SOUTH KOREA Law and Practice Contributed by: Kyu Seok Park, Dahye Cho and Justin Kim, Lee & Ko
it liability by requiring the buyer to subscribe to W&I insurance. For the same reasons as provided in 8.1 Equity Incen- tivisation and Ownership , it is not customary for the management team to hold shares, but where a man - agement team is selling shares it holds, it normally provides the same level of warranties to the buyer as the private equity seller. To limit liability for warranties, survival periods, de minimis, basket and cap are all utilised in documen - tation and anti-sandbagging is generally a fiercely negotiated point. Survival periods for mid to large-size deals that proceed via auction bids are typically one- and-a-half to two years, with longer periods usually granted for specific warranties on tax, labour, envi - ronment and compliance. Regarding quantum limita - tions, the amounts can vary from deal to deal, but caps rarely go beyond 10%. Finally, on limitation on liability for known issues, while full disclosure of the data room as an exception to the warranties was not commonly accepted in the past, recently there has been an uptick in sellers that make such demands in conjunction with anti-sandbagging. 6.10 Other Protections in Acquisition Documentation As examined in 6.8 Allocation of Risk , private equity sellers previously sought protections by bearing liabil - ity for breach of representations and warranties on a short-term basis and having an escrow in place to back these obligations. However, recently, private equity sellers have more often taken protection by making the buyer subscribe to W&I insurance and only bearing liability in the case of fraud. W&I insur - ance has become commonplace in deals with private equity sellers in the past several years. However, where the seller is an overseas fund, the buyer must withhold capital gains tax, but because the calculation of the withholding amount is based on the information provided by the seller, if tax is later collected from the buyer, the seller must indemnify the buyer therefor. Although insurance companies now offer products that cover liabilities stemming from capital gains tax, the risk is most commonly covered
by a guarantee or an escrow for credit reinforcement provided by the overseas fund or its parent. When subscribing to W&I insurance, the coverage often extends to both fundamental and general busi - ness warranties including tax warranties (for unknown risks), albeit the claims period for fundamental warran - ties would typically be for a longer duration. From time to time, the buyer may be inclined to acquire a stan - dalone tax cover to insure any potential liability (which is a known risk) resulting from the seller’s capital gains tax obligations (as discussed above), particularly if the seller is a foreign entity. In the case of escrow or holdback amounts, there is typically no distinction between recourse for funda - mental and general business warranties. 6.11 Commonly Litigated Provisions Litigation in connection with private equity transac - tions is not common, but occurs from time to time. The most commonly litigated provisions are those on indemnification pursuant to breaches of representa - tions and warranties, but disputes also occur in con - nection with shareholders’ agreements where a pri - vate equity fund is the minority investor (eg, disputes over put options following failure to conduct an IPO). Up until the first half of 2023, public-to-privates in pri - vate equity transactions had been uncommon. In the case of the Osstem Implant take-private transaction, the buy-side consortium comprising MBK Partners and UCK Partners had undergone two tranches of tender offers in order to meet the minimum sharehold - ing threshold for delisting. Market observers believe that a key component for success in this landmark transaction was that the tender offer price was equal across the board and all participants benefited from the management premium. In a public-to-private transaction, the involvement of the target and its board of directors is limited until the tender offer is completed. That said, the company plays a key role in holding meetings with shareholders 7. Takeovers 7.1 Public-to-Private
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