In a double derivative suit, when one company owns all of most shares of another company, resulting in a dominant-subordinate relationship between the two, and when the subsidiary company suffers a damage due to wrongdoings of the directors, a representative suit is brought directly by shareholders of the controlling company on behalf of the subsidiary company against the directors, etc. of the subsidiary company. The Korean High Court interpreted the Korean Commercial Law in light of the necessity of double derivative suits and ruled that the concept of a shareholder who may bring a representative suit includes the shareholders of the controlling company. The Korean Supreme Court, however, dismissed the plaintiff’s double derivative suit on the grounds that the shareholders of the controlling company lack standing to sue. There are many different theories on the validity of such a ruling.
In this paper, we examine the double derivative suit in regard to piercing the corporate veil, which does not treat a corporation as a separate legal person in exceptional legal relations and makes the actual responsible bodies liable for the legal relation. When the controlling company was able to exercise its right as a controlling company through representative suits, but did not, it abused its corporate personality or violated the principle of good faith. The shareholders of the controlling company suffered an indirect loss, and the representative director of the subsidiary company gained an unfair profit; the result is in violation of fair and equitable treatment. When the abuse of corporate personality by the controlling company results in a violation of fair and equitable treatment, it is reasonable to protect the profit of the shareholders of the controlling company by piercing the corporate veil and allowing double derivative suits.
According to the theory of complementary application, the corporate veil may be pierced, and a double derivative suit may be brought against the representative director of the subsidiary company, asking for damages suffered by the subsidiary company, only when a representative suit is brought against the representative director of the controlling company, but when there was no compensation for the loss of the controlling company. This theory raises a question as to who bears the burden of proving that it was possible to be compensated for damages suffered by the controlling company, when the shareholders of the controlling company brought a representative suit against the representative director of the controlling company. It is difficult to impose the burden of proof on the defendant -the representative director of the subsidiary company-, because he might bring upon himself a loss of trial when he bears the burden of proof. The legal procedures become complicated when the plaintiff-the shareholders of the controlling company-bears the burden of proof. Hence, even if the shareholders of the controlling company did not bring a representative suit against the representative director of the controlling company, it is possible to bring a double derivative suit against the representative director of the subsidiary company.