Economic Groups Warn "Concerns Over Management Threats from Speculative Capital Abuse in Commercial Act Amendment"

Submission of Joint Opinion Letter on Amendment Bill by KEF, FKCCI, and CKCCI
Opposition to Multiple Derivative Lawsuits and Separate Appointment of Audit Committee Members

[Asia Economy Reporter Dongwoo Lee] Recently, concerns have been raised that the proposed amendments to the Commercial Act, announced by the Ministry of Justice for legislative notice, may pose management threats due to abuse by speculative capital.

Six economic organizations, including the Korea Employers Federation, the Federation of Korean Industries, the Korea Federation of Small and Medium Business, the Korea Association of Mid-sized Companies, the Korea Listed Companies Association, and the KOSDAQ Association, announced on the 19th that they submitted a joint economic sector opinion reflecting corporate realities on the partial amendment bill of the Commercial Act to the Ministry of Justice on the 17th.

These organizations argued that the proposed amendments to the Commercial Act contain contentious issues requiring discussion, such as the expansion of the 3% rule, multiple derivative lawsuit system, and separate appointment of audit committee members, which could lead to serious consequences by leaving the management rights of Korean companies defenseless against speculative large foreign capital through excessive corporate regulation.

First, they opposed the separate appointment of audit committee members. They emphasized that if the ownership of other shareholders is separated by country and fund, and the mandatory separate appointment of directors who are audit committee members is used together, it could be abused or misused as a means to dominate the board of directors and interfere with corporate management through regulatory gaps.

They also opposed the expansion and reform of the 3% rule, which causes reverse discrimination among shareholders. The organizations explained that by unifying the application of the combined 3% rule when appointing audit committee members and auditors, companies would inevitably face rigid operation of the audit system due to a ‘regulatory balloon effect,’ such as reducing the overall number of audit committee members including outside directors or switching from the audit committee system to the full-time auditor system.

They expressed concerns that the multiple derivative lawsuit system would sharply increase litigation risks for listed companies. Under the current Commercial Act, companies are recognized as independent legal entities considering the composition of investors, but lawsuits filed by shareholders of the parent company, who are not investors in the subsidiary, could relatively infringe on the shareholder rights of the subsidiary, potentially causing legal conflicts between the current Commercial Act system and the proposed amendments.

Based on the minority shareholder rights requirements of listed parent companies, threatening lawsuits against unlisted subsidiaries could be possible, raising concerns that such lawsuits might be abused or misused as tools to pressure companies by speculative capital aiming for management rights takeover or short-term profit realization.

For example, Cheongho Comnet Co., Ltd. could file lawsuits against a total of 13 companies including the parent and subsidiaries with 1.35 million KRW, and KOIZ Co., Ltd. could file lawsuits against a total of 3 companies including the parent and subsidiaries with 1.38 million KRW.

They argued that if the requirements for exercising minority shareholder rights are relaxed, preemptive regulatory measures against abuse of shareholder rights are necessary. The organizations explained that it is necessary to establish preemptive regulatory measures to appropriately respond to shareholder rights abuse, such as management threats under the guise of shareholder activism, when minority shareholder rights are exercised for improper purposes despite not being in a situation to exercise such rights.

On the other hand, they supported the conditional relaxation of the general meeting resolution requirements when appointing auditors (committee members). Considering the large-scale rejection of agenda items at shareholders’ meetings due to insufficient quorum, they stated that it is reasonable to apply the resolution requirements for appointing auditors (committee members) rationally on the condition that companies make efforts to meet quorum requirements through diversification of voting rights exercise systems.

This content was produced with the assistance of AI translation services.