In early 2023, there has been a series of announcements on major regulatory changes to corporate restructuring transactions such as investment in listed companies, disclosure of listed companies, shareholder returns, including dividends, operation of shareholder meetings, and mergers/demergers. On January 25, 2023, the Financial Services Commission (the “FSC”) announced its plan to improve the current system for foreigners’ investment in listed securities, and on January 26, 2023, the Ministry of Justice (the “MOJ”) proposed an amendment to the Korean Commercial Code (the “KCC”) that would introduce a system for virtual shareholders meetings. Moreover, on January 31, 2023, the FSC and the MOJ announced measures to improve the dividend distribution process, to be more in line with global standards.
The systemic reinforcements above are intended to improve Korea’s corporate laws and corporate governance regulations, resolve the “Korea discount” issue, and thereby better align the country’s capital market regulatory systems with global standards.
1. System Improvements for Foreigner Investments in Listed Securities
On its press release, which was presented on January 25, 2023, the FSC outlined key details of its plans for system improvements related to foreign investments as follows:
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Abolish the investment registration system required for foreign investors to invest in shares of listed companies.
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Relax restrictions on over-the-counter trading of shares of listed companies by foreigners.
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Abolish the duty to report investment details for the use of foreign omnibus accounts.
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Implement a phased expansion of public disclosures in English by listed companies.
2. Introduction of Virtual Shareholder Meeting System
On January 26, 2023, the MOJ announced “Five Key Policy Initiatives for 2023,” in its “2023 Work Report to the Government,” and proposed “constructing a legal infrastructure in order to ensure future prosperity” as one of the five initiatives. As part of this effort, the MOJ announced the following amendments to the KCC to improve the business environment and further strengthen shareholder protection.
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Introduce a virtual shareholder meeting system (i.e., digitalization of convocation notices, shareholder voting process and the meeting as a whole).
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Strengthen shareholder protection in corporate restructuring processes (e.g., expansion of dissenting shareholders’ appraisal rights).
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Ease regulations for small-sized companies to promote the establishment and operation of start-ups.
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Improve dividend-related procedures and methods to promote in-kind and stock dividends.
3. Measures to Improve Dividend-related Procedures in Line with Global Standards
On January 31, 2023, the FSC and the MOJ issued a press release that detailed the following measures to improve the dividend-related processes to be more aligned with global standards:
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(Regarding regular dividends paid by stock companies) Published an official ruling on Article 354 of the KCC, stating that the record date for dividends may be set after the date of the relevant shareholder meeting, so that the shareholders entitled to receive dividends are determined in accordance with the resolution re dividends at the general meeting of shareholders.
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(Regarding quarterly dividends of listed companies) Announced a plan for amending the Financial Investment Services and Capital Markets Act, to allow the quarterly dividend record date to be set after the quarterly dividend amount is fixed first, even in cases of quarterly dividend procedures of listed companies.
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(Regarding improvement of listed companies’ practices) In order to help listed companies actively participate in the improvement to the dividend-related processes mentioned above, the authorities will actively strive to improve relevant practices by, among others, (i) preparing draft amendments to the standard articles of incorporation of listed companies that reflect the improvement measures (scheduled for February 2023), (ii) disclosing the improvements of the dividend-related processes in the corporate governance reports of listed companies (from 2024 onwards), and (iii) publishing an online announcement on the integration of the dividend base date of listed companies (scheduled for January 2024).
The systemic improvements related to foreigner investments, changes to dividend-related procedures, and introduction of the virtual shareholders meeting system, are expected to have a significant impact in the future. Therefore, relevant parties may benefit from keeping up to date with the related legislative developments. Similarly, we anticipate meaningful impacts in response to changes related to foreign investors’ investments in listed companies, English-language disclosures by listed companies, shareholder returns such as dividends, operations of shareholders meetings, and corporate restructuring.
