Preventing Rights Infringement in Physical Division... Strengthening Disclosure and Introducing Stock Purchase Rights

[Asia Economy Reporter Lee Jung-yoon] The Financial Services Commission announced on the 4th that it has prepared measures to enhance the rights and interests of common shareholders regarding the listing of subsidiaries through physical division.

According to the FSC, companies planning to pursue physical division must disclose the specific purposes and expected effects of the physical division, such as restructuring, sale, or listing, as well as shareholder protection measures through a major event report. In particular, if the subsidiary is planned to be listed, the expected schedule must be disclosed, and if the listing plan changes, a correction disclosure must be made.

Additionally, shareholders of listed companies who oppose the physical division will be granted the right to request the company to purchase their shares, known as the right to request share repurchase. Shareholders opposing the physical division at the general shareholders' meeting can sell their shares at the pre-division stock price.

Listing reviews will also be strengthened. If a subsidiary is listed within five years after physical division, the Korea Exchange will review the efforts to protect the parent company's common shareholders, and if insufficient, the listing will be restricted.

The strengthened listing review system will also apply to companies that completed physical division before the revision of listing standards, provided that five years have not passed since the division. Furthermore, the Exchange’s listing guidebook will specifically present shareholder protection measures that companies can adopt and examples of insufficiencies to increase corporate predictability and encourage effective shareholder protection efforts.

These measures to enhance the rights and interests of common shareholders were prepared in response to concerns raised by some companies listing high-growth business divisions through physical division in a short period, resulting in loss of shareholder rights and stock price declines, causing harm to common shareholders.

It is expected that these newly prepared measures will establish a foundation for companies to fully consider the rights and interests of common shareholders during the physical division process.

Companies must actively explain through disclosures and shareholder communication efforts that physical division enhances corporate value and aligns with the interests of common shareholders. If they fail to gain the support and consent of common shareholders, pursuing physical division may become practically difficult. In cases where the majority of common shareholders oppose and the physical division causes a decline in corporate value, large-scale exercises of the right to request share repurchase may occur.

Common shareholders will be provided with sufficient information about the management’s judgment background and expected effects related to the physical division and will be able to utilize this information in decision-making processes such as shareholders’ meetings.

An FSC official stated, "We will comprehensively review the implementation of shareholder protection measures disclosed earlier during the subsidiary listing process after physical division, as well as companies’ efforts to address shareholder protection issues arising during the listing process, to ensure the effectiveness of shareholder protection."

He added, "We will promptly proceed with follow-up measures to ensure the swift implementation of these measures aimed at restoring trust in the capital market and protecting investors. The revision of corporate disclosure forms and the Korea Exchange’s listing standards will be completed by October this year, and the amendment of the Enforcement Decree of the Capital Markets Act related to the introduction of the right to request share repurchase will be announced for legislative notice starting from the 5th, aiming to complete the system improvement within this year."

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