SOUTH KOREA Trends and Developments Contributed by: Joo-Young Kim, Hyun-Ju Ku and Dong-Wook Kim, Hannuri Law
Broader opportunities for shareholders’ direct lawsuits Where a director’s conduct causes direct damage to shareholders without measurable loss to the com- pany, direct suits by individual shareholders may become more viable. With the amendment clarifying that directors must protect the collective interests of shareholders and treat them equitably, claims based on the Commercial Act Article 401 for direct share- holder harm now have a clearer footing. By contrast, for indirect damage to shareholders, many expect that direct suits will remain difficult. Whether criminal breach of trust liability will expand Most commentators interpret the amendment as broadening only directors’ duty of loyalty to share- holders, without expanding the duty of care. On this view, criminal breach of trust liability for directors, as “entrusted managers of shareholders’ affairs,” will not expand. Separately, given concerns about excessive liability, the government and ruling party are consider- ing measures to ease directors’ exposure to criminal breach of trust charges. Another policy debate centres on civil procedure: because Korea lacks U.S.-style discovery, filing a criminal breach of trust complaint is sometimes used as a de facto substitute for civil discovery. Some com- mentators argue that any repeal or softening of breach of trust liability should be accompanied by the intro- duction of a discovery mechanism in civil litigation.
Capital Markets Act compliance and the duty of loyalty In Korea, the Capital Markets Act decree specifies detailed formulas for merger ratios. A recurring ques- tion has been whether simply complying with those formulas satisfies directors’ duties of care and loyalty. Experts comment that post-amendment, when evalu- ating capital transactions and restructurings, directors should consider not only compliance with the statu- tory formula but also the overall fairness and timing to shareholders; only then will the duty of loyalty be adequately discharged. Controlling shareholders’ duty of loyalty to minority shareholders The amendment does not explicitly impose a duty of loyalty on controlling shareholders. However, the Commercial Act provides for de facto director liability where a controlling shareholder qualifies as a “person who instructs another person to conduct business” (Article 401-2). Based on this provision, some argue that controlling shareholders may, in substance, bear a duty toward shareholders. A third wave of Commercial Act amendments around the corner The ruling party is preparing an additional amend- ment, potentially as early as the National Assembly’s regular session in September, to mandate retirement of treasury shares. Current proposals diverge on tim- ing: One bill stipulates immediate retirement upon acquisition, while another bill would introduce a one- year grace period.
237 CHAMBERS.COM
Powered by FlippingBook