SOUTH KOREA Law and Practice Contributed by: Ho Joon Moon, Sung Min Kim, Allen Hyungi Ryu and Joon Sung Hong, Lee & Ko
6.7 Minority Protection and Control Rights Since the governance of a JV company is primar - ily determined by the shareholding ratio, a minority shareholder with only a limited equity stake may seek to enhance its influence through various structural mechanisms. Minority shareholders seek to obtain veto rights over key operational decisions. Such veto rights are typi - cally structured to prevent the majority sharehold - ers from exercising certain powers unless consent is obtained from a director nominated by the minority shareholders. In addition to board reserved matters, it is also common to include similar provisions with respect to the shareholders’ meetings in order to pro - tect the interests of minority shareholders. In most JVs, the minority party does not appoint the representative director, and would seek to limit the scope of matters that can be decided by the rep - resentative director. Parties can decide that certain specified key matters will be escalated to the board of directors, with veto rights granted to the director(s) nominated by the minority party over critical matters such as the acquisition and disposition of material assets, incurrence of indebtedness in excess of a cer - tain amount, and changes to the governance struc - ture. This approach allows a certain degree of control despite minority ownership. As the largest shareholder typically retains the right to appoint the representative director and a majority of the board, minority shareholders often seek to ensure adequate oversight by securing the right to appoint a statutory auditor or CFO to monitor the board and financial affairs. A minority shareholder with limited bargaining pow - er is often in a vulnerable position when seeking to exit from the JV company, particularly in situations involving deteriorating financial performance of the JV company or a breakdown in the relationship with the majority shareholder. To safeguard the ability to recover its investment, certain protective mechanisms may be adopted, including: • a tag-along right, which entitles the minority share - holder to sell its shares to a third party on the same
terms and conditions if the majority shareholder intends to transfer its stake; or • a put option, whereby the majority shareholder is contractually obliged to purchase the minority shareholder’s stake at a pre-agreed or negotiated price upon exercise of the option. 6.8 Applicable Law and Dispute Resolution in International JVs Choice of Governing Law and Dispute Resolution The choice of governing law and dispute resolution mechanism in a JV agreement is typically influenced by the relative bargaining power of the parties. Cost- efficiency and procedural expediency are also key considerations, and parties often designate the law and courts or arbitral institutions of the jurisdiction where the JV company is established. In South Korea, available alternative dispute resolution (ADR) mechanisms include court-annexed mediation, as well as mediation and arbitration administered by the Korean Commercial Arbitration Board (KCAB). However, there are no mandatory ADR procedures under South Korean law in general. South Korea is a signatory to the 1958 New York Convention, and as such, foreign arbitral awards are generally enforceable by South Korean courts. Enforceability of Foreign Judgments and Arbitral Awards Under Article 217 of the Korean Civil Procedure Act, a foreign court judgment may be enforced in South Korea if the following conditions are met: • the foreign court has international jurisdiction under South Korean law or applicable international treaties; • the defendant was duly served with the complaint in a manner that afforded sufficient time to prepare a defence; • recognition of the judgment does not violate South Korean public policy or good morals; and • there is reciprocity, meaning that the foreign juris - diction would similarly recognise South Korean court judgments on substantially the same basis. As a signatory to the 1958 New York Convention, South Korea recognises and enforces foreign arbi -
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