1. The Client's Situation
In pursuing the attraction of large-scale funds to improve its financial structure and develop new technologies, the client entered into a new-share subscription agreement with an external investor by way of Redeemable Convertible Preferred Shares (RCPS). Subsequently, however, accounting and legal issues arose concerning the legal binding force of the contract and the possibility of its rescission, and in a situation requiring a clear interpretation of whether the legal structure could compel performance of the contract, the client requested our firm's advice.
2. The Advice of Your Legal Team
As a result of analyzing the structure of the contract, Your Legal Team clarified that the new-share subscription agreement constituted a "contract subject to a condition precedent" under the Civil Act. In particular, we confirmed that, until the closing of the transaction, the contract contained numerous clauses allowing the contracting parties to withdraw from the contract, and that there existed no penalty clause or punitive damages clause that could compel performance of the contract. Accordingly, we provided specific advice that, while the possibility of rescission existed from the conclusion of the contract until the date of closing, rescission and cancellation of the contract would be impossible once the transaction had been completed.
3. The Result
Through this advice, the client was able to clearly grasp the risks related to "contractual binding force" that could be raised at the stages of accounting audit and investment review, and to respond effectively to the limits of the possibility of rescission and the enforceability of performance. By organizing not only the legal interpretation but also the points of contact with accounting standards, this advice served as a meaningful reference for the design and review of similar contract structures in the future.