DR & AJU Legislation & Government Relations Consulting Center's latest issue of its specialized legislative journal, the Policy & Business Report, is now available in digital format.
Disputes over the amendment bills to the Commercial Act and the Financial Investment Services and Capital Markets Act: Will the ruling and opposition parties reach common ground?
The proposed amendment to the Commercial Act, which expands the fiduciary duty of directors to include shareholders, has sparked intense discussions, with attention focused on whether the ruling and opposition parties can find common ground.
The amendment bills to the Commercial Act, primarily introduced by lawmakers from the Democratic Party, propose a modification to Article 382-3, which currently states that “directors shall perform their duties in good faith for the interest of the company in accordance with statutes and the articles of incorporation.” The proposed amendments suggest changes to the phrase “interest of the company” to include general shareholders, with variations across the different bills: “interest of the company and shareholders” (from the bill proposed by Hoon Sik KANG), “interest of the company and all shareholders” (from the bill proposed by Ju Min PARK), and “proportional interest of shareholders and the interest of the company” (from the bill proposed by Jun Ho JEONG).
In response, the government and the ruling party introduced an amendment bill to the Financial Investment Services and Capital Markets Act. They argued that their bill minimizes business management uncertainties by limiting the scope to approximately 2,400 listed companies and focusing only on major transactions such as mergers, transfers of major businesses and assets, comprehensive exchanges or transfers of stocks, spin-offs, and post-spin-off mergers.
Meanwhile, lawmakers Nam Geun KIM (Democratic Party), Chang Sik SHIN (Rebuilding Korea Party), and Chang Min HAN (Social Democratic Party) jointly proposed an amendment to the Financial Investment Services and Capital Markets Act on December 25. This bill includes mandatory provisions on matters such as takeovers, paid-in capital increases, and executive compensation determination.
The mandatory provisions within the bill address regulations governing dominant shareholders, not only in major capital transactions (such as corporate M&A, spin-offs, and post-spin-off mergers, as well as business and asset transfers) but also in situations such as delisting, paid-in capital increases, and the issuance of convertible bonds.
Moreover, the bill also includes provisions regarding directors’ fiduciary duties to shareholders. However, if these duties are prescribed under the Financial Investment Services and Capital Markets Act rather than the Capital Act, they will apply only to listed companies.
Most analyses predict that it will be difficult for both parties to find common ground due to their significant differences in opinions. However, there is broad consensus among economic circles and investors on the amendment to the Financial Investment Services and Capital Markets Act regarding mergers and spin-offs. As a result, there is considerable public attention on whether the National Assembly will be able to reach a dramatic agreement.
As the first-ever Korean law firm to issue specialized legislative journals, DR & AJU LLC has been publishing the monthly Policy & Business Report since August 2019. The December 2024 issue of the P&B Report conducted a full inspection of legislation proposed to the National Assembly Subcommittee, Standing Committee, and Plenary Session from the opening of the 22nd National Assembly on October 15, 2024, to December 14, 2024, and selected and analyzed legislation with significant impact on corporate activities. In the case of major legislation, key mentions of legislators, members of the Standing Committee, and government officials are included.
*DR & AJU Legislation & Government Relations Consulting Center provides P&B Report subscription service. Please contact us at Ic@draju.com for further inquiries.
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