## Facts

- Aiwa Co., Ltd., a listed audio-electronics company, faced serious financial distress and sought a capital infusion through a third-party allotment of new shares.
- Aiwa arranged for Sony Corporation to subscribe to 1.2 million newly issued shares, resulting in Sony owning about 50% of Aiwa.
- The board set the issue price at 70 yen per share (par value 50 yen).
- The market closing price on the day before the board decision was 145 yen per share, after a sharp rise attributed to speculation and rumors of a major-company tie-up.
- Aiwa did not obtain a special shareholder resolution for the issuance, relying instead on board approval.
- A shareholder filed a derivative action against Aiwa’s directors (and implicating Sony as the beneficiary), seeking damages equal to the alleged “difference” between a fair price and the 70-yen issue price.
- The Tokyo District Court dismissed the claim; the shareholder appealed to the Tokyo High Court.

## Issues

1. Whether issuing new shares to a non-shareholder at 70 yen, when the immediately preceding market price was 145 yen, constituted an “especially favorable issue price” requiring a special shareholder resolution under former Commercial Code art. 280-2.
2. How to determine a “fair issue price” for listed shares when the contemporaneous market price may be distorted by rumors and speculative trading.
3. Whether directors incur liability to the company (actionable via derivative suit) for setting an allegedly unfair issue price without the required shareholder approval.

## Decision

- The Tokyo High Court dismissed the appeal and affirmed the dismissal of the derivative claim.
- The court held the 70-yen price was not an “especially favorable” issue price under former Commercial Code art. 280-2.
- Because the statutory threshold was not met, a special shareholder resolution was not required.
- The directors’ pricing decision was within permissible discretion and did not breach duties owed to the company.

## Legal Principles

- A “fair issue price” is not determined solely by the immediate market price; it should reflect the company’s objective enterprise value assessed using multiple factors, including market conditions, assets, earnings, and expected price volatility.
- When a stock price spike is driven by speculation or rumors (such as anticipated business tie-ups), that elevated price may be treated as not reflecting objective enterprise value for purposes of assessing issuance fairness.
- A price may be considered fair even if it materially differs from a rumor-inflated market price, if it is reasonably tied to indicators from an unaffected period (e.g., historical average trading prices) and to balance-sheet measures (e.g., per-share net asset value).
- Stock-exchange pricing practices (such as discounting from the prior day’s closing price) may serve as references but do not control the statutory inquiry into whether an issuance is “especially favorable.”

## Conclusion

The Tokyo High Court upheld a discounted third-party allotment to Sony, ruling that an issue price may be justified by enterprise-value indicators and unaffected historical prices even when the contemporaneous market price is substantially higher due to rumor-driven speculation, and therefore may fall outside the statutory category requiring special shareholder approval.


Sony Corp. v. Aiwa Co., 715 Hanrei Jiho 100 (Tokyo High Ct. 1973)