"Amendments to Commercial and Fair Trade Laws Cause Business Contraction, Economic Groups Launch Joint Response"

Agree with legislative intent such as securing governance and management transparency, protecting minority shareholders,
but regulatory-only bills like the multiple derivative lawsuit system clearly stifle management
Amendments to the Fair Trade Act also include regulations that hinder investment and job creation

[Asia Economy Reporter Kim Hyewon] Major economic organizations such as the Korea Employers Federation and the Korea Chamber of Commerce and Industry have jointly responded to the government and the National Assembly, arguing that the proposed amendments to the Commercial Act and the Fair Trade Act, which focus solely on corporate regulations, will lead to a contraction in business activities.

These economic organizations agree with the government's legislative intent behind the Commercial Act amendments, such as improving corporate governance, ensuring management transparency, and protecting minority shareholders. However, they consider the restructuring of regulations on the appointment of auditors (committee members), strengthening directors' responsibilities (introduction of a multiple derivative lawsuit system), and the codification of selective operation of minority shareholder rights exercise requirements as excessive regulations. They emphasize that careful discussions on the appropriateness and effectiveness of these measures should precede. In particular, they argue that regulations to prevent abuse of shareholder rights must be established before easing the requirements for exercising minority shareholder rights. This is because if minority shareholder rights are exercised for improper purposes when there is no situation warranting their exercise, there would be no means to counter management threats under the guise of shareholder activism.

These economic organizations also state that while easing quorum regulations and revising the system related to the dividend record date are desirable, from the perspective of regulatory rationality, the scope of application (quorum regulations) should be expanded in the mid to long term, and additional measures are necessary to ensure operational stability (deletion of the dividend record date) following system revisions.

The Fair Trade Act amendment, which comprehensively covers corporate regulations, is also judged by the economic sector to potentially become a 'bad law' threatening corporate survival. The proposed Fair Trade Act amendments include ▲strengthening regulations on holding company shareholding ratios ▲expanding the scope of unfair internal transactions regulations ▲abolishing exclusive prosecution rights ▲raising the upper limit on fines.

These economic organizations argue that the Fair Trade Act amendments are also regulatory bills that hinder corporate investment and job creation. A representative example is the increase in mandatory shareholding ratios for subsidiaries and sub-subsidiaries of holding companies. Since the cost of acquiring shares increases when general business groups transition to a holding company system, the capacity for new investment and job creation inevitably decreases, according to the economic sector's critique. As of last year, among 34 business groups restricted from cross-shareholding, assuming the transition of 16 non-holding company business groups to holding companies would require an additional approximately KRW 30.9 trillion solely for securing shares. It is said that if this amount were invested, it could create 244,086 jobs.

Concerns have also been raised that if the scope of unfair internal transaction regulations expands according to the legislative notice, transactions between vertically integrated affiliates will shrink, reducing transaction efficiency. There is a potential conflict between strengthening holding company shareholding ratios and expanding the scope of unfair internal transaction regulations. The expansion of unfair internal transaction regulations encourages reducing shares in subsidiaries and sub-subsidiaries, whereas strengthening holding company shareholding ratios requires increasing their shares. These economic organizations appeal, "Holding companies already face more regulations compared to general business groups, and if the amendments pass, they will bear the full brunt of damages caused by conflicts between systems."

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