We already recognized it enough for danger of the window dressing settlement of accounts in those days of 1997 IMF crisis. Though the sympathy level that we watched legal responsibility for the window dressing settlement(window dressing in accounting) while watching Enron case in U.S.A. and must strengthen was formed globally. We take advantage of such a movement in our country and promulgate "Securities related Class Action Act" in 2004. This Act intends that minority shareholders effectively seek compensations for large damages and achieve transparent corporate managements. So this Act recognize money compensation suit for not only the company but also the accountant and outside inspector for the window dressing settlement. But the responsibility of the director in conventional company Law is just applied in the case of the window dressing settlement.
A director shall manage the corporate affairs entrusted to him or her with the care of good manager in accordance with the tenor of the mandate(§ 382 ② Commercial Act, § 681 Civil Act). When the Director violated such a duty, he or she bear compensation responsibility for damages by the default on an obligation(§ 390 Civil Act). And tort liability shall be bound when the requirements for an unlawful act are satisfied(§ 750 Civil Act). Nevertheless Commercial Act levies heavier responsibility than Civil Act, what it prescribes § 399 ① Commercial Act “If directors have acted in violation of any Acts and subordinated statutes or of the articles of incorporation or has neglected to perform their duties, they shall jointly and severally liable for damages to the company."
It is doubt whether the window dressing settlement is the act that a director must take responsibility for the damage of the company as an act violation of any Acts and subordinated statutes or of the articles of incorporation - an act equal to the duty laziness in Commercial Act § 399 ①.
District Court judgment(Taegu District Court 2006.6.27. Sentence 2003 GaHap 16041 Judgment) said "The chairman A, President B, the representative director C, and director D are admitted to participate to the embezzlement and secret fund development directly or left alone or look on unconcernedly. The act of such A, B, C, and D is an act which broke any Acts and subordinated statutes or of the articles of incorporation and carried out nonfeasance of their duty. A, B, C, and D shall jointly and severally liable for damages to the company caused by each of one's act in accordance with § 399 ①, § 401-2 ①, ② Commercial Act".
On the other hand, Supreme Court judgment (Supreme Court 2007.9.20. Sentence 2007 DA 25865 Judgment) “The director who executed business so that accounting treatment might be carried out by a falsehood in order to conceal shortage of the company fund by it after the embezzlement act of company fund is realized. An embezzlement act is exposed by carrying out accounting treatment by a falsehood, although the amount of money for embezzlement or the reparations claim by embezzlement was recoverable from those who were involved in the embezzlement act to the accounting treatment that time. As long as it missed the recoverable opportunity, their fund situation worsens in the meantime and there are no situations, such as saying that it became impossible to collect these, it has ruled which does not pay damage liability.” However, such judgment of the Supreme Court has a problem.
In order to conceal shortage of a corporate fund after a director embezzles a corporate fund, when accounting books are operated, a director shall has a obligation to compensate damage. That is to say, a window dressing settlement is "the act in violation of any Acts and subordinated statutes or of the articles of incorporation or carried out nonfeasance of the duty." which specified in the § 399 ① Commercial Act. The Commercial Act has imposed the administrative fine to it(§ 635 ① No. 9 Commercial Act). Therefore, judgment of the Supreme Court like as "Director does not pay (in principle) damage liability to false accounting treatment" cannot accept. At least, as duty nonfeasance, director has to compensate the damage to a company when a company suffers damage after a window dressing settlement.
A window dressing settlement is different from the actual condition of a company, it is an act which cannot be admitted in Commercial Act. Moreover, it is not easy to say the evil generated as a result of such a window dressing settlement at all. Directly, a window dressing settlement prevent substantial company capital, deceive an investor, worsen the market of capitalism such as a financial system, ultimately, it is the crime of cutting the national economy since it is a patterner as a company is resulted in bankruptcy. Therefore, the director, internal and external auditor etc. who participate in accountant's inspection of company carries out the window dressing settlement have to severely responsible for audit.
However which must take care paying the director's liability for company only when damage of a legally sufficient cause occurs in a company by the duty nonfeasance or violation of any Acts and subordinated statutes or of the articles of incorporation. Judgment of the Supreme Court is. which may be expression that such a legally sufficient cause was insufficient. However, since the judicial precedent of the Supreme Court invites misunderstanding that the director etc. who participated in the window dressing settlement takes responsibility only on an exception target, it is not desirable. It is considered that there must be analysis of a stricter case and accumulation of a judicial precedent to the grade of each concrete reparations which a director pays for every case in the case of an illegal dividend etc.
Lastly, we must take care of such things also exists like as the income manipulation and company tax equalization which were authorized on law and accounts. Moreover, it is a consideration reason which cannot disregard the elasticity of accounts etc.. Therefore, preparation of more detailed legislation and an interpretation standard is required.