In a precedent-setting decision, the Supreme Court of Korea clarified the scope of disclosure obligations under the Korean Capital Markets Act, holding that the requirement to disclose “lawsuits that will have a significant impact on securities” is limited to lawsuits directly concerning securities themselves, and does not extend to all lawsuits merely because they may affect a company’s stock price.

On December 4, 2025, the Korean Supreme Court’s Second Civil Division overturned part of the lower court’s judgment in a shareholder damages action against the CEO and executive directors of a KOSDAQ-listed company and remanded the case to the Seoul Central District Court (Supreme Court Case No. 2023Da271798).

Facts

  1. Company is a KOSDAQ-listed corporation notified in late 2014 of a decision to initiate a voluntary auction of its factory site and other assets. The company failed to disclose this decision within the statutory disclosure deadline and only made a public disclosure on January 6, 2015. The following day, Company A filed for rehabilitation proceedings.
  2. The Korean Financial Supervisory Service designated Company as a “dishonest disclosure corporation” on the basis that it failed to timely disclose the auction-related information.
  3. Shareholders subsequently filed a damages lawsuit against the company’s CEO and executive directors, arguing that:
  • the decision to initiate a voluntary auction constituted a significant corporate event;
  • the auction decision directly led to the rehabilitation filing; and
  • fell within the category of a “lawsuit that will have a significant impact on securities” under the Capital Markets Act, thereby triggering mandatory disclosure obligations.

Korean Appellate Court

An appellate court in Korea held that the decision to initiate a voluntary auction materially affected Company’s management and assets and therefore fell within the scope of disclosure under Article 171(3)(2) of the Enforcement Decree of the Capital Markets Act of Korea.

The court found the executives failed to disclose the decision within the statutory period. However, it limited liability to 70% of the claimed damages, citing multiple contributing factors to the decline in the Company’s stock price.

Korean Supreme Court

The Supreme Court of Korea reversed the lower court’s holding. The Court held that the term “lawsuit” in Article 171(3)(2) of the Enforcement Decree refers only to lawsuits relating to securities that fall within the categories enumerated in Article 167(1)(2) of the same Enforcement Decree. It does not encompass all lawsuits simply because they may have a significant effect on a company’s securities price.

The Court opined that:

  • interpreting the provision to include all lawsuits with potential market impact would force companies to make subjective judgments regarding what constitutes a “significant impact”;
  • such an interpretation would impose excessive legal uncertainty and compliance risk on listed companies; and
  • corporations would, in practice, be compelled to disclose nearly all lawsuits defensively to avoid regulatory sanctions.

Accordingly, the Court concluded that the lower court erred by assuming that the decision to initiate a voluntary auction should automatically be treated as a “lawsuit that would have a significant impact on securities,” and by basing executive liability on that assumption.

The Supreme Court held that this misunderstanding of the disclosure framework under the Capital Markets Act materially affected the outcome of the case, warranting reversal and remand.

Conclusion

This decision significantly narrows the scope of disclosure obligations relating to litigation under Korea’s Capital Markets Act, potentially increasing the “Korean discount.”

by Sean Hayes
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