As mentioned in one of our previous newsletters, prior to being elected, President Lee Jae-myung made a campaign pledge to pursue “economic growth and capital market innovation (to usher in the KOSPI 5,000 era).” In line with this commitment, efforts to improve corporate governance regulations and to amend the Korean Commercial Code (the “KCC”) and the Financial Investment Services and Capital Markets Act (the “FSCMA”) are being accelerated, drawing attention from market participants (Link).
In addition to the proposed amendments to the KCC we summarized in a separate newsletter, which would impose on directors a duty to protect all shareholders’ interests and mandate that general meetings of shareholders be held virtually (Link), amendments to the FSCMA are also under active review to ensure fairness in restructuring transactions of listed companies, such as mergers, spin-offs, spin-off mergers, and comprehensive share swaps. As the main purpose of the proposed amendments to the KCC is also to address harm to shareholders’ interests in restructuring transactions, such as mergers of listed companies, it is important to pay attention to the relationship between these two sets of amendments.
On June 16, 2025, National Assembly Member Lee Kang-il of the Democratic Party proposed a partial amendment to the FSCMA, which establishes the principle that fair valuation in mergers and acquisitions of listed companies should take a comprehensive approach, taking into consideration factors such as stock price, asset-based value, and earnings-based value, and set the net asset value as the minimum price in such transactions. Under the current law, when a listed company merges with an affiliated listed company, transaction terms such as the merger ratio are primarily determined based on the stock price. However, under the proposed amendment, regulations for fair valuation would be introduced, explicitly prohibiting transactions at prices lower than the asset-based value or the earnings-based value. This amendment aims to establish an institutional mechanism to protect investors’ rights and interests and to restore trust in the capital market.
Furthermore, on July 18, 2024, National Assembly Member Kim Hyun-jeong, also of the Democratic Party, proposed a partial amendment to the FSCMA. This amendment not only requires consideration of both the asset-based value and the earnings-based value when determining the merger price of a listed company, but also imposes liability on the listed company, its directors, and its auditors in the event that the merger price is unfair and investors incur losses. This is consistent with the legal principles regarding directors’ duty to protect all shareholders’ interests and liability for violations set out in the proposed amendment to the KCC.
A more comprehensive amendment to the FSCMA may be introduced and pursued following further review and revision by the Democratic Party and the government.
Accordingly, companies considering restructuring, such as mergers and acquisitions involving listed companies, are advised to pay close attention to these potential changes and to closely monitor related legislative developments.
Related Topics
