This Year's Shareholders' Meeting Season, Disclosure Chaos... "Massive Correction Disclosures Flood In"

Submission Disclosure of Business Reports and Audit Reports up to One Week Before the Regular General Meeting of Shareholders
2351 Listed Companies "Schedule Burden, Massive Correction Disclosures After Shareholders' Meeting Unavoidable"
FKCCI "Companies Face Great Difficulties Due to Separate Election System for Audit Committee Members"

[Asia Economy Reporter Lee Seon-ae] Concerns about a 'disclosure chaos' are widespread as the disclosure timing of business reports for listed companies has been moved forward to one week before the regular shareholders' meeting starting this year. According to the revised Enforcement Decree of the Commercial Act, it has become mandatory to disclose business reports before the shareholders' meeting, and if agenda items are rejected at the meeting, a flood of corrected disclosures is expected afterward, which is likely to increase confusion. Moreover, there is a high possibility of access failures to the Financial Supervisory Service's electronic disclosure system (DART) at the time when corrected disclosures are concentrated, potentially causing inconvenience to investors.

According to the Korea Exchange on the 9th, due to the amendment of the Enforcement Decree of the Commercial Act in January last year, 2,351 listed companies with December fiscal year-end holding regular shareholders' meetings in February to March this year must provide shareholders with business reports and audit reports through submission and disclosure to the Exchange and the Financial Services Commission by one week before the regular shareholders' meeting. The business report has become a mandatory document for the shareholders' meeting convocation notice, aiming to allow shareholders to know as much as possible important information about the company, such as financial statements, management status, and dividend scale, before entering the meeting. Until last year, it was sufficient to submit and disclose the business report by the end of March after including important matters confirmed at the regular shareholders' meeting.

Listed companies have significant concerns. Since business reports must be disclosed while important matters are still unconfirmed, a large number of corrected disclosures of the finalized business reports after the shareholders' meeting are inevitable. Last year, agenda items were rejected at the shareholders' meetings of 340 companies, accounting for 17% of 2,029 companies, and this year the scale is expected to be larger. A representative of a listed company said, "This year is the first year after the amendment of the Enforcement Decree of the Commercial Act, so companies cannot help but be confused," adding, "If agenda items are rejected or results change due to amended resolutions, corrected disclosures must be made immediately, so it is natural that corrected disclosures will increase compared to last year."

Furthermore, this year, the 'Audit Committee Separate Election System' has been implemented according to the amendment of the Commercial Act, requiring at least one audit committee member to be elected separately from other directors at the shareholders' meeting, which is expected to lead to more aggressive shareholder activism (actions by shareholders to actively influence corporate decision-making to pursue profits). If shareholders actively exercise their rights using the audit committee separate election system, it will be more difficult for company agenda items to pass at the shareholders' meeting.

The Korea Listed Companies Association stated that the disclosure schedule of business reports before the shareholders' meeting is a burden and that there are significant concerns about confusion caused by corrected disclosures and inadequate disclosures. The Federation of Korean Industries also said, "Companies preparing for this year's shareholders' meetings face great difficulties due to the Enforcement Decree of the Commercial Act, which includes prior disclosure of business reports and the audit committee separate election system." Attorney Kim Ji-pyeong of Kim & Chang Law Firm predicted at a recent 'Corporate Briefing for Responding to the Revised Commercial Act' that "using the audit committee separate election system, activist hedge funds and various minority shareholders such as employee stock ownership associations are expected to actively exercise shareholder rights and make shareholder proposals."

The Korea Exchange distributed a '2020 Year-End Settlement Precautions Guide' the day before, urging companies to comply with the obligation to provide (disclose) audit reports and business reports to shareholders by one week before the shareholders' meeting according to the amendment of the Enforcement Decree of the Commercial Act. Additionally, the Exchange warned, "If the composition requirements such as the formation of the audit committee and the separate election of audit committee members stipulated by the Commercial Act are not met, it may result in designation as a management item or delisting."

Meanwhile, on the 28th of last month, as earnings disclosures from Samsung Electronics, Naver, and others flooded in, simultaneous access by investors trying to view them concentrated, causing access failures to the DART site. A Financial Supervisory Service electronic disclosure team official explained, "The site was overloaded due to a temporary surge in users, making access difficult." Therefore, there is also a possibility of access failures on days when corrected disclosures are concentrated. An investor raised concerns, saying, "If corrected disclosures cannot be properly viewed during active trading hours, the aftershocks will be severe."

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