owned 4,000 shares of Company X, participated in the new share issuance. A was allocated and subscribed to 20,000 new shares, and B was allocated and subscribed to 10,000 new shares.
- However, A was unable to participate in this new share issuance.
A's Claims
A made the following claims:
- The new share issuance violated Article 419 of the Commercial Act and other laws, and was conducted through a significantly unfair method.
- This infringed upon A's preemptive rights and also violated the principle of shareholder equality.
- Therefore, the new share issuance should be deemed invalid.
- A sought an injunction as described in the application with the invalidation lawsuit regarding the new share issuance as the main case.
K&P Law Firm's Arguments
K&P Law Firm presented the following arguments:
For all provisional remedies, there must be a demonstration of both the rights to be preserved and the necessity for preservation. Since these two requirements are separate and independent, they should be examined independently without relation to each other. According to Article 300, Paragraph 2 of the Civil Execution Act, an injunction to determine a temporary status is permitted as an emergency and provisional measure only when necessary to prevent significant damage to the rights holder or beneficiary, to avert imminent danger, or for other necessary reasons until the disputed legal relationship is determined by the main lawsuit (referring to Supreme Court Decision 2003Ma482 dated August 19, 2005, etc.).
The creditor is seeking to suspend the effectiveness of the new share issuance against the debtor, with the invalidation of the new share issuance as the main lawsuit.
While a judgment invalidating a new share issuance only takes effect prospectively once it becomes final (Article 431, Paragraph 1 of the Commercial Act), an injunction suspending the effectiveness of a new share issuance temporarily halts the effectiveness of the share issuance before the final judgment in the invalidation lawsuit, resulting in essentially the same outcome as the content of the final judgment in the main case. Such an injunction exceeds the scope of rights protection through the main lawsuit, contradicting the supplementary nature of provisional remedies, and thus cannot be permitted.
Therefore, while the creditor may contest the effectiveness of the new share issuance by filing a lawsuit for invalidation and, once a judgment invalidating the share issuance becomes final, prospectively nullify the effectiveness of the new shares from that point forward, seeking a temporary suspension of the effectiveness of the new share issuance through an injunction cannot be recognized as falling within the scope of protection for the rights to be protected.
Court's Decision
The court accepted K&P Law Firm's arguments and dismissed A's claims.
As a result of this victory, Company X was able to successfully conclude its shareholders' meeting and other proceedings on the premise that the new share issuance was lawful.
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