UT Soft Law Review

UT Soft Law Review No.2 2010proposals were approved at the Shareholders’ Meeting with approximately 88.7% of the totalvoting rights present in favor and approximately 83.4% of the total voting rights in favor.Incidentally, the Allotment of Share Options without Contribution allocated shareholdersshare options at the ratio of three shares per owned share. The shareholders, except for Xand its affiliates (hereinafter referred to as XX), were able to receive issued shares byexercising the share options allocated. XX’s share options, however, had discriminatoryexercise conditions which rendered XX ineligible to exercise the allocated share options, aswell as discriminatory acquisition provisions which made it possible for Y to acquire XX’sshare options by monetary grant.On 13 June, prior to the Shareholders’ Meeting, X petitioned for a provisional dispositionseeking an injunction against the Allotment of Share Options without Contribution, pursuantto Article 247 of the Companies Act. The court at first instance (Tokyo District Court decision,28 June 2007, Kinyu Shoji Hanrei No. 1270: 12) ruled that, when an allotment of share optionswithout contribution was granted to shareholders, and the allotment without contributionresulted in substantive changes in the status of shareholders, the provisions in Article 247 ofthe Companies Act would apply by analogy, and the purport of the principle of the equality ofshareholders was applicable. Ruling that the Allotment of Share Options without Contributionwas not in breach of the principle of the equality of shareholders, however, and that it was noteffected by ‘a method that is extremely unfair’, the court at first instance denied X’s petition.The lower court (Tokyo High Court decision, 9 July 2007, Kinyu Shoji Hanrei No. 1271: 17)also dismissed X’s appeal, ruling that the Allotment of Share Options without Contributionwas necessary and reasonable in order to prevent harm to the value of the company, that XXwas an abusive acquirer, and that Y’s Allotment of Share Options without Contribution couldneither be said to be in breach of the principle of the equality of shareholders, nor to havebeen effected by ‘a method that is extremely unfair’.[Summary of Decision]Appeal dismissed.The Supreme Court ruled as follows: (1) The purport of the principle of the equality ofshareholders prescribed in Article 109(1) of the Companies Act applies to an allotment ofshare options without contribution. (2) When the common interests of the shareholders areprejudiced, it is not in breach of the principle of the equality of shareholders to treat certainshareholders in a discriminatory manner in order to prevent the harm, so long as this is notcontrary to the principle of fairness or inappropriate. (3) The decision as to whether or notthe common interests of the shareholders are prejudiced should ultimately be made by theshareholders, and should be respected, so long as there is no serious flaw such as would makethe decision inappropriate. In light of the fact that almost all the shareholders, except for XX,determined that X’s acquisition of the right to control the business would harm the commoninterests of the shareholders, that there was no serious flaw which would make the decision108