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Kim & Chang Legal Newsletter (2022 Issue 2) This is a quaterly update of legal developments in Korea from Kim & Chang. This issue includes: New Administration’s National Agenda on Fair Trade and Implications Big Blur: Competition with Big Tech Causing Banks to Launch New Businesses, and New Administration’s Regulatory Response New Administration’s Corporate Law and Governance Policy and the Impact Thereof on Businesses Key Issues and Implications of the New Administration’s Environment Policies New Administration’s National Agenda on Insurance Industry and the Financial Authorities’ 2022 Business Plan New Administration’s National Agenda on ICT and Fintech Industries Regulatory and Legislative Trends Regarding Restructurings of Listed Companies Seven Compliance Check Items Due by June 30, 2022 Under the Enforcement Decree of the SAPA Guidelines on EU’s Directive on Mandatory Human Rights and Environmental Due Diligence FSC Announces Plans to Improve Cloud Computing Regulations and Network Separation Requirements FSC Publishes Guideline on Securities Business Dealing with Fractional Investment Korean Supreme Court Lowers Standard for Inventiveness for New Crystalline Form Inventions Amendments to the ICSID Arbitration Rules Labor Relations Commission’s Remedial Procedures for Gender Discrimination in Employment and Sexual Harassment in the Workplace To view the newsletter, please click the link below. Kim & Chang Legal Newsletter (2022 Issue 2) .content_view .view_area a { color: #2c3e50; text-decoration: none; }
2022.06.28

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Recent Supreme Court Decision regarding a Layoff (Urgent Business Necessity Requirement) We would like to bring your attention to an important decision regarding layoffs recently rendered by the Supreme Court. On June 9, 2022, the Supreme Court overturned a decision by the High Court (which had ruled that a layoff implemented by a company engaged in the steel pipe manufacturing business was unfair because it did not meet the “urgent business necessity” requirement under the law), and remanded the case back to the High Court (Supreme Court Decision 2017Du71604, June 9, 2022). In its decision, the Supreme Court opined as follows: “An urgent business necessity is not only limited to a situation where a company avoids insolvency, but also includes circumstances where a reduction in personnel is required in advance to cope with a possible crisis in the future. However, such personnel reduction should be acknowledged to be reasonable from an objective point of view.” As to the company in question, the Supreme Court ruled that the ‘urgent business necessity’ requirement was in fact met in light of the following reasons: (i) the industry itself under which the company was doing business had suffered severe difficulties such as a drop in international crude oil prices and a slump in the US energy industry; (ii) the accounting firm that studied the status of the company's business conditions suggested that the company “faced a liquidity crisis”; (iii) the company recorded even lower revenue than expected as pointed out by the accounting firm; and (iv) the size of the company’s short-term loans significantly increased and the company's assets were put on sale. In addition, the Supreme Court ruled that (i) as part of its efforts to avoid layoffs, the company implemented the layoff process after a series of restructuring measures, including a voluntary retirement program, and thus, the layoffs may be justified even if the number of employees to be laid off is relatively small as a result of the company’s efforts to avoid layoffs, and (ii) the “urgent business necessity” requirement may not be deemed to have been met only when there are continuous accumulated deficits. Interestingly, the first instance court (i.e., District Court) in the above case found that the layoff implemented by the company was justifiable. In particular, with respect to the legal requirement to demonstrate that the company made “efforts to avoid layoffs”, it is noteworthy that the first instance court applied a more relaxed standard to determine the legitimacy of the layoff, citing the legal principle of the existing Supreme Court precedent that “the method and degree of efforts to avoid a layoff are not definitive and fixed, but depends on the degree of the employer’s managerial crisis, the managerial reason for the layoff, the content and size of the business, and the number of employees by position.” For your reference, the Korean courts have tended to apply strict standards when determining the requirements for layoffs. Recently, however, the National Labor Relations Commission seems to broadly determine the scope of justifiable layoffs, as layoffs implemented by some companies in the airlines and hotel business were found justified. For workplaces where layoff cases are pending or are expected to take place due to an urgent business crisis, it is advisable to carefully review the criteria for determining the “urgent business necessity” requirement proposed by the above Supreme Court decision and prepare in advance for legal disputes, etc. related to layoffs. [Korean version]
2022.06.24

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New Administration’s Economic Policy Direction – Antitrust and Competition On June 16, 2022, the administration of President Yoon Suk-yeol unveiled its economic policy direction. The new administration views that the Korean economy faces a crisis, and has identified challenges such as economic decline, high inflation, and growing uncertainties at home and abroad. Given such economic reality, the new administration states that it will pursue four values (freedom, fairness, innovation and solidarity) to restore a freer and fairer economy, aiming to overcome low growth and achieve a virtuous cycle of growth and welfare. In particular, while it aims to give greater discretion to the private sector to enhance corporate vitality, the new administration also emphasizes the value of fairness, which it considers essential for establishing a free and fair market economy order. The new administration's economic policy roadmap is based on such awareness of current challenges and vision for economic direction. We summarize below the main policy directions relating to fair trade and competition regulation: 1. Revision of regulations and practices Standards for determining a market dominant player Under Article 6 of the Monopoly Regulation and Fair Trade Act (the "FTL"), if a business entity has a market share of at least 50% in the relevant market, or if three business entities have a combined market share of at least 75% in the relevant market, each of such business entities is presumed to be a market dominant player. However, even in such a case, an exception would apply if the relevant business entity's annual sales or purchases in the relevant market are less than KRW 4 billion. The threshold of KRW 4 billion was established at the time of the amendment of the FTL in August 2007. The new administration has indicated that it would raise the threshold amount in consideration of the changes that have taken place since then, including the increased size of overall economy. Regulation on large business groups The Korea Fair Trade Commission (the "KFTC") annually designates groups of affiliated companies as large business groups and the individual having de facto control of such group (referred to as a "same person" under the FTL). By virtue of being affiliated with a designated large business group / individual controller, certain restrictions apply under the FTL. The new administration considers that certain rules relating to the regulation of large business groups require amendment, such as the standard for determining a same person's related parties who are subject to restrictions under relevant laws. While the specifics on such revision have yet to be announced, based on the 110 National Agenda of the new administration (announced on May 2, 2022), the revision is expected to include the following: (i) adjust the scope of related parties of the same person who are subject to regulation (e.g., reduce the scope of such persons from second cousins related by blood to cousins related by blood; and from cousins related by marriage to aunt / uncle by marriage); (ii) provide support for the implementation of the newly adopted system allowing holding companies to establish corporate venture capital firms; and (iii) amend rules relating to the public disclosure system (e.g., update the threshold amounts requiring public disclosure by companies, matters to be publicly disclosed, frequency of public disclosure). 2. Resolution of legal uncertainties that potentially undermine business activities Criminal penalties under economic laws and regulations The new administration announced that in order to prevent criminal sanctions from restraining business activities, it would pursue appropriate measures to switch criminal sanctions imposable under economic related laws and regulations to administrative sanctions, or adjust the sentence of imprisonment imposable under such laws and regulation. Relatedly, certain provisions of the FTL that enable imposition of criminal sanctions for certain types of illegal conduct (e.g., anti-competitive merger, certain types of unfair trade practices, resale price maintenance) have already been excluded from the amended FTL in consideration of factors such as the principle of clarity and the principle of subsidiarity. That said, the FTL and related laws such as the Subcontracting Act and the Large Retail Business Act still contain provisions imposing criminal sanctions for most types of conduct prohibited under such laws. The scope of criminal sanctions that may be converted into administrative sanctions and the details regarding the adjustment of the level of criminal sanctions are expected to be further specified by a team to be comprised of relevant agencies, such as the Ministry of Justice, the KFTC and the Ministry of Economy and Finance (the "MOEF"). Amendment of review guidelines on unfair support With respect to the prohibition against unfair support practices, the new government views that concepts such as "arms' length price" and amount / level of "unfair support" prohibited under the law were unclear, and that the lack of clarity causes difficulties for businesses to determine whether they are in compliance with the law. Accordingly, within the second half of 2022, the new administration plans to amend the guidelines for examination of unfair support practices in order to clarify such standards to resolve uncertainties. Moreover, with respect to the provisions of the FTL that prohibit affiliates from receiving unfair benefits, the new administration plans to further clarify the standards for determining whether the benefit provided is unfair, and exceptions to the prohibition (e.g., efficiency enhancing effect) by amending the relevant review guidelines within the first half of 2023. In this regard, the new administration is expected to reflect the guidance provided by the Supreme Court in a recent case involving this issue; in that case, the court held that the term "unfair" for purposes of determining violations should be reviewed based on whether the provision of the benefits is likely to help maintain or increase the concentration of economic power held by such affiliated persons. 3. Strengthening of regulation of unfair trade practices and establishment of systems for promotion of fair trade practices The new administration's economic policy directive reflects the key policy tasks related to fair trade and competition that were included in previously announced 110 National Agenda, such as strict regulation of unfair trade practices, improvements to the KFTC's exclusive authority to file a criminal referral, promotion of fair trade order in the platform business sector. Strict regulation of unfair trade practices such as technology misappropriation The new administration cited misappropriation of intellectual property and technology, and unfair support to affiliated companies as examples of unfair trade practices, and indicated that it would strengthen regulation of such practices. In particular, the new administration stated that it will strengthen punitive damages for technology misappropriation and improve the KFTC's guidelines to operate a strict and objective criminal referral system. Adoption of the supply price update system for small and medium-sized enterprises In addition, in order to help small and medium-sized enterprises ("SMEs") providing subcontracting services to receive appropriate payments in the event of an increase in the prices of raw materials, the new administration plans to adopt a supply price update system. Under this system, the increase in prices would be reflected in the payments to be provided by companies to the SME subcontractors. Specifically, the new administration stated that within the second half of 2022, it would prepare a standard contract and facilitate a trial of the system. The new administration also indicated that it would take other measures in parallel to promote fair trade practices in subcontracting transactions, such as improving mediation procedures and providing incentives. Platform businesses ? self-regulation measures of the private sector The new administration announced that a governmental consultation body consisting of various agencies (e.g., the MOEF, Ministry of Science and ICT, Ministry of SMEs and Startups, KFTC, Korea Communications Commission, Personal Information Protection Commission) would provide support to private, non-governmental self-regulatory organizations, in order to enable such organizations to prepare self-regulatory measures that help platforms, SMEs and consumers. In addition, the new administration indicated that it would continue to monitor platform businesses by, for example, preparing guidelines for review of unfair trade practice. Previously, the KFTC had issued an administrative notice regarding its plan to implement review guidelines on abuse of market dominant position by online platform service providers. As such, the KFTC's efforts to implement such review guidelines will also likely gain momentum. 4. Stabilization of consumer prices through fair competition The new administration also plans to strengthen efforts to stabilize consumer prices by organizing a joint inspection team of the KFTC and relevant ministries, which would monitor unfair trade practices such as collusion and resale price maintenance in major industries that affect consumer welfare. To this end, the new government stated that it would also analyze the market situation in major monopolistic and emerging industries (i.e., as of 2022, mobile virtual network operators, auto parts manufacturers, IoT) to prepare measures to promote competition, and to reform anti-competitive government regulations that restrict business activities. [Korean version]
2022.06.21

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FSC’s Policy Seminar for Enhanced Investor Protection in Stock Market and Key Policy Tasks on Capital Market On June 17, 2022, the Financial Services Commission (the "FSC") hosted a policy seminar for enhanced investor protection in the stock market, where it revealed its plan to pursue the following policy tasks: Require prior disclosure of a share disposal plan to enhance transparency of insider trading-related information. Put in place safeguards to protect minority shareholders of the acquired company for share transfers that result in a change of control. ※ Major foreign countries such as EU member states, the UK, and Japan have mandatory requirement to make a public tender offer for a percentage of shares for anyone wishing to gain management control by purchasing more than a certain number of shares. Strengthen responses to unfair trade practices in the capital market by making investigational process and procedures more efficient, and expanding the use of administrative sanctions, such as administrative surcharges, to make enforcement actions more effective. In particular, as noted in our March 18 newsletter (link), the Presidential election pledges and the transition committee’s policy handbook had included a pledge to shield minority shareholders from majority shareholders’ actions, such as the monopoly of management control premiums by major shareholders selling their shares; the FSC has now announced its plan to specifically review public tender offer rules and other relevant regulations currently implemented in other countries, to develop and implement regulatory improvements tailored to Korea. The FSC also mentioned requiring disclosure of a disposal plan for shares (including those offered in the form of stock options) sold by executives and other insiders, as well as a plan to regulate unfair trade practices. For your information, in 2020, Lawmaker Lee Yong Woo proposed the Special Act on Listed Companies, introducing public tender offer rules. The bill’s goal is to allow minority shareholders to benefit from control premiums and increase shareholder value by (i) prohibiting transactions involving certain major shareholders when selling management shares and (ii) requiring public tender offers to an unspecified number of shareholders to give them a chance to sell their shares. - If shares held by a related party under the Financial Investment Services and Capital Markets Act through purchase, etc. are 25% or more of the voting shares of a listed company, a public tender offer shall be made to an unspecified number of shareholders for no less than 50% of shares in the listed company (Article 19 of the Proposed Special Act on Listed Companies). Depending on the structure of the regulatory system to be implemented, the new system could significantly impact the proposed transactional structures, prices (including control premiums) for large corporations, private equity funds, and others wishing to sell their publicly traded subsidiaries. If you plan to sell, buy, or merge a publicly traded subsidiary, you may want to keep an eye on the developments and implications of this change. [Korean version]
2022.06.20

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Key Issues and Implications of the New Administration’s Environment Policies On May 3, 2022, the 20th Presidential Transition Committee announced the national vision and six major goals of the Yoon Suk-yeol administration and 110 national agenda items (the “National Agenda”) to realize these goals. In particular, the National Agenda contain detailed measures, among other things, to implement the environment-related pledges of the President Yoon Suk-yeol and the “climate and environmental policy direction for sustainable future” announced by the Presidential Transition Committee on April 28, 2022. Key issues are as follows. 1. Devising scientific measures to implement carbon neutrality With the objective to achieve green economy through science-based carbon neutrality policies, the new administration plans to devise realistic measures to achieve the 2030 national greenhouse gas emission objectives (40% reduction as compared to 2018) and reflect them in the relevant statutes. Further, it will evaluate a plan to expand the paid allocation of emission permits under the emissions trading system and apply the generated revenue to support companies’ carbon reduction activities. Moreover, following the EU’s system, it will also include “nuclear power” in the K-Taxonomy, which will be implemented in 2023. 2. Creating a blue sky free of fine dust The new administration plans to re-establish the “Comprehensive Plan for Improvement of Air Quality,” a roadmap to reduce ultrafine dust (PM2.5) by 30%, in order to reach mid-ranking for ultrafine dust concentration among the Organization for Economic Co-operation and Development countries. To establish such a plan, the proportion of fossil fuel-based electricity generation will be reduced via power mix optimization, while establishing pollution-free vehicle transition goals, expanding early scrapping eligibility of diesel vehicles, and strengthening greenhouse gas standards for compact vehicles within the field of transportation. Further, reduction in the operation of coal power generation will be expanded when the concentration of fine dust is high, and seasonal fine dust management implementation period will be extended. Separately, the total permissible emission of air pollutants for each air control zone will likely be reduced by more than 50%. 3. Transitioning to a circular economy and fostering new green industries In order to accomplish carbon neutrality, it is necessary to shift to a circular economy system that fundamentally reduces wastes, while increasing the proportion and quality of recycling. To lay the foundation, the ‘Act on Promoting Circular Economic Society’ is expected to be enacted. Specifically, the implementation plan includes (i) mandatory use of high-quality renewable plastic materials and (ii) recycling of waste plastics, which are difficult to be recycled, as petroleum/chemical raw materials or hydrogen fuels via thermal decomposition. Meanwhile, the new administration also plans to intensively foster the new five major green industries (e.g., climate tech, environment IoT, and biogas). 4. Devising reasonable chemical substance management system Moving forward, the chemical substance management system will be modified based on scientific data to enhance the public safety and to reduce corporate burdens. For example, under the new system, hazardous substances will be designated and managed by taking into account their characteristics and volume. Moreover, as the system to ensure the safety related to public health hazards is expected to be further heightened, the new administration plans to expand the environmental health services for the public by establishing a human-safety based assessment and management system for total amount of hazardous substances rather than a product-based system, and integrating damage relief systems that are currently dispersed into four different categories (e.g., environmental pollutants and asbestos). Because the environmental policies will be considered within the context of accomplishing carbon neutrality and improving public health, they are expected to be frequently emphasized in the future. When discussing feasible implementation measures for carbon neutrality, responding to climate change and creating new future industries will be also discussed substantially. In this regard, it is necessary to closely monitor the announced national affairs as they will be further elaborated in greater detail by the new administration and the National Assembly. On a separate note, as environment-related regulations are expected to reasonably alleviate corporate burdens while strengthening public health-related areas, it is also necessary to promptly respond to the expected regulatory changes in terms of ESG management, which appears to be essential all around the world. [Korean version]
2022.06.09

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