On March 20, 2020, certain proposed amendments to the Enforcement Decree to the Financial Investment Services and Capital Markets Act (the “Capital Markets Act”) were promulgated into the law (the “Amendments”) which added certain additional requirements concerning the replacement of asset managers and trustees to be stipulated into the trust agreements and articles of incorporation in the context of real estate funds.   

Under the Amendments, any newly executed or amended trust agreements (for trust-type real estate funds) or articles of incorporation (for company-type real estate funds) must explicitly stipulate in relation to the replacement of the asset managers and trustees such details as the terminable cause (even if for no-cause), procedures for termination/replacement, and preservation of loss of profit for the asset managers and trustees (even if no compensation is provided). 

Under the previous Capital Markets Act, there has been no specific requirement concerning the termination of asset managers and trustees other than to have a provision on termination itself.  However, the lack of specific guidance led to some confusion in the industry when it came to terminating and replacing the asset managers and trustees of a fund.  With respect thereto, notably, a recent lower court decision has upheld no cause termination of an asset manager where the fund documents were silent on the grounds of termination.  

The Amendments introduced the requirements to explicitly stipulate into the fund documents the specific details concerning the termination of an asset manager and a trustee, for example no cause termination or any specific causes for termination and any break-up fee payable, if any.  In practice, we may likely see comments by the Financial Supervisory Service during their review of the fund documents submitted for the registration of the funds whether or not the terms on the replacement are clearly stipulated to avoid confusion and dispute in the future.   

The Amendments took effect from April 1, 2020, and the Amendments will apply immediately to (i) any trust agreement newly executed or amended or (ii) articles of incorporation newly promulgated or amended after the effective date.