A company registered a lien in favor of a third party to secure a debt of its controlling shareholder to the third party. The company did not convene a shareholders’ meeting to approve the transaction even though the director had a personal interest in it, but the company made a representation as if the lien had been duly approved in a document approved by the company’s legal counsel.
The Court held that the lien was valid even though it had not been duly approved. An extraordinary transaction is generally a transaction with a person who has a personal interest therein and that is not in the ordinary course of the company’s business or that may materially affect the company’s profitability or liabilities. Such a transaction requires the approval of the board of directors and a general meeting. However, while the company lacks the legal capacity to enter into a transaction that did not meet the procedural approval process, a company may cancel a transaction with a third party only if such knew about the personal interest and if it knew or should have known about the lack of appropriate approval. Here, the lien of company assets to secure a debt of a controlling shareholder is not a daily manner and has the possibility to affect the company's situation, and therefore it is an extraordinary transaction. Although the third party knew that the debtor had a personal interest by virtue of being the controlling shareholder of the company, he did not know and should not have known that the transaction had not received the required approval in light of the legal counsel’s approval of the lien. Therefore, the lien is valid and the third party has the right to exercise it.