<strong>UT</strong> <strong>Soft</strong> <strong>Law</strong> <strong>Review</strong> No.2 2010inappropriate, and that the Allotment of Share Options without Contribution was neither inbreach of the principle of fairness, nor inappropriate, the Supreme Court ruled that theAllotment of Share Options without Contribution was neither in breach of the principle of theequality of shareholders nor in violation of legislation, without ruling on whether XXconstituted an abusive acquirer. Moreover, in light of the fact that the Allotment of ShareOptions without Contribution was not in breach of the principle of the equality ofshareholders, that the Allotment of Share Options without Contribution was a measure tocope with an urgent situation, which was implemented pursuant to a decision made at aShareholders’ Meeting, that consideration was paid equivalent to the value of the shareoptions allocated to XX, and that the Allotment of Share Options without Contribution wasnot carried out in order for the directors and other officers to maintain the right to control thebusiness, the Supreme Court ruled that the Allotment of Share Options without Contributiondid not fall within cases involving ‘a method that is extremely unfair’, and dismissed X’sappeal.109
<strong>UT</strong> <strong>Soft</strong> <strong>Law</strong> <strong>Review</strong> No.2 2010Bell System 24(Tokyo High Court Judgment of August 4, 2004,Finance and Commerce Judicial Precedent No.1201 p.4)[Summary of Facts]The Obligor Bellsystem24 (X), Inc., which was a corporation primarily engaged in thetelemarketing business, planned to issue 5,200,000 new shares, which exceeded the existingtotal number of issued shares in the Obligor (4,898,700 shares), utilizing the third partyallotment capital increase method (hereinafter referred to as the “New Share Issue”). In thiscase, the Obligee CSK Corporation (Y), which was the largest shareholder in the X (holdingapproximately 40% of the total issued shares), petitioned for a provisional disposition seekingan injunction against the New Share Issue, on the basis that it fell under share issues made…using a “method which is extremely unfair” prescribed in Article 280-10 of the CommercialCode.On 30 July 2004 the decision of the lower court, namely the Tokyo District Court,dismissed the petition. The Y filed an appeal in response. However, the appeal court, theTokyo High Court, dismissed the appeal.In its decision the lower court firstly recognized a series of facts with respect to mattersincluding an outline of the New Share Issue, discord over the management of the X betweenthe Y’s representative, who was an outside director of the X, and the current management ofthe X, including the X’s representative, and details of the business plan for which it wasintended to use the increased capital obtained through the New Share Issue (a businessalliance with a third party corporate group). The Court stated with respect to theinterpretation of the meaning of an issue of new shares made using a “method which isextremely unfair” prescribed in Article 280-10 of the Commercial Code, that this wordingapplied to situations where the issue of new shares was used as a means to achieve improperpurposes. The Court further stated that when there was a conflict over the right to control astock company, new shares were issued in such a quantity as to significantly affect thestockholding ratio of existing shareholders and were allocated to third parties, and it wasdetermined that the primary purpose of the issue of new shares was to lower the stockholdingratio of a particular shareholder and to maintain the current management’s right to control,such issue of new shares would fall within means used for achieving improper purposes. Inaddition, the Court ruled that, in this case, although it was undeniable that the X’srepresentative and some of the X’s current management intended to maintain their right tocontrol by lowering the Y’s stockholding ratio, the X needed to raise funds through the NewShare Issue in order to carry out the business plan regarding the business alliance with a third110
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