Shareholders Lawsuit against Directors of Apamanshop Holdings Co., Ltd.
N&A obtained a judgment of the Supreme Court in which it reversed the Tokyo High Court judgment and held that the directors were not liable, applying the business judgment rule for the first time in the Supreme Court in a shareholders’ derivative action.
Apamanshop Holdings Co., Ltd (ASH) bought shares of its group company from minority shareholders for 50,000 Yen per share to increase ASH’s shareholding ratio in the group company as much as possible in order to facilitate the restructuring of ASH’s group companies. A few shareholders filed a shareholders derivative lawsuit claiming that the actual value of a share of the group company was 10,000 Yen and that the directors of ASH are liable for damages amounting to the difference between the amount actually paid (50,000 Yen) and the alleged actual value (10,000 Yen).
The Court of First Instance ruled that the directors were not liable, applying the business judgment rule.
However, the court of second instance ruled that the directors were liable because the decision process was materially unreasonable by recognizing the fact that the actual value of a share of the group company was 10,000 Yen considering the information acquired by the directors at that time, and the fact that ASH did not negotiate with the minority shareholders to explore the possibility of buying the shares at a lower price.
N&A attorneys represented the directors of ASH only in the Supreme Court. The Supreme Court reversed the court of second instance’s judgment and ruled that the ruling by the court of first instance dismissing the shareholders’ claim should be upheld. The Supreme Court held that the directors were not liable applying the business judgment rule under which it recognized a broad discretion of directors in restructuring group companies. This is the first Supreme Court decision clarifying the standard for review of board’s business decision.