Facts

Due to a deterioration of its business performance in the late 1950s and early 1960s, nonparty Company A, whose main businesses are mining and quarrying, sought to diversify. In the spring of 1975 it made a plan to merge with nonparty Company B (of the same group as A), which was in the cement business, and began to investigate the details of doing so. However, nonparty C began buying up large portions of A Company's stock, ultimately acquiring 155 million shares, or 35.8% of A Company's issued stock and, because he expressed his opposition to the merger, citing the fact that this share ownership percentage would be reduced by it, A sought to gain his cooperation by taking over C's shares at his convenience. Finally, based on a decision by the management committee, all of the shares owned by C were purchased by A Company's 100% financed subsidiary company, nonparty D Company for Y530 per share, more than the market price (at the time, between Y380 and Y500), which in turn sold the shares to each company in the group A Company is attached to for Y300 per share. After that, the merger was achieved as planned.

At that time, X, a shareholder of A Company holding 1,000 shares, brought the present representative suit alleging that the sale of the shares to D Company violated Commercial Code Art. 210 and as a result A Company was damaged. He named as co-defendants 18 directors of A Company and requested that they indemnify the company for one hundred million yen if the damages (because of the high stamp tax assessed when the case was filed.)

Gist

Claimed allowed against six directors, the five directors who sat on the management committee and approved the transaction, and one who is the head of the director's administrative department and was principally active in the transaction.

First of all, in addition to finding that the purchase of the shares by D Company amounts to the purchase by A Company of its own shares, next, we hold the following as regards whether a company's purchase of its own shares violates Commercial Code Art. 210. "The legislative intent of Commercial Code Art. 210 is...mainly for policy reasons. If we say this, it is only natural that there would be instances where there is no abuse even though the situation does not come under the express provisions of the Commercial Code's reasons. For example, even if there is an instance where it cannot be said that there is no abuse, where a shareholder is action against the company, which action would ....carry the extreme danger of causing serious injury to those affiliated with the company, under such an impending situation, in order to break the treachery of that shareholder and to avoid serious damage to thee company, a necessary counter measure might be for the company to purchase its on stock. Consideration should be given to the percentage, ....etc. of the entire number of issued shares acquired, and it cannot be said that approval within limits would not be suitable." The purchase of shares in this case, however, does not fall under the above case of approval.

(translation by Vicki L. Beyer)

Temple University Japan