[비즈한국] Companies sometimes make decisions that are difficult to explain by money alone. Understanding the laws and systems hidden within those decisions allows for a deeper insight into the circumstances. "Useful Business Law" introduces clues that help in understanding the flow of business.
One of the "trump cards" often mentioned in management disputes is a provisional injunction for the suspension of an executive's duties. This is a type of injunction intended to set a temporary legal status. If the application is granted, it carries the powerful effect of excluding the target CEO or executive (the debtor) from all duty performance prior to a final court ruling.
As such, a provisional injunction to suspend duties is considered a significantly more extreme measure compared to other means of dispute resolution. If granted, the shock and ripple effects on the company are profound. Because granting such an injunction leads to a significant change in circumstances—depriving the individual of their position before a final judgment—and because restoring the status quo is difficult even if the debtor wins the main case, the court demands a high level of demonstration regarding both the right to be preserved and the necessity of preservation.
Surprisingly, however, this type of injunction is frequently used in practice. Applications are being filed in various types of management disputes, including: ① disputes between partners in unlisted small and medium-sized enterprises (SMEs), ② disputes over representative rights between founders and investors in startups, and ③ disputes between activist funds and existing management in listed companies.
When is a Provisional Injunction to Suspend Duties Granted?
For a provisional injunction to suspend duties to be granted, it must satisfy two requirements: ① the right to be preserved and ② the necessity of preservation. Since these are independent requirements, the application will be dismissed if either one is not demonstrated.
In injunction cases, the "right to be preserved" refers to a "disputed legal relationship that requires temporary protection." In cases involving the suspension of duties, the primary subjects of review include the existence of the executive's status, which will be contested in the main trial—namely, the validity of appointment or dismissal resolutions, or the existence of a right to claim dismissal or a right to confirm the non-existence of a position.
Typical types of rights claimed by the creditor include: ① a claim that the current representative lacks legal qualification because the appointment resolution contains reasons for non-existence, invalidity, or cancellation; ② a claim that the representative is subject to dismissal due to misconduct such as embezzlement or breach of trust; and ③ a claim that the individual is subject to a suit for confirmation of non-existence of status because they continue to exercise authority despite their term having expired or having resigned.
In practice, because it is not easy to prove a debtor's illegal acts or misconduct, the "defective appointment resolution" type, which contests the validity of the shareholders' meeting or board of directors' resolution that appointed the executive, is overwhelmingly more common than the "dismissal claim" type, which relies on the executive's wrongdoing.
"Necessity of preservation" in an injunction refers to the need to "avoid significant damage or urgent danger" that would occur to the creditor while waiting for the legal relationship to be finalized by a court ruling. Ultimately, the creditor must go a step further beyond demonstrating the likelihood of winning the main case and explain "why the court must change the status quo even on a temporary basis right now."
The court determines the necessity of preservation by comprehensively considering: ① the gains and losses for both parties based on granting or dismissing the injunction; ② the anticipated outcome of the main litigation; and ③ other overall circumstances. Typical arguments made by creditors to prove the necessity of preservation include the following:
First, the argument that the existing executive is about to engage in damaging acts—such as asset disposal, contract signing, fund execution, or public announcements—and that if they continue their duties, it will be difficult to reverse the consequences. For example, the claim that the debtor is causing irreparable harm by selling company real estate or mortgaging it to borrow funds.
Second, the argument that illegal or improper operational acts are occurring repeatedly. This suggests that the debtor is inflicting significant damage or creating urgent danger to the company by committing acts such as assaulting members, obstructing the use of buildings, excessive fund expenditures, or convening unlawful meetings.
In response, it is common for the debtor to contest the necessity of preservation by arguing that: ① the danger claimed by the creditor is merely abstract or conceptual; ② even if damage occurs, it can be compensated with money after the fact; ③ the creditor was aware of the circumstances but ignored them for a long time; or ④ alternative control measures exist, such as supervision by an auditor or the exercise of minority shareholder rights.
A Winning Move in Management Disputes, but with a High Threshold
Based on the discussion above, let us look at a notable recent case where an application for the suspension of duties was granted. The Seoul High Court Decision (2025Ra2023, dated March 18, 2025) granted the application after determining that the debtor had committed misconduct or serious legal violations regarding their duties as a director, thus satisfying the requirements for the right to be preserved and the necessity of preservation. The specific reasons are as follows:
First, the debtor repeatedly refused to comply with legitimate requests for data submission from the external auditor and temporary auditor, making it impossible for the accounting audit to proceed normally. As a result, the company received a disclaimer of opinion from the auditor and faced a delisting decision.
Second, the debtor, who served as CEO, committed sexual harassment against a company secretary by abusing their professional authority, and a fine was finalized. This is considered a serious violation of the law equivalent to misconduct, as it severely damaged the company's reputation and organizational order.
Third, the debtor was arrested and indicted on charges including violations of the Capital Markets Act and the Real Name Financial Transactions Act, as well as breach of trust under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes. The criminal facts were found to be substantiated to a significant degree, and because the debtor was incarcerated, they could not perform their duties normally, leading to concerns about management chaos within the company.
A provisional injunction to suspend duties is not easy to obtain because the repercussions are so significant. However, once granted, it produces effects nearly identical to a transfer of management rights, and the application itself acts as significant pressure on the opponent. Therefore, it remains a strategically valuable "trump card" in the context of management disputes.