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Rationalization of Delisting Rules and Procedures to Ease the Burden on Companies and Protect Investors Following up on our March Newsletter (link), we set out in this newsletter the KRX’s recently announced proposed amendments to certain delisting rules (link). They implement the pledges the President made during his presidential election campaign early this year and aim at improving corporate governance and capital markets through the restructuring of delisting rules and expansion of the phased delisting management system in the hopes to prevent companies whose listing can be sustained from being delisted and achieve better protection of companies and investors. They also address one of the 110 National Agenda advanced by the Presidential Transition Committee to improve capital markets, namely the revision of delisting rules, in addition to the changes relating to the regulations on listing following split-off and the introduction of the pre-disclosure system for insider trading for which specific policy directions were recently announced. (Revision of Delisting Rules) “The delisting of a company should proceed only after careful consideration of various factors such as the sustainability of the business, and through the implementation of a phased management system, as measures to strengthen investor protection.” The proposed amendments reflect the outcome of the discussions at the 3rd Financial Regulatory Innovation Meeting the Financial Services Commission held on September 30, 2022, the gist of which is to ensure that all delisting decisions are made after careful consideration of the sustainability of a business and to revise delisting requirements and procedures in an effort to minimize damages to investors. Key propositions are as follows. 1. Financial-related delisting factors become subject to substantive assessment Under the current regulations, a decline in sales or equity capital and the incurrence of a loss are technical delisting factors and when a company faces delisting based on these factors, it is not given an opportunity to object. Under the proposed amendments, the KRX Corporate Review Committee and the Market Committee will take these factors under substantive review and a company will be granted the right to file an objection against the decision to be delisted based on these factors. The substantial review will examine a company’s deterioration in earnings and assess whether the temporary deterioration is caused by global economic downturn, COVID-19 or a reason unrelated to the sustainability or the fundamentals of the business, and otherwise take into full consideration the various aspects of the company’s business, including its future prospects and the stability of its business operation and management. 【Finance Delisting Factors Subject Substantive Review per Market】 Factors Current Regulations Proposed Amendments KOSPI Market 50% or more capital impairment rate for 2 consecutive years Less than KRW 5 billion in sales for 2 consecutive years Technical Delisting Substantive Assessment KOSDAQ Market 50% or more capital impairment rate for 2 consecutive times Less than KRW 1 billion in equity for 2 consecutive times Less than KRW 3 billion in sales for 2 consecutive years 2 consecutive pre-tax losses exceeding 50% of equity capital1 2. Granting opportunities to object when a KOSDAQ listed company fails to submit a periodic reports or meet the required minimum trading volume If a company listed on KOSDAQ Market is delisted due to the failure to timely submit a periodic reports or meet the required minimum trading volume, it will be given the opportunity to object to the delisting decision and given a chance to address the failure (note that this only concerns KOSDAQ Market). The proposed amendments embrace the fact that (1) a company may inevitably miss a report submission deadline because of the delay in completing the necessary due diligence on an overseas subsidiary and that (2) the ability to meet the required trading volume may not necessarily reflect the sustainability of its business, and it should, therefore, be given the opportunity to show the business can improve by executing a liquidity supply agreement or otherwise. 3. Rationalization of other delisting factors A company’s stocks being traded at “below required market price” will be removed from the list of delisting factors and replaced with “below market capitalization requirement”. On KOSDAQ Market, a company will no longer be delisted because it recorded “operating losses for 5 consecutive years”. Instead, a “capital impairment” factor will be applied if a company has suffered long-term losses. Also, on KOSDAQ Market, the existence of an “unqualified opinion regarding internal accounting management system for 2 consecutive years” will no longer be subject to substantive review. Rather, it is whether the company seeks an “external auditor’s opinion” that will be considered in assessing the transparency of its business operations. Moreover, on KOSDAQ Market, the timing for administrative item designation and delisting application based on capital impairment, etc. will change from semi-annually to annually. And if 5 years or more have passed since the occurrence of an event qualifying as a delisting factor and the effect of such event on the current status of a company is negligible at the time when the factor is being examined in relation to a potential delisting, then the factor will be excluded from substantive review. At the 3rd Meeting on Financial Regulatory Innovation, some voiced concerns that the proposed expansion of substantive review will prolong the delisting/exit process and the more effective option would be to instead revise and adjust the technical delisting factors. In response, the KRX vouched to devise a system that allows prompt decision-making balancing both the sustainability of a business and the protection of investors. The plan is to announce proposed amendments to the IPO Regulations and the Detailed Enforcement Rules in October or November, 2022. The proposed amendments to KRX’s delisting regulations will pave the way to a more flexible delisting review if a company’s financial status becomes affected by events unrelated to the business’ sustainability or fundamentals such as a temporary slowdown or deterioration, or unpredictable changes in external circumstances. We recommend that all listed companies and their current and potential investors keep an eye on the developments and implementation of these proposed amendments as these may affect their business operations or investment decisions. [Korean version] 1If losses are recorded twice in the last 3 years, the company will be designated an administrative item. If the same event occurs again after such designation, the company will be delisted.
2022.10.11

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IFLR – Opening the Floor for Global Discussions: Regulatory Transition Around Digital Assets in South Korea IFLR ? Opening the Floor for Global Discussions: Regulatory Transition Around Digital Assets in South Korea (IFLR, 2022) By Han Jin Lee, Sung Yun Kand and Mooni Kim Opening the Floor for Global Discussions: Regulatory Transition Around Digital Assets in South Korea
2022.09.30

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KFTC Issues Advance Notice of Proposed Amendments to Merger Review Guidelines and Merger Filing Guidelines The Korea Fair Trade Commission (“KFTC”) issued an advance notice on a set of proposed amendments to its Merger Review Guidelines and Merger Filing Guidelines, which among others, aim to facilitate the filing of mergers undertaken for pure investment purposes and to expedite their review. The public comment period for the proposed amendments ends on November 7. Through the proposed amendments, the KFTC hopes to (i) alleviate the burden on companies by allowing simplified review and simplified filing for additional types of mergers that do not typically require in-depth review, and (ii) more effectively respond to the increasing number of reportable merger transactions. In particular, the proposed amendments expand the scope of mergers subject to simplified review1 and simplified filing2 to include mergers undertaken for pure investment purposes, such as investments in existing private equity funds (PEFs) and interlocking directorships that accompany investments in business ventures or startups. The proposed amendments also supplement and expand the criteria for safe harbors3 in recognition that vertical and conglomerate mergers resulting in a combined market share of less than 10 percent in each relevant market are unlikely to restrict competition. In drafting the proposed amendments, the KFTC consulted experts through meetings and by forming a special task force to assist in reforming its merger review regime. After gathering feedback from interested parties during the public comment period, the KFTC plans to finalize and enact the proposed amendments before the end of this year by obtaining the necessary approvals for enactment. The proposed amendments, if enacted, will apply to mergers whose filing obligation triggering event occurs after the date of enactment. Key details of the proposed amendments are as follows. Proposed Amendments to Merger Review Guidelines 1. Expand eligibility for simplified review to mergers undertaken for pure investment purposes Under the current Merger Review Guidelines, establishment of institutional private funds is eligible for simplified review. The proposed amendments will also allow simplified review of investments in an existing institutional private fund by a new partner with limited liability, but not if the new partner with limited liability is a strategic investor who has agreed to jointly manage the institutional private fund with an existing managing member. The proposed amendments will allow simplified review of interlocking directorships carried out as part of a transaction to acquire or establish a business venture or new technology company that are currently exempt from filing obligations.4 Although an investment in a business venture by a venture capital fund itself is not reportable, such investment often accompanies an interlocking directorship for general supervisory purposes. Potential reportability of such interlocking directorships has been a factor discouraging investment. To address this problem and ease the burden on companies, the proposed amendments will allow simplified review and simplified filing of such interlocking directorships. The proposed amendments will also allow simplified review for acquisitions of real estate (e.g., land, warehouse, office building) by general companies for investment purposes; and any transactions (in addition to transactions types listed above) that are clearly undertaken for the purpose of pure investment purposes (e.g., when participation in business management is prohibited under law). 2. Update guidelines for simplified review of foreign-to-foreign transactions that would have no impact on the domestic market Although the Merger Review Guidelines currently allow for simplified review of foreign-to-foreign transactions that would have no impact on the domestic market, the lack of guidance on how to assess such impact has raised the need for greater predictability for companies. To enable a more appropriate review of such mergers and enhance predictability for companies, the proposed amendments specifies a list for factors5 to consider when assessing the impact of a foreign-to-foreign transaction on the domestic market, and provides additional examples of eligible transactions.6 3. Expand safe harbor for non-horizontal mergers Currently, the safe harbor criteria for non-horizontal (i.e., vertical, conglomerate) mergers are based on (a) concentration in the relevant market and each party’s market share and (b) whether the parties are among the top three players in the relevant market.7 The proposed amendments establish a statutory basis for presuming lack of anti-competitiveness, regardless of the current criteria, if the parties to the merger have a combined market share of less than 10 percent in each relevant market. Proposed Amendments to Merger Filing Guidelines The proposed amendments newly add four types of transactions to the list of mergers eligible for simplified filing, including (i) establishment of a project financing vehicle (PFV), (ii) investment in an existing institutional private fund, and (iii) interlocking directorship carried out as part of a venture capital fund’s investment in a business venture. Simplified filing will also be available for the formal notification of a merger that the KFTC found not to be anti-competitive during its preliminary review, and no significant changes in the information (e.g., regarding the transaction or market situation) have taken place since the preliminary approval. But the general direction of the above amendment may have an exception for dominant or monopolized online platform service providers of which the growth and the scope of their service has been heavily dependent on the acquisition of other companies and start-ups in various area. In a press release issued on October 21, the KFTC announced a plan for additional amendment to the Merger Review Guidelines that would not allow simplified review of conglomerate mergers by large-scale platforms. The goal is promoting competition in highly concentrated online platform markets, and the KFTC has outsourced a study on the details of such amendment, which will end later this year. 1 Mergers subject to simplified review, as they are deemed to raise no anti-competitive concerns, are swiftly reviewed within 15 calendar days (instead of the regular 30 calendar days) during which the KFTC merely verifies the accuracy of the information provided in the filing. 2 Among the types of mergers subject to simplified review, those for which it is easier to verify the accuracy of the required information are also eligible for simplified filing (i.e., the filing is made using a short form business combination report which limits the scope of information that needs to be submitted by the parties). 3 Mergers that meet a certain set of criteria (e.g., regarding market concentration, each company's market share) are considered to fall under the safe harbor (i.e., presumed not anti-competitive). 4 Share acquisition of or establishment of the following is currently exempt from filing obligations: (i) a startup or business venture by an SME establishment investment company or venture capital fund; (ii) a new technology business entity by a new technology venture capitalist or a new technology venture capital fund; (iii) a publicly offered fund (i.e., investment company as defined under Article 9(18)2 of the Financial Investment Services and Capital Markets Act); (iv) a company designated as a concessionaire of a public-private partnership project for infrastructure or a company established for investing in such concessionaire; and (v) a real estate investment company as defined under the Real Estate Investment Company Act. 5 Nationality, sales territory of the acquiring and target companies, the target company's current or planned sales territories, the Korean sales revenue of the target company, etc. 6 Formation of joint ventures for foreign resources development, transfer of fixed assets such as foreign power generation facilities, etc. 7 Non-horizontal mergers that satisfy the following requirements are considered to fall under the safe harbor: (i) HHI is less than 2,500 in each relevant market and the market share of each company is less than 25%, or (ii) the companies are not among the top three players in each relevant market.
2022.10.26

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Korea Environmental Legal Update (Autumn 2022) This issue includes: MOE’s Efforts to Reduce Overlapping Regulations on Hazardous Substances and Wastes Recent Updates on GHG Emissions Trading Scheme MOE’s New Waste Recycling Regulations [Korean version] .content_view .view_area a { text-decoration: none; color: #2c3e50; }
2022.10.17

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Ministry of Employment and Labor’s Compliance Check Regarding Rest Facilities Special Inspection From August 18, 2022 to Focus on Businesses with 50 or More Employees Background There has been a continuing societal concern with rest facilities, as highlighted by news media coverage over problems relating to inadequate rest facilities (e.g., 2019 fatality case occurring in a resting room on a college campus and the lack of adequate rest facilities at construction sites and in the distribution industry leading to the use of inappropriate spaces, such as stairs or restrooms, as rest areas). In response to such concern, the Occupational Safety and Health Act (the “OSHA”) was amended on August 17, 2021, to make the obligation to establish rest facilities a duty under the OSHA and to introduce penalties for non-compliance. The amended OSHA went into effect on August 18, 2022, following a one-year grace period in light of the time needed by businesses to prepare the rest facilities. Please note that the Ministry of Employment and Labor (the “MOEL”) has prepared a written guide (the “Rest Facilities Guide”) interpreting the key requirements for the rest facilities under the amended OSHA. The Korean version of the same can be found using the following hyperlink: (link) Special Guidance Period in Effect until October 2022 The MOEL has announced that it will engage in a “special guidance period” from August to October 2022, and mentioned plans for checking compliance with respect to the installation and implementation of rest facilities. The MOEL’s special guidance will focus on construction sites with substandard rest facilities and industries with job categories exposed to relevant risk factors, such as cleaning and security. Overview of the Key Regulatory Requirements The following table provides key details set forth in the OSHA and the Rest Facilities Guideline concerning (i) businesses subject to the obligation to install rest facilities, (ii) required facilities and (iii) consequence of non-compliance. Item Details Remark 1. Businesses subject to the obligation to install rest facilities All business places Equally applicable to business place with only office workers If a recess period cannot be enjoyed separate from work, an employer must provide for a separate rest facility Effective date: From August 18, 2022 Business place with 50 or more employees (including subcontracted workers) Business place with a construction project having project value of KRW 5 billion or more Effective date: From August 18, 2023 Business place with 20 or more employees (including subcontracted workers) Business place with construction project having project value of KRW 2 billion or more Business place with 10 or more and fewer than 20 employees, where there are at least two employees exposed to relevant risk factors (seven types) A grace period of one year is be granted for small businesses Employee categories exposed to risk factors (seven types): (1) telephone counselor, (2) caregiver, (3) telemarketer, (4) delivery person, (5) cleaner and street cleaner, (6) apartment security guard, and (7) building security guard 2. Administrative fines Failure to install rest facilities: Administrative fine not exceeding KRW 15 million Failure to comply with the standards for installation and management of rest facilities: Administrative fine not exceeding KRW 10 million 3. Standards for installation and management of rest facilities Standards set forth in Article 194-2 and Annex 21-2 of the Enforcement Rule of the OSHA 1) Size Area of at least 6 m2 and height of at least 2.1 m In light of the rest period, gender of the worker, or the maximum number of persons that can be accommodated, businesses may create a rest facility larger than the minimum size upon consultation with the employee representative Not applicable if the total area used exclusively by the business place is smaller than 300 m2 2) Location Rest facilities shall be installed in a place that is convenient and close to the workers Hazardous places that have risk of fire and explosion, or places that cause dust or noise or handle hazardous substances shall be isolated from rest facilities 3) Temperature, humidity, lighting and environment Maintain temperatures between 18-28°C (must be equipped with air-conditioning and heating facilities) Maintain appropriate humidity levels (50-55%) and lighting levels (100-200 Lux), and ventilation must be provided Not applicable if it is difficult to install indoor rest facilities (such as at construction sites) 4) Fixtures and equipment, etc. Provision of chairs and drinking water (or equipment that provides such functions) Attachment of a sign indicating rest facilities Designation of a person in charge of rest facilities Prohibition of use of resting facilities for other purposes 5) Joint installation Two or more business places may jointly establish a rest facility The area of a joint rest facility shall not be less than the minimum area multiplied by the number of places of businesses Relevant Considerations What happens if the MOEL detects non-compliance during the special guidance period taking place between August and October 2022? - Businesses will be required to submit improvement plan and will be given cure period during which they can install rest facilities - After the end of the special guidance period, the MOEL will promptly impose administrative fines and issue corrective orders for non-compliance What perspective should businesses adopt when addressing compliance in relation to rest facilities? - Strict compliance with the regulatory requirements of the OSHA is necessary but not sufficient condition - Businesses should seek to pay attention on fulfilling workers’ rights to health and rest and addressing their physical fatigue and mental stress What actions can businesses take during the special guidance period? - In light of the more robust enforcement standards that will be put into place after the end of the special guidance period in October 2022, businesses should consider proactively conducting compliance checks regarding rest facilities and carry out remediation measures as applicable [Korean version]
2022.09.20

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“Outstanding” in All 24 Categories and 64 “Leading Lawyers”

Kim & Chang was named “Outstanding” in all 24 categories in the 2022/23 edition of asialaw Profiles, receiving the highest recognition across all categories. In asialaw Leading Lawyers 2022/23, 64 of our attorneys and patent attorneys were recognized as Korea’s “Leading Lawyers”.
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Kim & Chang Ranked “Tier 1” in All Eight Practice Areas

Kim & Chang has been recognized as a “Tier 1” firm in all eight areas researched for Korea by the IFLR1000 (32nd edition). In addition, 45 professionals under Kim & Chang have been recognized as Leading Lawyers in their respective practice areas.
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Top Tier Tax Firm in Korea for the 20th Consecutive Year

Kim & Chang received a “Tier 1” (top tier) ranking in the International Tax Review’s World Tax 2023 and World Transfer Pricing 2023. We have maintained our “Tier 1” ranking for the past 20 years since 2004, gaining recognition for our competence in the Tax practice.
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