Corporate Regulation Tsunami... Hits Again Next Year

Serious Accident Corporate Punishment Act, Ruling Party Plans to Pass in This Extraordinary National Assembly
Class Action System and Punitive Damages Expected to Be Processed Next Year

[Asia Economy Reporters Kiho Sung, Hyojin Kim, Hyemin Kim] The business community is concerned that the addition of punitive laws such as the Serious Accidents Punishment Act, the class action law, and the punitive damages system?known as the "final boss" of corporate regulations?on top of the three corporate regulation laws will make survival itself untenable, especially as these laws create a tilted playing field favoring foreign speculative capital.

According to political circles on the 10th, the three corporate regulation laws passed by the National Assembly plenary session the day before are expected to be implemented as early as this year. In the case of the amendment to the Commercial Act, it will be sent to the government and take effect within 15 days after promulgation. Starting from next spring's shareholders' meetings, auditors must be elected according to this amendment. Companies are bewildered by the 3% rule, which is implemented immediately without a grace period, and are busy seeking ways to respond. In this situation, companies find some consolation in the fact that the amendments to the Fair Trade Act and the Labor Union Act will take effect one year and six months after promulgation, respectively.

The problem lies in the government and ruling party preparing additional corporate regulation bills focused on punishment. According to political and business circles, the Ministry of Justice plans to submit an amendment to the Commercial Act, centered on the class action system and the expansion of punitive damages, which was announced for legislative notice last September, to the National Assembly by the end of this year or early next year at the latest. The Ministry of Justice also held a public hearing for legislation this month.

The class action system allows all victims to be compensated through a lawsuit filed by some of the victims. The punitive damages system holds companies liable for up to five times the damages if consumers suffer losses due to the company's intentional or gross negligence. The government and ruling party plan to complete related legislative work within this year. Accordingly, these two bills are likely to be handled at the first extraordinary session of the National Assembly in March next year. The business community is concerned that the introduction of the class action system and punitive damages will lead to the leakage of core information such as corporate trade secrets and cause significant damage to the corporate image of companies involved in lawsuits regardless of the judgment outcome.

The Serious Accidents Punishment Act, which allows the detention of corporate owners in the event of industrial accidents, is a law that tightens the noose on companies even further. The provision allowing the detention of CEOs when industrial accidents occur could potentially push small and medium-sized enterprises into bankruptcy risk. Although the Serious Accidents Punishment Act was not passed during this regular session of the National Assembly, both ruling and opposition parties have left the possibility of discussion open. The Justice Party introduced it as the first bill of the 21st National Assembly, and both the Democratic Party of Korea and the People Power Party have also proposed bills, effectively agreeing to the legislation. The ruling party plans to handle this bill within the December extraordinary session. On the same day, Lee Nak-yeon, leader of the Democratic Party of Korea, stated, "We will enact a law to prevent serious accidents and strengthen responsibility as soon as possible."

The insurance industry is also feeling increased pressure due to regulatory tightening moves by political circles and financial supervisory authorities. The ruling party has proposed an amendment to the Financial Consumer Protection Act that makes dispute resolution decisions effective regardless of the financial company's consent if the consumer accepts the settlement for cases under 20 million won, and most of these cases are expected to involve insurance companies.

The reason the government and ruling party are accelerating the processing of regulatory bills appears to be a strategy to complete major pending issues before the lame-duck period of the current administration intensifies after the April by-elections for Seoul and Busan mayors and the start of the presidential race next year.

Business organizations such as the Korea Employers Federation, the Korea Chamber of Commerce and Industry, and the Federation of Korean Industries have submitted opinion letters opposing the bills, but their efforts are insufficient. Yuh Hwan-ik, head of the Corporate System Division at the Federation of Korean Industries, said, "Laws containing overlapping punishments and excessive regulations unprecedented in the world are being prepared one after another," adding, "It is difficult to understand why such systems are being introduced at a time when unreasonable systems should be improved to overcome the economic crisis."

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