Kim & Chang represented a holding company of a Korean conglomerate (the “Plaintiff”) and its related party (collectively, the “Plaintiffs”) in the Seoul High Court’s administrative lawsuit on the Plaintiff’s alleged provision of unfair benefits to the related party. The Seoul High Court ruled in favor of the Plaintiffs by revoking the disposition imposed by the Korea Fair Trade Commission (the “KFTC”) in its entirety.
As this was the first case to dispute whether the acquisition of shares by a related party constitutes a “provision of business opportunities,” which is an act of providing inappropriate benefits, it is expected to hold great value as a precedent.
In 2017, when the Plaintiff acquired a semiconductor material company (the “Target”), the related party acquired 29.4% of the Target’s shares, instead of the Plaintiff fully acquiring them. In this regard, the KFTC investigated whether the Plaintiff provided the related party with an opportunity to acquire the remaining shares.
From the investigation stage, we actively presented the relevant facts and legal principles to the KFTC on behalf of the Plaintiffs. As a result, the KFTC decided to issue only a corrective order and an administrative fine without a criminal referral, given that the degree of illegality was insignificant and there was insufficient evidence to support that the related party gave instructions or was intentionally involved.
In response, we filed an administrative lawsuit seeking the revocation of the KFTC’s disposition. We focused on explaining that the related party cannot be deemed to have been provided with business opportunities under the Monopoly Regulation and Fair Trade Act (the “MRFTA”) for purchasing shares not acquired by the Plaintiff through an open competitive bid organized by a third party.
Specifically, we substantiated that (i) as the Plaintiff already acquired 70.6% of the shares, which exceeds the requirement for a special resolution of the general meeting of shareholders, the opportunity to acquire additional minority shares cannot constitute a business opportunity under the MRFTA; (ii) if a company assesses, in a corporate merger and acquisition context involving substantial risks, that an acquisition would bring more losses than potential benefits based on a reasonable business judgment, it is difficult to assume that such business opportunity is substantially profitable; (iii) the act of selling shares through an open competitive bid organized by a third party cannot constitute an act of providing business opportunities; (iv) the Plaintiff decided not to acquire the remaining shares of the Target based on a reasonable business judgment; and (v) it was not shown that the related party gave any instructions or was involved intentionally.
As a result, the Seoul High Court accepted the Plaintiffs’ arguments and revoked the KFTC’s corrective order and administrative fine in its entirety. In particular, the Seoul High Court once again made it clear that the MRFTA provision on business opportunities should be interpreted and applied based on strict standards and should not be interpreted excessively or by analogy to the detriment of the party subject to the administrative disposition, as it serves as the legal basis for imposing an intrusive administrative disposition. Based on the acknowledged facts, the Seoul High Court ruled that it is difficult to deem that the Plaintiff provided business opportunities to the related party.
This is the first case that disputed whether the acquisition of shares by a related party constitutes the provision of business opportunities, which is one of the acts of providing inappropriate benefits to a related party under the MRFTA. This ruling will hold significant value as a precedent in future lawsuits concerning the provision of business opportunities.
The act of providing business opportunities was introduced as one of the acts of providing inappropriate benefits to a related party under the former MRFTA enforced in 2014. Since then, there has not been any precedent on whether the acquisition of shares by a related party from a third party constitutes the provision of business opportunities. Nonetheless, we conducted extensive analysis on the legislative purpose of the provision on inappropriate benefits to a related party under the MRFTA and precedents in and outside Korea on a director’s misappropriation of corporate opportunities under the commercial laws. Based on the foregoing, we actively presented various grounds, including facts, legal principles and business combination practices, thereby establishing a new standard for interpretation on the provision of business opportunities through the Seoul High Court’s ruling. The Seoul High Court’s grounds for judgment and interpretation in this case are likely to serve as a key precedent going forward with regard to the provision of inappropriate benefits to a related party, including the provision of business opportunities.
