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  The Cabinet Council Resolves to Amend the Korean Commercial Code to Reinforce Regulations on Corporate Governance The proposed amendment to the Korean Commercial Code (the "Proposed Amendment") to reinforce regulations on corporate governance announced by the Ministry of Justice (the "MOJ") on June 11, 2020 was resolved by the Cabinet Council on August 25, 2020, following the announcement of the proposed amendment and the review by the Ministry of Government Legislation (the "MOGL"). As addressed in our last newsletter issued back in June 2020, the Proposed Amendment focuses mainly on strengthening minority shareholder rights and expanding the scope of measures to check and balance the largest shareholder's exercise of management control, including a multi-level derivative suit and separate election of a director who is an audit committee member. No amendments have been made to the main text of the Korean Commercial Code after the announcement of the Proposed Amendment, while Addenda have been added. The Addenda stipulate that (i) the Proposed Amendment shall enter into force from the date of promulgation; (ii) the provision on the separate election of a director who is an audit committee member shall be applied starting from when a new audit committee member is elected after the Proposed Amendment enters into force; (iii) the 3% cap rule of restricting the exercise of voting rights to dismiss an auditor or an audit committee member shall also apply to the dismissal of an auditor or an audit committee member who was elected under the previous provision and is currently in office at the time after the enforcement of the Proposed Amendment. The Proposed Amendment resolved by the Cabinet Council is to be signed by the President and countersigned by the Prime Minister and the competent members of the Cabinet Council, after which is to be submitted to the National Assembly. Legislation procedures after the submission of the Proposed Amendment to the National Assembly include the examination and resolution by the Legislation and Judiciary Committee, a competent standing committee, the presentation of the Proposed Amendment to the plenary session for resolution, and the promulgation of the Proposed Amendment by the Government. It is necessary to pay attention to progresses going forward such as the proceeding of legislation procedures for the Proposed Amendment and whether any changes will be made to the Proposed Amendment during the review process by the National Assembly.

  2020.08.28
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  Amendments to the Industrial Complex Management Guidelines Designate Special Zones In an effort to vitalize the use of industrial complex, the Enforcement Decree of the Industrial Cluster Development and Factory Establishment Act (the “Enforcement Decree”) was promulgated on May 12, 2020 and took effect immediately. Notably, the Enforcement Decree lifted the entry barrier to a number of businesses which hitherto were not permitted in an industrial complex. On August 13, 2020, the Industrial Complex Management Guidelines (the “Guidelines”) were amended to detail the conditions on which special zones can be designated and managed. Special zones will be open to all businesses permitted into industrial facilities areas under the Enforcement Decree (Notification 2020-129 issued by the Ministry of Trade, Industry and Energy (the “MOTIE”)). Expanded Scope of Businesses Permitted in an Industrial Complex The Enforcement Decree expanded the scope of businesses that may enter an industrial complex as follows: Special Zones in Industrial Facilities Areas: Before the Enforcement Decree was promulgated, only those few named businesses were allowed within an industrial complex at the exclusion of all others. The Enforcement Decree overturned the restriction by opening the door to all businesses in principle, except for the few excluded ones (e.g., businesses engaged in speculative practices and housing business). The Guidelines designated special zones in industrial facilities areas (“Special Zones”) where all such permitted businesses will be allowed. Areas Other Than Special Zones Within an Industrial Complex: Even in areas other than Special Zones, businesses may enter if designated by a MOTIE public notification if necessary to develop or promote new businesses or the fusion of businesses. Designation and Management of Special Zones The amended Guidelines were intended to provide specific directions in terms of managing Special Zones within industrial facilities areas. Every year from March 1 to March 31 starting next year (as currently expected), a designation application for a Special Zone can be submitted to an industrial complex management authority, following which the industrial complex management authority will review the application and decide whether to allow the designation. The industrial complex management authority, however, reserves the right to designate Special Zones without such application or review if it deems the designation is necessary to further the purposes of the industrial complex, vitalize local economy, promote the entry of new businesses or fusion of businesses within the complex, or otherwise benefit the national economy. Special Zones are designated by either establishing new industrial complex management plans or modifying existing ones, subject to the following requirements. The total areas of Special Zones may not exceed 30% of industrial facilities areas set out in the industrial complex management plan. Special Zones must make up at least 10% of the industrial facilities areas or be at least 50,000m2, unless situated within a national industrial complex, in which case it must make up at least 5% of the industrial facilities areas or be at least 300,000m2. All land making up the minimum areas of Special Zones set out in number 2 of this list must be adjacent to each other (including where separated by a road or a canal). All owners of industrial land to be designated as the Special Zones must consent to the designation. Now that more businesses will be permitted into Special Zones under the Enforcement Decree and the amended Guidelines, we expect an increase in the use of industrial complexes in Korea as well as a synergy created by the diversification of businesses. [Korean version]

  2020.08.25
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  Vietnam Legal Update – New Law on Investment 2020 The new Law on Investment No. 61/2020/QH14 was passed by the National Assembly of Vietnam on June 17, 2020 and will come into effect from January 1, 2021 (“LOI 2020”). Through this reform, the National Assembly of Vietnam aims to (i) promote the consistency between the investment laws and other laws, (ii) better attract and manage the foreign investment into Vietnam and at the same time (iii) maintain the national defense and security. We summarize below the major changes of the LOI 2020. 1. Market Access Conditions for Foreign Investors A foreign investor when making investment into Vietnam must satisfy two sets of conditions: (i) the market access conditions and (ii) the sectoral regulatory conditions if applicable. However, since there is no consolidated list for such conditions, it has been challenging to determine applicable market access conditions for any specific sectors. In order to address this issue, the LOI 2020 introduces a new approach to the market access conditions for foreign investors to enter the Vietnamese market. Under the LOI 2020, all sectors with market access restrictions on foreign investors will be consolidated into an official list to be issued by the Government (“List of Restricted Sectors”). The List of Restricted Sectors will be classified into two groups: (i) a group of sectors which are not opened to foreign investors and (ii) another group of sectors in which the market access of foreign investors are subject to conditions. Foreign investors who wish to invest in sectors falling outside of this List of Restricted Sectors will be treated in the same way as the Vietnamese investors are. 2. New Conditions Relating to National Defense and Security In addition to the market access conditions, LOI 2020 supplements two additional conditions for a foreign investor who wishes to contribute capital or acquire capital/share in a Vietnamese company: The investment must not compromise national defense and security of Vietnam; and The investment must comply with the conditions relating to the use of sea-lands, borderlands and coastal lands in accordance with the applicable laws. The term “national defense and security” is not defined under the LOI 2020 which will give the licensing authorities broad discretion in assessing and approving foreign investment activities in sensitive sectors or locations. For existing investment projects, the extension of the investment term will not be granted to any project using outdated technology, having any potential negative impact on the environment (e.g., pollution) or involving any overuse of resources. 3. Nominee Arrangement Nominee arrangements have been discussed as a major loophole of the investment management regime through which foreign investors can invest in the restricted sectors via their Vietnamese nominees. The LOI 2020 (Article 48.2(e)) addresses this issue by allowing the authorities to terminate an investment project partly or wholly if the investor conducts its investment activities on the basis of a “sham” transaction (i.e., using the Vietnamese nominee to circumvent the restrictions on foreign investors). According to the Civil Code, a “sham” transaction is a transaction established by the parties in order to conceal another (i.e., real) transaction. Although such a transaction will be invalidated under the Civil Code, the LOI 2020 has made it clear that it can be a legal ground for the investment authorities to terminate an investment project. 4. New Foreign Ownership Threshold Under the current Law on Investment 2014, a foreign-invested company (“FIC”) will be subject to the same investment conditions and procedures applicable to a foreign investor if having 51% or more of such FIC’s charter capital is held by (i) a foreign investor, (ii) an FIC with at least 51% owned by a foreign investor or (iii) a foreign investor and the aforementioned FIC together. This 51% threshold has been changed to “more than 50%” to be aligned with the current Law on Enterprises. There is no clear guidance under the LOI 2020 as to whether a FIC, established and operating under the current Law on Investment, having less than 51% foreign ownership but more than 50% foreign ownership (e.g., 50.2%) will be subject to investment conditions applicable to a foreign investor or a local investor in its future investments in sectors that are market access conditional to a foreign investor. 5. Merger and Acquisition Approval (“M&A Approval”) The LOI 2020 further clarifies cases where the M&A Approval is required for the foreign investors in their investment into a Vietnamese company. The ambiguity of the existing regulations has led to inconsistent interpretations and practices at the provincial level authorities. The LOI 2020 requires a foreign investor to obtain an M&A Approval when the proposed transaction leads to: an increase in foreign ownership in an economic organization engaging in a business belonging to the List of Restricted Sector (i.e., sectors with market access conditions applicable to the foreign investor); an increase in foreign ownership in an economic organization from below 50% to more than 50% of the charter capital; an increase in foreign ownership in an economic organization where foreign ownership capital already exceeds 50% of charter capital; or M&A activities in an economic organization that has the land use right certificate for the land located in sea-islands or border/coastal commune-level areas or other areas which may affect the national defense and security. The change of foreign ownership thresholds as mentioned in Section 4 above is also reflected in the cases where an M&A Approval is required in this Section 5 (i.e., items ii and iii). 5. Selection of Investor The LOI 2020 consolidates the investor selection mechanisms that are currently provided under land laws, tendering laws and investment laws. In particular, the investor of an investment project may be selected by using one of the following ways: an auction of land use right under land laws; a tender process under tendering laws; or in limited cases, a decision of the authority in its in-principle investment approval without the involvement of an auction or a tender process (e.g., where the investor has already obtained the legitimate land use right or where the auction and tender regimes are not applicable). 7. Exceptional Investment Incentive Regime for Projects Having Significant Socioeconomic Impact The exceptional investment incentive is a new regime under the LOI 2020. In particular, the LOI 2020 grants the exceptional investment incentive and investment support to the following projects: Establishment or expansion of R&D/innovation centers with the total investment capital of at least VND 3 trillion (approximately USD 130 million) with the minimum drawdown of VND 1 trillion (approximately USD 43 million) within three years from the issuance date of the investment registration certificate or the in-principal investment approval; or national innovation centers to be established pursuant to the Prime Minister’s decision; and Investment projects in business sectors eligible for exceptional investment incentives that have the total investment capital of VND 30 trillion (approximately USD 1.3 billion) or more and the minimum drawdown of VND 10 trillion (approximately USD 434 million) within three years from the issuance date of the investment registration certificate or the in-principal investment approval. 8. Waiver of Investment Conditions for Startups The requirements to have an investment project and to obtain an investment registration certificate can be waived for a foreign investor if it incorporates a small/medium-sized startup innovative enterprise or an innovative start-up investment fund in accordance with the laws on supporting small and medium-sized enterprises. 9. Public-Private Partnership The section on public-private partnership contract is removed from the LOI 2020. This investment form will be regulated under the recently promulgated Law on Public-Private Partnership Investment. 10. Prohibition of Debt Collection Business The LOI 2020 provides some changes to the list of prohibited businesses and the list of businesses subject to conditions. Notably, the debt collect business is now prohibited under the LOI 2020 and all current debt collection services will be suspended from January 1, 2021. [Korean version] [Related newsletter] Vietnam Legal Update ? New Law on Enterprises 2020

  2020.08.10
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  Strengthened Criminal Investigations by Special Administrative Police On July 15, 2020, the Financial Supervisory Service (the "FSS") Special Administrative Police (the "SAP") conducted a search of the offices of a cement company as well as the home of its CEO as part of a stock manipulation investigation. This is the first time that the FSS's SAP has conducted an investigation of a non-financial company since its launch in July 2019. The SAP, which is governed by the Act on Persons Performing the Duties of Judicial Police Officials and the Scope of Their Duties, are government officials who form a type of mini-police force within an agency and is empowered to exercise investigative powers that are otherwise only granted to the police or prosecutors. These include the authority to conduct dawn raids, interviews of suspects/witnesses and emergency arrests as well as to obtain telecommunications and bank account records. Upon completing its investigation, the SAP can refer the case for further investigation to the Prosecutors' Office. In addition to the FSS, there are numerous government agencies which maintain an SAP section. By granting of criminal investigative authority to these teams, there is an implicit recognition that having certain cases investigated by government officials with specialized expertise and knowledge of the relevant sector would be an effective means of investigation and enforcement in the relevant sectors. In the following, we review the specific roles of the SAP of several major government agencies. FSS: The FSS SAP was formed to conduct criminal investigations relating to unfair trading activities. Since its launch in July 2019, the FSS SAP has completed or is currently conducting approximately ten investigations, including the dawn raid against a non-financial private company, as discussed above. The formation of the SAP within the FSS has accelerated the process of criminal investigations into financial crimes by enabling the FSS to launch a criminal investigation concurrently with the regulatory inquiry. Korea Customs Service (the "KCS"): The KCS SAP actively inspects and investigates violations of the Customs Act. Since 2018, customs officers may additionally investigate whether there have been violations relating to labeling, approval and product quality requirements under the applicable laws. Further, they may investigate whether any of the concerned products are distributed, sold or displayed in violation of such requirements. Ministry of Employment and Labor (the "MOEL"): The MOEL SAP is comprised of approximately 2,100 officials. It has been actively conducting various criminal investigations related to Labor Standard Act violations, which have included dawn raids and review of data through digital forensic analysis. Ministry of Food & Drug Safety (the "MFDS"): Since its launch, the MFDS SAP has primarily dealt with gathering and managing information concerning food and pharmaceutical-related crimes, as well as investigating suspected criminal violations of the Food Hygiene Act and the Pharmaceutical Affairs Act. Since 2015, it has expanded the scope of the SAP's duties to include matters relating to criminal violations of the Cosmetics Act and Medical Device Act. Ministry of Environment (the "MOE"): The MOE SAP oversees and conducts criminal investigations into various environmental crimes such as emission of environmental pollutants. Korea Intellectual Property Office (the "KIPO"): The KIPO SAP is authorized to conduct investigations on infringement of patent rights, trade secrets and design rights. The presence of SAP sections within the various regulatory authorities listed above shows the intertwined nature of administrative (regulatory) liability and criminal liability in Korea, and reflects the wide-ranging nature of possible sanctions under the applicable laws. Numerous regulatory statutes provide that violations of applicable regulations can lead not only to administrative sanctions (such as a fine and/or restrictions on business activities) but also to criminal sanctions to potentially both the corporate entity and the individual wrongdoer. The trend towards greater use of SAP also indicates a departure from the previous approach used in criminal investigations involving alleged regulatory beaches where the police or prosecutors, in many cases, would generally defer to the assessment of the relevant regulator on technical/regulatory matters. Following the FSS SAP's dawn raid into a non-financial private company, we expect that the SAP across all government agencies will continue to pursue aggressive investigative methodologies for even administrative (regulatory) violations, including dawn raids, and will continue to reinforce its digital forensic capabilities and criminal information database. Additionally, as we have seen in a number of recent cases, we expect that the formation of joint investigation teams comprised of SAP sections from different government agencies will become more frequent. We expect that it will become more critical for private companies to be well prepared for such joint investigations, which can potentially cover a wide range of legal issues.

  2020.07.27
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