Business Community Submits Opposition to Commercial Act Amendment Bill... "Concerns Over Speculative Capital Threatening Management Rights"

[Asia Economy Reporter Su-yeon Woo] The business community recently expressed opposition to the proposed amendments to the Commercial Act announced by the government, citing concerns that speculative capital could exploit the changes to infringe on corporate management rights.

According to the business sector on the 19th, six economic organizations including the Korea Employers Federation, the Federation of Korean Industries, the Korea Association of Small and Medium Business, the Korea Listed Companies Association, and the KOSDAQ Association submitted a joint statement opposing the Commercial Act amendments to the Ministry of Justice on the 17th.

Recently, the Ministry of Justice announced a draft amendment to the Commercial Act, focusing on provisions such as separate appointment of audit committee members, revision of the 3% voting rights restriction, introduction of a multiple derivative lawsuit system, relaxation of minority shareholder rights exercise requirements, and improvement of regulations related to dividend record dates. In response, the six economic organizations stated, "There are contentious issues that could lead to serious consequences by leaving our companies' management rights defenseless against speculative large foreign capital due to excessive corporate regulations," and emphasized the need for "careful discussion."

Key Points of the Ministry of Justice's Commercial Act Amendment Proposal

First, these organizations opposed the separate appointment of audit committee members and the 3% voting rights restriction regulation included in the government’s amendment. The '3% rule' in the government’s amendment limits the combined voting rights of the largest shareholder and related parties to 3%, while restricting each general shareholder to 3% voting rights individually.

In response, the business community pointed out that if speculative capital or other shareholders separate ownership by country or fund and adjust individual shareholding ratios to 3%, and use this together with the separate appointment system for audit committee members, they could dominate the board through regulatory gaps and misuse it as a means to interfere with corporate management.

Furthermore, if the 'combined 3% rule' applies only to the largest shareholder with management rights, companies will inevitably have to reduce the total number of audit committee members, including outside directors, and may resort to other measures such as converting the audit committee system into a full-time auditor system, making rigid operation of the audit system unavoidable.

Additionally, the business community expressed opposition to the introduction of the 'multiple derivative lawsuit system,' which was introduced to strengthen directors' responsibilities, citing potential conflicts with current laws and legal principles. They stated, "Under current law, companies are recognized as independent legal entities considering the composition of investors, so there is concern that lawsuits filed by shareholders of the parent company, who are not investors in the subsidiary, could infringe on the subsidiary’s shareholder rights."

In particular, as threat lawsuits against unlisted subsidiaries based on minority shareholder rights of the parent company become possible, the litigation risk for listed companies is expected to increase by 3.9 times. For example, the potential lawsuit amount for Samsung Electronics, the largest KOSPI market cap company, under the multiple derivative lawsuit system is about 31.1 billion KRW, whereas for Cheongso Comnet, lawsuits against parent and subsidiary companies could be filed with only 1.35 million KRW. The business community said, "This shows that while the possibility of lawsuits by retail investors is slim, the potential for abuse by speculative capital is high."

Moreover, the business community clearly opposed the codification of selective operation of minority shareholder rights exercise requirements, and while they supported the conditional relaxation of the general shareholders' meeting resolution requirements for appointing audit committee members, they stated that supplementation is necessary. They said, "Looking at the rejection status of listed companies’ shareholders’ meetings last year, 23% of rejections occurred in other agenda items, not limited to audit committee appointments," and added, "There is a need to review measures to relax resolution requirements for the entire shareholders’ meeting, not limited to audit committee appointments."

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