SOUTH KOREA Law and Practice Contributed by: Ki Wook Kang, Kyung Chun Kim, Junghae Kang and Do Kyeom Kim, Lee & Ko
combinations where the target company is a party, such committees are rarely established in practice. Under the KCC, any director who has a special inter - est in a matter for board resolution is prohibited from voting on such resolution. This is to avoid a conflict- of-interest situation between the company and such director. Therefore, in the context of business combi - nations, whether or not a particular director is subject to limited voting rights is subject to a case-by-case analysis. 8.3 Business Judgement Rule Although there is no Korean statute that has specifi - cally adopted the concept of “business judgement rule” as it applies in the USA, Korean courts recognise a similar principle. According to court precedents, a director is deemed to have discharged their duty of care even if such decision results in loss or damage to the company, when the relevant director has: • sufficiently collected, investigated and examined the necessary and appropriate information to the extent reasonably available; • reasonably believed that such decision is in the best interests of the company; and • reached such decision in good faith following due process, unless the decision-making process or the content of such decision is not significantly unreasonable. The above principle is also applicable in takeover situ - ations, although it should be noted that the board of directors of the target company generally does not play a significant role in takeover transactions in Korea. 8.4 Independent Outside Advice In Korea, the board of directors seeks independent third-party advice with respect to takeover bids only in special circumstances. Such circumstances often arise in the case of a merger or a comprehensive share exchange transaction in which the company is a party and therefore the board is responsible for determin - ing the fair merger or exchange ratio. These third- party opinions may be helpful to mitigate the risk of the board being found to have breached its fiduciary duties. According to the FISCMA, if a listed company engages in business combinations such as a merger
or a comprehensive share exchange and does not set its valuation at market price, it is obliged to be evalu - ated by a third-party valuation agency. 8.5 Conflicts of Interest Directors are deemed to be fiduciaries of the com - pany and owe a duty of care and loyalty to the com - pany, and officers are also under a similar duty of care depending on their responsibilities. While Korean law does not specifically impose any duties on a control - ling shareholder in relation to a business combina - tion, a controlling shareholder may be found to be a de facto director and thereby owe fiduciary duties to the company if such controlling shareholder exercises control over the decisions made by a director. In addition, the KCC restricts direct and indirect self- dealing, prohibits usurpation of corporate opportuni - ties, and prevents interested directors from voting, so as to address potential conflict of interest issues. Hostile tender offers are permitted in Korea but they are not common; in rare cases where they have been attempted, such attempts have most often failed. Recently, shareholder activism has become more prominent in M&A transactions. A noteworthy case in the Korean M&A market in 2024/2025 is the dispute over the management rights of Korea Zinc. MBK Partners, together with Young Poong, the largest shareholder of Korea Zinc, declared a public offering of Korea Zinc’s shares, and the dispute arose when the chairman of Korea Zinc responded by publicly offering its own shares. On 28 March 2025, Chairman Choi Yoon-bum successfully defended his management rights through an annual general meeting of shareholders. 9.2 Directors’ Use of Defensive Measures A director is allowed to take defensive measures against a hostile takeover so long as the director sat - isfies their fiduciary duty to the company and complies with the relevant laws and regulations. However, the scope of such measures may be limited in this con - 9. Defensive Measures 9.1 Hostile Tender Offers
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