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KFTC Issues Advance Notice on Proposed Guidelines on Information Exchange Cartels, and Amendments to Seven Related Guidelines With the amended Monopoly Regulation and Fair Trade Law (the "FTL") taking effect later this year on December 30, 2021, the Korea Fair Trade Commission (the "KFTC") issued an advance notice on the proposed Guidelines on Review of Unfair Concerted Conduct Involving Information Exchange Between Businesses (the "Review Guidelines for Information Exchange") to provide further guidance on the specific criteria it intends to apply in identifying illegal information exchange as a separate form of unfair concerted conduct under the amended FTL. The KFTC's advance notice also covers proposed amendments to seven existing cartel-related administrative guidelines, including the Review Guidelines for Concerted Conduct, Guidelines on Applying for Authorization of Concerted Conduct and Anti-Competitive Conduct, Guidelines on Activities by Business Groups, and Guidelines on Operating the System on Reducing Sanctions for Voluntary Disclosure of Unfair Concerted Conduct (the "Leniency Guidelines"). The KFTC clarified in its press release announcing the advance notice that the proposed enactment and amendments are intended as a follow-on measure to the FTL amendment and is aimed at aligning the KFTC's enforcement practices related to unfair concerted conduct with the changes introduced in the amended FTL for enhanced legal predictability for the businesses. The KFTC plans to gather opinions on the proposed Review Guidelines for Information Exchange during the 20-day administrative notice period that ends November 23, 2021. Summarized below are the notable details regarding the proposed enactment and amendments for your reference. 1. Review Guidelines for Information Exchange The amended FTL adds information exchange as a separate form of unfair concerted conduct prohibiting competing businesses from agreeing to exchange commercially sensitive information (e.g., price data) that may have the effect of restricting competition in the market, and establishes legal grounds for presuming the existence of such agreement. Reflecting these changes, the new Review Guidelines for Information Exchange (i) clarify the definition of "information exchange," and (ii) set forth the criteria for reviewing illegal information exchange agreements including those for triggering the presumption of agreement based on information exchange. (1) Definition of Information Exchange The new guidelines adopt a broad definition of the concept of information exchange, where the mere notification, either direct or indirect, by a competitor of certain information (e.g., on prices, production volume) is seen as an act of information exchange, and this is regardless of the particular means of notification, which can be made orally, via mail or phone, or through an intermediary (e.g., business association). Further, while disclosure or announcement of information through a publically accessible medium (e.g., daily newspaper), in principle, is not considered an act of information exchange, the guidelines make clear that if the competitors had surreptitiously exchanged the information before the public disclosure or announcement, their conduct would be subject to regulation. (2) Illegal "Agreements" in Furtherance of Information Exchange For information exchange to be illegal, the following factors must be established: (i) there was an agreement between competitors to exchange competitively sensitive information, (ii) market competition was unfairly restricted as a result of the information exchange, and (iii) there was insufficient efficiency-enhancing effect attributable to the information exchange to offset its anti-competitive effects. The proposed Review Guidelines for Information Exchange provide the following with respect to each of the foregoing factors. While the existence of an agreement is of course recognized when there is an explicit communication (e.g., written agreement, verbal promise) to exchange competitively sensitive information, it may also be recognized in the form of an implied or implicit agreement. For a company to be recognized as having failed to reach an agreement, or as having withdrawn from an agreement, the company needs to have expressed its intent to refuse receipt of the competitor's information, or reported that the competitor was sending information. The anti-competitive effect of an agreement in furtherance of information exchange will be assessed in consideration of a wide range of factors in their totality, including market situation, market structure, characteristics of the products or services concerned, market shares of the parties, nature of the information in question, the manner in which the information was exchanged and the purpose of the exchange. The risk of anti-competitive effect increases when the information is about the future rather than the past, when the information is about specific companies rather than being statistical in nature, when the information is confidential, and when the information exchange occurs for a longer period, with greater frequency, and by higher ranking employees/officers of the companies involved. However, if the combined market share of the companies involved are 20% or lower, then absent special circumstances, information exchange will be presumed to have no anti-competitive effect. Information exchange is not illegal when it is necessary to create an efficiency-enhancing effect that is significant enough to offset the resulting anti-competitive effects. However, there are strict criteria for assessing the efficiency-enhancing effect, e.g., when the exchange of information (e.g., on production costs) by SMEs clearly leads to enhanced productivity (e.g., better quality, technology) or stronger bargaining power. (3) Presumption of "Agreement" Based on Evidence of Parallel Behavior and Information Exchange The proposed Review Guidelines for Information Exchange also provide the following criteria for establishing the two conditions for invoking the legal presumption of an agreement based on information exchange under the amended FTL, i.e., (i) parallel behavior and (ii) exchange of the necessary information. Regarding parallel behavior, the proposed Review Guidelines for Information Exchange provide that the chances of a parallel behavior between competitors increase in proportion to how closely their movements converge in terms of the key competitive parameters and the timing of such convergence. However, even in the absence of a "perfect" parallelism, parallel behavior may nonetheless be recognized (i) when the difference is small enough as to not have any appreciable effect on consumer choice, or (ii) in case of "loose" agreements where competitors merely agree to "raise prices together" without specifying the target price point. In such situations, the proposed Review Guidelines for Information Exchange would recognize parallel behaviors based on a less-than-perfect convergence on the key competitive parameters. Regarding exchange of necessary information, the proposed Review Guidelines for Information Exchange state that the presumption would more likely be triggered when (i) the information exchanged is competitively sensitive in nature (e.g., price, output), (ii) the information exchange occurs immediately before the relevant decisions are made (e.g., to raise prices), or (iii) the content of information exchanged matches the subject matter of the parallel behavior. Reflecting the position of previous court decisions, the proposed Review Guidelines for Information Exchange state that even after the statutory presumption of an agreement is triggered, such presumption can be rebutted by demonstrating that (i) there was no parallel behavior, (ii) the parties did not exchange any information in furtherance of such parallel behavior, or that (iii) even if there was a parallel behavior, there was no agreement between the parties. The burden of proof falls on the companies, and a relatively high standard of proof will be applied, e.g., the companies will have to establish that the parallel behavior in question came about as a matter of coincidence and that the companies acted in accordance with their independent business decisions based on their respective view of the changing market conditions (e.g., interest rates, exchange rates, raw material prices) that affect price. 2. Proposed Amendments to Other KFTC Guidelines The KFTC's advance notice also proposes to amend the existing cartel-related administrative guidelines, including the Review Guidelines for Concerted Conduct, for alignment with the new Review Guidelines for Information Exchange Cartels. In particular, the proposed amendment to the Leniency Guidelines requires a leniency applicant that wishes to amend its application to add another company as a joint applicant to complete such amendment within 75 days from the initial application. This is to eliminate the regulatory loophole that has enabled leniency applicants to extend the benefit of a full/partial immunity to their group affiliates that did not take on the burden of cooperation throughout the investigation process by simply amending their application to add the group affiliates as joint applicants shortly before the KFTC's final deliberation. Further, the proposed amendment also seeks to enhance the effectiveness of the leniency system by adding further clarity to the provisions related to the succession of leniency positions. How the new/revised criteria will affect the KFTC’s approach to assessing the legality of information exchange under the amended regime will become clearer once the amended FTL and the new/amended guidelines take effect and the KFTC begins applying the new/revised criteria in future cartel investigations. Given the gravity of the changes proposed by the KFTC, it will be advisable for businesses to closely monitor the relevant developments and take the necessary measures to mitigate the potential risk of violation. [Korean version]
2021.11.05

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Amendment to Regulations on the Issuance and Disclosure of Securities with Respect to Strengthened Regulations on Issuance of Convertible Bonds by Listed Companies On October 27, 2021, the Financial Services Commission announced that the Regulations on the Issuance and Disclosure of Securities (the “Regulations”) will be amended to place a limit on convertible bond purchase option (call option) and to impose an obligation to raise the conversion price in case of a private placement. These amended Regulations will take effect on December 1, 2021 and the proposed Regulations are follow-up measures to the Comprehensive Measures to Eradicate Illegal and Unsound Practices in the Securities Market (October 19, 2020). The key amendments are as follow: 1. Disclosure of exercise of convertible bond purchase option granted to a third party: A listed company must disclose material facts (e.g., person exercising the right, number of shares converted by such exercise) by filing a report on any of its important matters pursuant to Article 161 of the Financial Investment Services and Capital Market Act (the “FSCMA”) in the following cases: (a) a listed company issues convertible bonds that grants a third party right to purchase convertible bonds at a predetermined price (convertible bond purchase option) and the third party exercises such option, or (b) a listed company decides to acquire convertible bonds that the company itself issued and sells them to a third party. 2. Imposition of a limit on the exercise of call option by the largest shareholder with respect to convertible bonds: When a listed company issues convertible bonds that grant convertible bond purchase option to the largest shareholder and its specially related parties, the exercise of convertible bond purchase option will be limited to the shareholding ratio of the largest shareholder at the time of issuance of convertible bonds. 3. Improvement on conversion price adjustment system: For issuance of convertible bonds by private placement, If the conversion requirement for convertible bonds includes downward adjustment of conversion price (refixing) when there is a change in the market price of the shares, the conversion price must be adjusted to what it was at the time of issuance if the market price of shares increases after the downward adjustment (or up to such adjusted price in the event that the conversion price is modified due to adjustment events such as issuance of new shares at a discounted price or capital reduction other than refixing). The foregoing Regulations shall also apply mutatis mutandis to issuance of bonds with warrants, but these regulations do not apply to public offerings. This amended Regulations are significant since they have strengthened regulations on refixing, which are frequently included in the issuance of convertible bonds and bonds with warrants by listed companies. Please be advised of the foregoing amended Regulations as they will apply to, among others, convertible bonds of which the issuance will be resolved by the board of directors of listed companies after this amendment takes effect on December 1, 2021. [Korean version]
2021.11.04

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Announcement of Improvement Measures Regarding Matters Related to Designated Auditor System Under the External Audit Act On October 18, the Financial Services Commission (the "FSC") announced plans to improve the designated auditor system under the Act on External Audit of Stock Companies, Etc. (the "External Audit Act"). Pursuant to Article 11 (2) of the External Audit Act and Article 15 of the Enforcement Decree of the External Audit Act, which took effect as of October 2018, if any of the following companies appoints an external auditor for six consecutive fiscal years pursuant to Article 10 (1) of the External Audit Act, the Securities and Futures Commission (the "Commission") may request that the company appoint an accounting firm designated by the Commission in accordance with the standards and procedures prescribed by the Presidential Decree. Stock-listed companies (excluding companies listed on the KONEX market) A company whose total assets are at least KRW 100 billion and at least 50% of the total number of issued and outstanding shares (excluding non-voting shares) are held by a large shareholder and his/her specially-related persons under Article 43 (8) of the Enforcement Decree of the Corporate Tax Act, and whose representative director is the large shareholder or his/her specially-related person Article 8 of the Addenda to the External Audit Act provides that the amended provisions of Article 11 (2) of the External Audit Act shall apply from the business year that begins after the first anniversary of the effective date of the External Audit Act. In such case, the calculation of six consecutive business years shall include the business years before the first application of the amended provisions of Article 11 (2). According to the above regulation, half of all listed companies are expected to be designated with external auditors this year. As the supervisory authority designates the external auditor, there are matters to be noted with respect to the execution of the auditor appointment agreement with the company after the designation by the Commission and consultation with the external auditor during the external audit process, which would not be an issue with an external auditor appointed by a company itself. In this regard, the key contents of the press release announced to improve the designated external auditor system are as follows: 1. Establishment of Best Practice Guidelines for Designated Audits The FSC has announced the "Best Practice Guidelines for Designated Audits" covering the supervision on designated audits. The key contents of the Best Practice Guidelines for Designated Audits are as follows: Mandatory consultation between designated auditors and companies regarding audit engagement-related matters such as audit personnel, time and remuneration; and mandatory composition of an audit team in consideration of the characteristics of the company Restrictions on acts, such as making unreasonable information requests or third party certification, by abusing the status of a designated auditor Stipulation of the requirements for the designated auditor's request for digital forensics (investigation of accounting fraud) Specific procedures for resolving disagreements between the respective auditors for the financial statements of the previous and current fiscal years Clarification of regulations prohibiting external auditors from supporting the preparation of financial statements 2. Clarification of Legal Nature of Standard Audit Hours Article 16-2 (1) of the External Audit Act prescribes that the Korean Institute of Certified Public Accountants may determine the standard audit hours to be spent by an auditor to improve the quality of audit and to protect stakeholders of the company, including investors. The FSC announced its plan to issue a clear authoritative ruling on the legal nature of the standard audit hours and the reason for designating the auditor. In addition, the FSC explained that there was a misunderstanding that if the audit hours fell short of the standard audit hours, an accounting firm would be subject to disciplinary action by the Korean Institute of Certified Public Accountants and that an auditor would be newly designated to the company. Instead, sanctions would be imposed only if audit hours were unreasonably low compared to that of other companies or the audit of the previous year for the company. The Best Practice Guidelines for Designated Audits also stipulate “the designated auditor (candidate) shall consider the standard audit hours to calculate the audit hours to be applied to the company, but shall not propose the audit hours to the company based solely on the standard audit hours.” In consideration of the growing controversy over companies and external auditors as the number of companies subject to the designation of auditor continues to increase after the implementation of the periodic auditor designation system, this improvement plan is noteworthy in that it prepares integrated guidelines on the performance of audit work by designated auditors and clarifies the legal nature of the standard audit hours. In addition, the amendment includes improvement of the dispute resolution system through the council for settlement of disagreement between the respective auditors for the previous year and the current year if the former auditor and the current auditor disagree on the financial statements for the previous year. Please note the details of the final version of the Best Practice Guidelines for Designated Audits and the authoritative ruling by the FSC on the legal nature of “standard audit hours” and the reason for designating an auditor are to be confirmed. [Korean version]
2021.11.01

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Doing Business in Vietnam Guide We have prepared a guide for “Doing Business in Vietnam” which we hope may be of interest to you. Please refer to the attachment for further details. 1. Country Profile 2. Forms of Investment 3. Forms of Enterprises 4. Investment Procedures 5. Investing in Public Companies 6. Setting Up a Non-corporate Presence 7. Tax Regulations [Korean version]
2021.10.22

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Update Regarding Obligation to Secure Safety and Health Under Serious Accidents Punishment Act We provide below an update concerning the Serious Accidents Punishment Act (the “SAPA”) and the Enforcement Decree promulgated thereunder (the “SAPA-ED”). What is the SAPA? Enacted in January 2021, the SAPA imposes criminal penalties on the responsible management personnel (the “RMP”) of a business whose failure to secure safety and health in violation of the requirements of the SAPA causes serious industrial accidents or serious public accidents, as the case may be. The effective date of the SAPA is January 27, 2022 for a business with 50 or more employees. The SAPA delegates to the SAPA-ED, per the Korean statutory scheme, to elaborate relevant requirements pertaining to the RMP’s obligation to secure safety and health. Specifically, the SAPA stipulates that the details on the “measures related to establishment of safety and health management system and its implementation” and the “managerial measures necessary to fulfill obligations under safety and health-related laws” shall be set forth in the SAPA-ED. Passing of the SAPA-ED On September 28, 2021, the Cabinet reviewed and approved the proposed version of the SAPA-ED, which is scheduled to take effect from January 27, 2022. With respect to “measures related to establishment of safety and health management system and its implementation” and “managerial measures necessary to fulfill obligations under safety and health-related laws,” the SAPA-ED stipulates various action items. Please refer to the Appendix hereto for further details. In addition, the SAPA-ED sets forth 24 types of “occupational illnesses”—13 types of acute poisoning and 11 types of illnesses related to syndromes or high risk works—in connection with “persons contracting occupational illness” referenced in Article 2, Item 2 (c) of the SAPA as a type of serious industrial accident, and the scope of public facilities (multi-use facility, establishment, workplace and other facilities) in detail in connection with serious public accidents. Please refer to the Appendix hereto for further details. After January 27, 2022—for businesses with 50 or more employees—upon the occurrence of a “serious industrial accident” or a “serious public accident”, as the case may be—whether criminal penalty would be imposed for a violation of the SAPA would be determined by examining whether the RMP fulfilled his or her obligation to secure safety and health as prescribed by the SAPA and the SAPA-ED. As such, it would be prudent for businesses to become familiar with the RMP’s obligation to secure safety and health as enumerated in both the SAPA and the SAPA-ED and take measures to fulfill applicable requirements.
2021.10.06

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Winner of “Asia-Pacific Firm of the Year” at asialaw Awards

At asialaw Awards 2021, Kim & Chang was once again honored as the leading law firm in South Korea and the Asia-Pacific region. We also took home “Capital Markets Firm of the Year,” “Tax Firm of the Year” and “Energy Firm of the Year” awards.
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Only Korean Firm Among the World’s Top 100 Law Firms

Kim & Chang ranked among the world’s top 100 law firms in the The American Lawyer’s “The Global 200.” Once again we were the only Korean law firm to be featured among the top 100, placing 53rd in the “Most Revenue” category, 61st in the “Most Lawyers” category and 93rd in the “Most PEP” category.
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“South Korea Firm of the Year” at Euromoney Asia Women in Business Law Awards

Kim & Chang was honored as “South Korea Firm of the Year” at the Euromoney Asia Women in Business Law Awards 2021. The awards also recognized two of our female attorneys, Sungjean Seo and Tae-Yeon Nam, as “Commercial Arbitration Lawyer of the Year” and “Transfer Pricing Lawyer of the Year.”
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