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Recent Legislative and Judicial Developments in Korean Corporate Governance

2025.09.16

As previously communicated, a series of legislative amendments have been enacted or are underway to improve corporate governance and shareholder rights. The first amendment to the Korean Commercial Code (the “KCC”), expanding the fiduciary duties of directors to include protection of shareholders’ interests (Link), and the second amendment to the KCC, which mandates cumulative voting and expands the separate election of audit committee members of large listed companies (Link), were promulgated and have become effective. The government is also currently pursuing a third amendment to the KCC, which includes obligations such as the mandatory cancellation of treasury shares.

Furthermore, last month the government announced its corporate governance plan and capital market reform policies through the National Policy Planning Committee’s governance plan and the Ministry of Economy and Finance’s strategy for growth (Link). These included publishing guidelines for the amendments to the KCC, the rationalizing of regulations regarding merger valuation methods in mergers and spin-offs, and other measures to improve corporate governance and capital markets.

At a press conference marking the 100th day of the President’s inauguration on September 11, 2025, the government reaffirmed its commitment to advance corporate governance policies, such as through further amendments to the KCC, by outlining the following:
 

(1)

Eradication of unfair trading practices in the capital market to strengthen the rights and interests of general shareholders;
 

(2)

Continued implementation of “value-up” policies, such as by increasing dividends of listed companies;
 

(3)

Emphasis on increasing domestic investments by the National Pension Service and other domestic pension funds to invigorate the stock market and enhance stock value; and
 

(4)

Further discussions to be held at the National Assembly on whether to maintain the current threshold of KRW 5 billion for classifying major shareholders subject to capital gains tax on the trading of listed stocks (based on the value of stock holdings).
 

In particular, following the aforementioned press conference, the government announced on September 15, 2025 that it will maintain the threshold of stock holdings for determining major shareholders subject to capital gains tax on trading listed shares, at KRW 5 billion or more per stock. This decision was reported as having the potential to significantly impact the stock market (Link).

With the ongoing measures to invigorate the stock market and enhance corporate governance, the proportion of shares held by pension funds such as the National Pension Service is expected to increase, along with further investment by minority shareholders. Therefore, listed companies should pay close attention to developments with respect to investor relations and shareholder communications, as well as the operation of their boards of directors and general meetings of shareholders.

Additionally, a recent lower court decision on a preliminary injunction regarding the issuance of exchangeable bonds (“EBs”) backed by treasury shares addressed several key issues, including directors’ fiduciary duty under the amended KCC to protect shareholder interests. This ruling should also be considered in conjunction with the government’s ongoing policy trends.

After the board of directors of a listed company resolved to issue EBs exchangeable for approximately 25% of its treasury shares, minority shareholders filed two applications for preliminary injunctions with the court. They claimed that the issuance of the bonds was intended to strengthen the controlling shareholders’ position during an ongoing management rights dispute, and argued that this constituted a breach of the directors’ duty of loyalty, which requires them to treat the interests of all shareholders equally. The minority shareholders sought to prohibit both the directors’ alleged unlawful conduct and the issuance of the EBs, but the court dismissed both applications, holding that a director’s fiduciary duty to protect shareholders’ interests is evaluated based on the collective interests of all shareholders, not on satisfying the preferences of individual shareholders. The court further recognized that decisions on the method and scale of fundraising fall within the scope of the board’s business judgment and shall be respected as long as they comply with relevant laws and the company’s articles of incorporation. Specifically, the court found that there were no grounds to deem the exchange price for the treasury shares (which was set at a 10% premium to the reference share price) inappropriate and it is difficult to conclusively determine that the company was in a management rights dispute, and the court acknowledged that the company had provided concrete explanations for the intended use and plan for the funds to be raised through the bond issuance.

The above court decision has garnered significant attention from the market, as it addresses the definition of directors’ fiduciary duties to protect shareholders’ interests following the recent amendment to the KCC. It is also relevant to the proposed third amendment to the KCC, which would mandate the cancellation of treasury shares. Accordingly, the decision is expected to serve as an important precedent for assessing directors’ compliance with their duties in future board and shareholder resolutions, as well as in transactions involving the disposal of treasury shares and other matters related to corporate financial structures.

 

[Korean Version]

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