The “Business Combination Review Guidelines” have been amended to allow business combinations involving real estate acquisitions for simple investment purposes to be subject to a simplified review process. Additionally, the “Guidelines for Filing Business Combination Reports” have also been amended to allow the filing of a simplified business combination report for establishments of project financing vehicles (“PFVs”) formed pursuant to the Special Tax Treatment Control Law (the “STTCL”). Both amendments have been implemented as of December 30, 2022.
In the past, business combinations, even those involving an acquisition of real estate for simple investment purposes with minimal anti-competitive concerns, were lengthy and time-consuming simply because such simple investment transactions were also subject to general filing reports that triggered an in-depth review of the anti-competitiveness of the transactions. However, the Business Combination Review Guidelines and the Guidelines for Filing Business Combination Reports have now been amended to incorporate the following: (i) an acquisition of real estate is now subject to a simplified review process if said acquisition is made for simple investment purposes which are unlikely to restrict competition in the real estate market, and (ii) the formation of a PFV pursuant to Article 104-31 of the STTCL that has a clear legal basis and is expected to be liquidated upon the closing of the business in question, is also subject to a simplified review.
The types of real estate investments subject to a simplified review under the amended Business Combination Review Guidelines and Guidelines for Filing Business Combination Reports are as follows:
Acquisition of Real Estate for Simple Investment Purposes
In case of a business combination subject to simplified review, the Korea Fair Trade Commission typically only reviews the accuracy of the submitted business combination report and will make a decision regarding the acceptance of the transaction within 15 days of receiving the report (Section III of the Business Combination Review Guidelines).
A simplified review was previously conducted only in cases where real estate was acquired by a real estate investment company (“REIT”) under the Real Estate Investment Company Act. However, the amended Business Combination Review Guidelines have expanded the scope of cases subject to simplified review to encompass those where real estate is acquired for simple investment purposes by a party that is a not a REIT (Section III.4.(4) of the Business Combination Review Guidelines). As a result, it is now possible for parties that are not REITs to also acquire real estate on a more expedited basis in cases where the acquisition is being made for simple investment purposes.
Establishment of PFVs
If a business combination is subject to a simplified report, only the supplementary materials specified in Annex 6 of the Guidelines for Filing Business Combination Reports are required to be attached to the report. Unlike the case of general reports, in a simplified report the analysis of the relevant market or potential anti-competitive effects of the business combination is excluded from the scope of the report (Section II.3 of the Guidelines for Filing Business Combination Reports).
Previously, the establishment of a PFV was also subject to a general report and therefore required an analysis of the relevant market or potential anti-competitive effects. However, the amended Guidelines for Filing Business Combination Reports have broadened the scope of business combinations subject to a simplified report to include the formation of a PFV established in accordance with the requirements outlined in the STTCL (Section II.2.G of the Guidelines for Filing Business Combination Reports). Consequently, companies and investors participating in the establishment of PFVs are no longer obligated to include an analysis of the relevant market or anti-competitive effects in their business combination reports, which has the effect of reducing the reporting burden on the companies and investors involved.
Before the amendments were introduced, even the acquisition of real estate for simple investment purposes and the establishment of PFVs were challenging for several reasons, including project schedule delays, increased costs and resources required due to stringent general filing requirements and extensive review processes that required a comprehensive analysis of potential anti-competitive effects.
The amendments discussed above hold significance as they alleviate the burden placed on companies and investors in connection with real estate acquisition and development transactions as well as the formation of a PFV (which are now subject to a simplified report) by shortening the filing process and reducing the time required to file the business combination reports.