On January 26, 2023, the Ministry of Justice (“MOJ”) presented its annual work plan for 2023 and announced “Five Key Policy Initiatives for 2023.” The key policy initiatives proposed by MOJ are: (i) creating a country that is safe from crimes, (ii) revising immigration and entry policies, (iii) firmly dealing with unlawful acts to establish a strong legal order, (iv) constructing a legal infrastructure so as to ensure future prosperity, and (v) securing human rights protection in every corner of society.
As part of its initiative to construct a legal infrastructure that can ensure future prosperity, MOJ stated that it would seek amendments of the Korean Civil Code and the Korean Commercial Code (“KCC”) and announced the following amendments of the KCC that are aimed to improve the corporate environment and reinforce shareholder protection:
-
Introducing a virtual shareholder meeting system (digitalization of meeting convocation notices, shareholder voting and the meeting as a whole) [First half of 2023]
-
Strengthening shareholder protection in corporate restructuring processes (e.g., recognition of appraisal rights) [First half of 2023]
-
Easing regulations for small-sized companies to promote establishment and operation of start-ups1 [Second half of 2023]
-
Improving dividend-related procedures and methods to promote in-kind and stock dividends2 [Second half of 2023]
To this end, MOJ launched in December 2022 the Special Committee on the KCC (the “Committee"), an advisory body for the enactment, amendment and research of the KCC, appointing Shim Young, a professor at Yonsei Law School, as the chairman and ten experts with extensive knowledge and experience in corporate law as committee members.
At the appointment ceremony for the Committee, the Minister of Justice stressed that the civil and commercial legal system forms the core of a free market economy’s legal order, expressing his hope that the Committee will engage in active discussions and come up with tangible proposals especially for long-standing challenges such as (i) shareholder protection measures in connection with vertical spin-offs and (ii) introduction of a virtual shareholder meeting system.
In addition to the corporate governance reform initiatives impacting listed companies, such as mandatory tender offer rule in the process of listed companies’ M&A transactions (Link), mandatory prior disclosure for large-scale stock transactions of insiders (Link), and introduction of appraisal rights in connection with vertical spin-offs (Link) that have been announced by the Financial Services Commission and detailed in our prior newsletters, the introduction of virtual shareholder meetings, expansion of appraisal rights in connection with corporate restructurings, and improvement of dividend-related systems—in each case through the amendment of the KCC in relation to general companies—are expected to bring about significant changes for corporate restructurings (e.g., mergers and spin-offs) and operation of general shareholder meetings, which would require your close attention.
1 e.g., relaxing restrictions on the directors’ term of office (which is currently limited to three years) and improving the sanctions system for minor violations of registration requirements (e.g., change of the representative director’s residential address), both aimed to enhance the operational flexibility of small-sized companies.
2 It will be possible for investors to make an investment decision after checking the actual amount of dividends to be paid (the method of “first passing dividend payment resolutions and then setting a record date for dividend payout (based on which shareholders eligible for dividends will be determined)” also to be permitted in accordance with an authoritative ruling from November 2022).
