News and developments
Regulatory and Legislative Trends Regarding Restructurings of Listed Companies
There has been increasing concerns from various stakeholders, such as minority shareholders, on the value and ratio calculations in mergers and other restructuring transactions. Notably, an active discussion took place last year on the need for legislative and policy change in response to argument that a listed company’s spinning off a major business operation vertically and subsequently listing the spun-off subsidiary as a separate company seriously infringe the interest of the minority shareholders of surviving company. In light of such demands and concerns, the scope of disclosure requirements related to governance restructurings have been expanded, and the regulations that would strengthen the procedural rules for restructuring transactions have been proposed.
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Revisions to the Guidelines on Corporate Governance Disclosure for Listed Companies
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Amendments to the Capital Markets Act to Strengthen Restructuring Regulations
- Grant appraisal rights to dissenting shareholders in the event of a spin-off of a listed companyThe current law grants appraisal rights to dissenting shareholders of listed companies only in the event of spin-off mergers and certain spin-offs (when the new spun-off entity is not listed), and does not recognize the appraisal right of dissenting shareholders in the case of vertical spin-offs. National Assembly Member Yong-Woo Lee (Democratic Party) and twelve others proposed an amendment to the Capital Markets Act (Bill No.14910) that also grants appraisal rights to shareholders who dissented to vertical spin-off of listed companies. This proposed amendment was submitted to the National Policy Committee of the National Assembly on March 22, 2022.
- Upon listing the spun-off subsidiary, allocate 50% or more of new shares to the shareholders of the surviving companyThe amendment to the Capital Markets Act proposed by National Assembly Member Yong-Woo Lee and thirteen others (Bill No.14931) establishes an exception where, when offering the shares of a subsidiary spun-off from a listed company in order to list that subsidiary on the securities exchange, 50% or more of the new shares must be allocated to minority shareholders of the parent company (i.e., the surviving company of the spin-off). This amendment was also submitted to the National Policy Committee of the National Assembly on March 22, 2022.
- Imposition of the burden of proof and liability for damages regarding the fairness of merger value calculations on listed companiesUnder current law, when listed companies engage in legal acts involving organization, such as mergers, the value of such acts must be calculated based on stock prices in the market. National Assembly Member Yong-Woo Lee and ten others proposed an amendment to the Capital Markets Act (Bill No.15401) which stipulates that (i) the value of a listed company applied in case of a merger must be calculated fairly based on market value but also take into account various factors such as asset value and profit value, (ii) the burden to prove the fairness of the calculated value is borne by the listed company, and (iii) the listed company and its directors, auditors, and external appraisal agencies are jointly and severally liable for damages in the event where investors suffer damages due to unfairly determined value of the merger. This amendment was submitted to the National Policy Committee of the National Assembly on April 27, 2022.
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National Agenda Items Relating to Capital Market Innovation and Building Investor Confidence
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Expert Opinions on Strengthening Restructuring Regulations
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