China’s Supreme People’s Court designates Korean company dividend dispute as one of “top 5 model judgements”

Announced at the National People's Congress (NPC) as a "Guiding Precedent on Foreign Investment Protection for Lower Courts," Strengthening legal protection for foreign investors in China

The Supreme People's Court of China, which oversees the country's judicial system, announced on March 9 at the National People's Congress (NPC) that a case involving a Korean company's successful claim for unpaid dividends in a foreign investment dispute has been selected as one of the "Top 5 Model Judgements of 2026." By formally recognizing this case as a "standard guideline for foreign investment protection" to be followed by lower courts in China, the level of legal protection for foreign investors in China has been significantly strengthened.

Dentons Lee (Managing Partner: Hee-Jun Choi), which represented Ilyang Pharmaceutical-a Korean company engaged in a joint venture in China-in a lawsuit seeking the recovery of unpaid dividends from its Chinese joint venture, Tonghua Ilyang, not only secured a final victory in Chinese courts but also successfully enforced the judgment, recovering the full amount of KRW 18 billion (approximately USD 14 million) in unpaid dividends.

This case, which concluded with a final judgment by the Jilin High People's Court in May 2025 and full enforcement completed in September, was selected as a representative model judgement (典型案例) for the protection of foreign investors' rights in the "2026 Work Report of the Supreme People's Court of the People's Republic of China." The Chief Justice Zhang Jun personally announced the case at the NPC held in Beijing on March 9, thereby establishing it as a new benchmark for rulings by lower courts across China.

◇ A Reverse-Strategy Victory in a "Virtually Impossible" Case

Under Chinese company law, judicial intervention in dividend distribution without a board resolution is considered extremely rare-often described as "as difficult as picking a star from the sky." In this case, Ilyang Pharmaceutical had been unable to receive dividends for four years due to opposition from its Chinese joint venture partner. However, by advancing a focused and well-reasoned argument based on the doctrine of "abuse of shareholder rights," the company ultimately secured a favorable ruling.

Dentons Lee, acting as legal counsel for Ilyang Pharmaceutical, collaborated with Dacheng, one of China's largest law firms. Together, they meticulously demonstrated that the Chinese shareholder's unreasonable inaction constituted an abuse of rights that violated the principle of good faith in the joint venture. This strategy led to victories in both the first and second instances before the Changchun Intermediate People's Court and the Jilin High People's Court. The Supreme People's Court described the ruling as "a milestone that substantially protects the lawful rights and interests of foreign investors," while Ilyang Pharmaceutical referred to Dentons Lee's legal strategy as a "masterstroke."

◇ Presenting a "New Normal" for Dispute Resolution in the Chinese Market

Notably, Dentons Lee did not stop at obtaining a favorable judgment but ensured full enforcement, successfully transferring the entire KRW 18 billion (approximately USD 14 million) back to Korea. In a market where favorable judgments often do not lead to actual recovery of funds, this case represents a new successful model of comprehensive risk management-from litigation to the repatriation of dividends.

Changrong Xu, who heads Dentons Lee's China team, emphasized that "in the Chinese market, it is crucial to clearly understand the government's policy direction toward attracting foreign investment and to pursue bold reinvestment and business restructuring accordingly." He further noted that "Korean companies must clearly convey to Chinese authorities and the judiciary that they continue to trust the Chinese market and are willing to invest further, provided that legal protections for foreign investment are firmly ensured."

He added, "The selection of this case as a model precedent by the Supreme People's Court demonstrates that the key to success lies in how effectively one leverages China's evolving policy direction from a legal perspective. Legal practice in China now requires not only interpreting statutes but also strategically navigating the country's political and economic dynamics." He expressed hope that this case will enable the firm to provide more effective legal solutions to Korean companies facing complex challenges in China, including equity divestments, business restructuring, litigation, arbitration, and settlements.

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