Fair Trade Commission Significantly Eases M&A Corporate Review Burden

Partial Amendment to the Fair Trade Act Prepared... Legislative Notice Scheduled for Early Next Year
Reflecting Results of Expert TF Discussions on Corporate Merger Legislation Reform

[Asia Economy Reporter Eunju Lee] The Korea Fair Trade Commission (KFTC) will significantly ease the burden of M&A reviews for companies in response to the continuously increasing number of corporate mergers and acquisitions (M&A). The key points include revising the Fair Trade Act to expand the scope of M&A cases exempt from reporting obligations and introducing a system for companies to voluntarily submit corrective measures.

On the 29th, the KFTC announced that it will propose a partial amendment to the Fair Trade Act containing these changes for public consultation early next year. This reform reflects the results gathered from discussions held five times between the end of June and the end of October this year by the ‘Corporate Merger and Acquisition Law Reform Expert Task Force (TF),’ and will be incorporated into next year’s amendment to the Fair Trade Act. The KFTC explained that all TF members agreed on the necessity to reduce the number of reports by expanding the types of M&A that have little market impact relative to the number of reports and review personnel to be exempt from reporting.

Going forward, companies that merge with or acquire business operations from affiliates in which they hold 50% or more of the shares will be exempt from the obligation to report the merger. The KFTC judged that when the acquiring company directly holds more than 50% of the shares of the acquired company and already forms a sole control relationship, the possibility of new competition restrictions arising from the merger or business acquisition is minimal. Under the current Fair Trade Act, mergers and business acquisitions between affiliates are handled through simplified reviews, but this measure aims to further ease the burden on companies and activate mergers.

Private Equity Fund (PEF) establishment will also be included in the reporting exemption category. The KFTC considers PEFs as collective investment vehicles with legal personality, and M&A activities conducted at the PEF establishment stage are judged to have no substantial impact on market competition. Additionally, cases where the reporting company holds less than one-third of the total executives of the counterparty company (excluding the CEO) will also be exempt from reporting. This is based on the judgment that holding less than one-third of executives makes it difficult to exert substantial influence on the decision-making of the counterparty company.

Furthermore, to maximize review efficiency, a ‘Voluntary Corrective Measures Submission System’ will be newly introduced. If the KFTC expresses concerns about competition restrictions during the corporate review process, companies will be allowed to decide whether to voluntarily submit corrective measures, and this will be codified in the Fair Trade Act. If the KFTC determines that the submitted measures sufficiently resolve competition concerns, the M&A will be approved on the condition of implementation. Currently, the KFTC, which has less information on management conditions compared to companies, directly designs and imposes corrective actions.

The KFTC stated, “Once these legislative reforms are completed, the burden of M&A on companies will be significantly eased, and the KFTC will secure review capabilities for selection and concentration, establishing an effective review process. This is expected to be an opportunity for corporate merger reviews to take a step forward.”

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