Reignition of the Commercial Act Amendment on Directors' Duty of Loyalty in the 22nd National Assembly

The Minjoo Party's Jeong Junho Proposes Amendment to Commercial Act on the 5th
Assemblyman Park Jumin Also Plans to Reintroduce the Bill
Changing Atmosphere... Ministry of Justice, the Main Department, Also Contemplating

The amendment to the Commercial Act related to the 'duty of loyalty of directors,' which failed to pass the 21st National Assembly, has been revived as soon as the 22nd National Assembly opened. The current government has joined the public discussion on amending the Commercial Act to resolve the 'Korea Discount' (undervaluation of the Korean stock market), and the opposition party, the Democratic Party of Korea, also agrees with the amendment, making the passage of the bill in this session highly likely.

According to the National Assembly on the 10th, Democratic Party lawmaker Jeong Junho proposed an amendment to the Commercial Act on the 5th. The proposal changes the subject of the duty of loyalty under Article 382-3 of the Commercial Act from 'the company' to 'the proportional interests of shareholders and the company.' This is similar to the bill previously proposed by former Democratic Party lawmaker Lee Yong-woo during the 21st National Assembly. Jeong’s office explained the legislative intent, stating, "There is a growing opinion that legislative measures are needed to resolve conflicts of interest between controlling shareholders and minority shareholders when corporate value remains unchanged or even increases, but the value of common shareholders declines."

Democratic Party lawmaker Park Jumin also plans to propose an amendment to the Commercial Act within this week. During the 21st National Assembly, Park was the main proposer of a bill that changed the duty of loyalty’s subject from 'the company' to 'the company and controlling shareholders.' The core of this is the comprehensive expansion of common shareholders' rights.

Under the current Commercial Act, the duty of loyalty of directors is limited to the company. Therefore, even if the board of directors makes decisions that harm minority shareholders’ interests for managerial reasons, minority shareholders could not hold them legally accountable. Although individual investors and activist funds have pointed out that amending the Commercial Act is essential for fundamental improvement of corporate governance, the bill failed to pass the plenary session amid partisan conflicts in the 21st National Assembly and was automatically discarded.

The market views the likelihood of the bill passing in the 22nd National Assembly as high due to changed government trends. On the 27th of last month, Choi Sang-mok, Deputy Prime Minister and Minister of Economy and Finance, stated at a press briefing that they are considering amending the Commercial Act to include shareholders in the duty of loyalty of directors. This is the first time such a direction for amending the Commercial Act has been mentioned. Although President Yoon Seok-yeol has consistently emphasized the need to amend the Commercial Act since January this year, the Ministry of Justice, the competent authority, had shown reluctance, and discussions on the amendment had not progressed. However, as the government's 'corporate value-up policy' to resolve the Korea Discount showed only a fleeting effect, the government is believed to have taken out the Commercial Act amendment card again. The Ministry of Justice, the competent authority, has also retreated from its previous opposition and is now considering preparing exemption clauses to prevent future controversies.

A wave of public discussion on amending the Commercial Act is expected to arise from academia. The Korea Capital Market Institute and the Korean Securities Association will hold a symposium on the topic of amending the Commercial Act on the 12th. Lee Bok-hyun, Governor of the Financial Supervisory Service, will deliver the congratulatory address, and the head of the Legal Affairs Office of the Financial Supervisory Service is expected to participate as a panelist. The Ministry of Economy and Finance and the Ministry of Justice are also reportedly preparing separate policy hearings related to this matter.

Meanwhile, Jeong’s office plans to consecutively propose a total of six amendments to the Commercial Act, one per day, by next week. On the same day, Jeong also took the lead in proposing an amendment to the Commercial Act centered on the principle that 'the interests of minority shareholders should not be harmed during stock consolidation.' In cases of stock consolidation, if controlling shareholders decide to consolidate stocks at an excessive ratio, a large number of odd-lot shares are generated, and minority shareholders holding less than the consolidation ratio may be forcibly excluded from the company without proper compensation, regardless of their will. This issue has been pointed out as a problem. The dispute between Saint-Gobain Korea Holdings (formerly Korea Glass Industry) and minority shareholders is a representative case. Recently, the Seoul High Court ruled in the second trial of a damages claim lawsuit filed by minority shareholders of Saint-Gobain Korea last month, stating that "the minority shareholders of Saint-Gobain suffered damages by receiving compensation below the appropriate price."

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