The Government and supervisory authorities have been updating and establishing various frameworks to facilitate stakeholders’ (including minority shareholders’): (i) exercise of voting rights and presentation of opinions, and (ii) acquisition of meaningful information of companies through disclosed materials to enable reasonable decision-making in various corporate law-based transactions and corporate activities in relation to governance restructuring.

In light of the recent increase in the number of corporations carrying out mergers, spin-offs, business transfers, etc. for the purpose of governance restructuring, the Government and supervisory authorities have been making improvements to relevant regulations to promote the rights and interests of stakeholders, including minority shareholders, and prevent infringement thereon.
 

On August 24, 2023, the Ministry of Justice issued a pre-announcement of legislation for a partial amendment to the Korean Commercial Code (the “KCC”), including the introduction of the electronic general meeting of shareholders system (the “Proposed Amendment”). According to the Proposed Amendment, as long as a company’s Articles of Incorporation specify as such, a company may hold the general meeting of shareholders in the following two ways: (i) under the “parallel electronic general meeting of shareholders” scheme, where each of the shareholders may choose to attend a meeting personally or through electronic means, and (ii) under the “complete electronic general meeting of shareholders” scheme, where all shareholders are required to attend a meeting through electronic means. The Proposed Amendment also provides details regarding the operation of the electronic general meeting of shareholders, together with the exercise of voting rights in relation to the general meeting of shareholders.
 

The Proposed Amendment provides that in the event that the total assets being transferred pursuant to a vertical spin-off or a merger through vertical spin-off amount to more than 10% of the total assets prior to the relevant spin-off or merger through vertical spin-off, the dissenting shareholders are to be granted appraisal rights. While the recent amendment to the Enforcement Decree of the Financial Investment Services and Capital Markets Act (the “FSCMA”) grants appraisal rights to dissenting shareholders in the case of a listed company’s vertical spin-off transaction (Article 176-7 (1) 2 of the FSCMA), the Proposed Amendment expands the scope of applicable cases to include vertical spin-off transactions exceeding a certain size carried out by non-listed companies.

The Proposed Amendment also improves and makes adjustments to the appraisal rights framework under the KCC. Such improvement measures include: (i) deeming dissenting shareholders as creditors in the event that the company fully pays the purchase price it calculated to such dissenting shareholders by the effective date of a transaction in the case of a merger, spin-off and merger, comprehensive share exchange/transfer, or material business transfer, and (ii) allowing for a deposit of an amount at least equal to the purchase price notified to the relevant shareholders in relation to appraisal rights in the case of a dispute over the purchase price.
 

On October 26, 2023, the Financial Supervisory Service and the Korea Financial Investment Association announced the Guidelines on Asset Management Firms’ Exercise of Voting Rights (the “Amended Guidelines”), which immediately became effective upon the announcement. The key matters set forth by the Amended Guidelines include: (i) the provision of model standards for internal controls through the introduction of general principles for the exercise of voting rights and establishment of frameworks for policy and decision-making, (ii) the realignment of classification schemes according to the sequence of agenda items as set forth in the notice on the general meeting of shareholders, (iii) the clarification and re-classification of relevant laws and regulations, principle criteria for judgment, specific factors to take into consideration, and precedents, and (iv) the supplementation of the latest precedents by referring to domestic and overseas proxy advisory firms’ voting rights guidelines.

From the perspective of governance restructuring, the Amended Guidelines recommend that votes be cast on each agenda item pursuant to the following criteria. In particular, the Amended Guidelines newly set forth certain details regarding business transfers.
 

• Corporate restructuring accompanied by potential risk or liability: A dissenting vote recommended with respect to a proposal to carry out M&A and restructuring transactions that involve potential financial, social, or environmental risks or liabilities. A dissenting vote recommended with respect to a proposal to carry out HR restructuring to achieve a short-term boosting of stock price instead of long-term improvement in competitiveness.

• Acquisition transactions: An approving vote to be cast with respect to the M&A transaction itself, or capital increase or new stock issuance therefor, in the event that the transaction can generate increased shareholder value in the long term, taking into account the prospects of the company to be combined, financial and commercial benefits, appropriateness of the merger price, market reactions, adequacy of negotiation procedures, effects on the corporate structure and management rights, changes in the capital structure, and conflicts of interests.

• Spin-off: An approving vote to be cast with respect to spin-offs in the event that the transaction can generate increased shareholder value in the long term, taking into account the structure of the spin-off transaction, valuation, fairness, conflicts of interests, incentives for management, changes in corporate governance structure, and changes in capital structure.

• Business transfer: A dissenting vote to be cast in the event that the transaction may harm shareholder value.

• Establishment of holding company: An approving vote to be cast with respect to the establishment of the holding company in the event that the establishment can generate increased shareholder value in the long term, taking into account the purpose of the establishment, effects on the corporate governance structure and management rights, changes in the capital structure and financial status, effects on corporate value, etc.
   

On October 12, 2023, the Financial Services Commission and the Korea Exchange amended the Guidelines on Corporate Governance Report. In particular, the amended Guidelines on Corporate Governance Report require the disclosure of: (i) communications between the management and minority shareholders and overseas investors, status of channels for communication with overseas shareholders, and the ratio of notices provided in English, and (ii) the status of capital procurement means, which may result in a conflict of interest among shareholders (including bonds convertible into ordinary shares such as convertible bonds, bonds with warrants and exchangeable bonds), and whether minority shareholders’ interests were considered in the board meetings where decisions on capital procurement were made. Through this amendment, the Guidelines on Corporate Governance Report expanded the scope of disclosure of matters related to the protection of minority shareholders’ interests.

Since 2024, as any listed company with an asset size of KRW 500 billion or more would be subject to mandatory reporting requirements related to corporate governance reports, the newly amended Guidelines on Corporate Governance Report would be applicable with respect to corporate governance reports submitted from 2024 onwards.
 

Considering the Ministry of Justice’s recent announcement that it plans to pass the Proposed Amendment at the plenary session of the National Assembly this year in order to have the Proposed Amendment come into effect in 2024, we expect that: (i) the electronic general meeting of shareholders system will be implemented, and (ii) the appraisal rights system will be expanded and improved in the near future, resulting in increased activity by minority shareholders as it relates to the general meeting of shareholders, and greater influence by minority shareholders in corporate restructuring transactions. In addition, as the amendment of the Corporate Governance Report will expand the scope and quantity of information that minority shareholders can obtain, the amendment is also likely to contribute to strengthening minority shareholders’ ability to influence relevant transactions.

As such, we advise for companies considering or planning to carry out governance restructuring transactions to more carefully review and identify the possibility of minority shareholders’ exercising their voting rights, and their tendency.

[Korean Version]