Is the Commercial Act Amendment Finding a Common Ground Between Companies and Shareholders?

Party Conflict Over Fiduciary Duty
Lee Jae-myung Leads Debate Moderator
"We Can Reach a Reasonable Agreement"

The Democratic Party of Korea held a forum on the morning of the 19th at the National Assembly Main Building under the theme "A Happy and Just Republic of Korea, How Should the Commercial Act Be Amended?" This forum, chaired directly by Representative Lee Jae-myung, was organized to listen to opinions from the business community and investors and to discuss measures to protect minority shareholders in order to prepare an amendment to the Commercial Act that would enhance market trust.

On the morning of the 19th, the Democratic Party held a forum at the National Assembly Main Building on the theme "How to Amend the Commercial Act for a Happy and Just Republic of Korea?" Photo by Baek Seong-hyun, Legal News Reporter

At the policy forum, Representative Lee chaired the session and said, "Although our positions may differ, we can maintain a reasonable line and reach an appropriate consensus." He added, "The topic we are dealing with today is very difficult, but ultimately a decision must be made, and the Democratic Party must bear significant responsibility for this issue," emphasizing, "We will listen carefully to the opinions today and strive to reach a rational decision."

Lee’s direct involvement in conducting the forum is interpreted as the beginning of a full-fledged public opinion campaign in the National Assembly following last month’s adoption of a party-line amendment to the Commercial Act, which expands the duty of loyalty of directors from the ‘company’ to the ‘company and shareholders.’

The forum featured seven discussants each from the management and investor sides. On the management side, participants included Park Il-jun, Executive Vice President of the Korea Chamber of Commerce and Industry; Jung Young-jun, CFO of Simpack; Lee Hyung-hee, Chairman of SK Spex Communications Committee; Kim Dong-wook, Vice President of Hyundai Motor Company; and Jung Woo-yong, Policy Vice Chairman of the Korea Listed Companies Association. On the investor side, participants included Myung Han-seok, Executive Director of People’s Solidarity for Participatory Democracy; Yoon Tae-jun, Director of the Shareholders’ Action Platform ACT Research Institute; and Lee Chang-min, Professor at Hanyang University.

The management side expressed concerns that the amendment to the Commercial Act could harm corporate competitiveness. Executive Vice President Park Il-jun stated, "Raising the intrinsic value of companies is the fundamental solution," adding, "Rather than regulation, efforts through proactive industrial competitiveness are the way to protect shareholders while making companies and the stock market healthier." He continued, "The Capital Market Act applies to about 500 companies, but the Commercial Act applies to over one million unlisted companies, causing difficulties for medium and small enterprises," emphasizing, "Instead of amending the Commercial Act, a targeted regulatory approach such as ‘pinpoint regulation’ on cases like mergers and splits is necessary." Park also expressed concern, saying, "If the Commercial Act is amended, there could be various confusions until precedents are established," and joked, "Eventually, we might have to appoint judges as chairpersons since corporate management would be left to the courts."

Jung Young-jun, CFO of Simpack, also argued, "When the interests of shareholders and the company, or among shareholders themselves, conflict, how should the board of directors decide?" He warned, "In a situation with legal risks, management activities will be defensive and focused on maintaining the status quo."

The investor side pointed out structural problems in the domestic market due to insufficient shareholder protection mechanisms. Executive Director Myung Han-seok stated, "Just as there are labor laws for workers and civil laws for creditors, clear provisions protecting shareholders are needed in the Commercial Act," arguing, "The absence of shareholder protection mechanisms is one of the main causes of the Korea discount." He cited the 2009 Supreme Court precedent on the low-price issuance of Everland convertible bonds (CB) as an example, criticizing the domestic Commercial Act for being passive in protecting shareholder interests.

The Supreme Court in 2009 acquitted the late Lee Kun-hee, former chairman of Samsung Group, who was indicted for aiding management succession by issuing Everland convertible bonds at a low price (case number 2008Do9436). At that time, the Supreme Court emphasized the directors’ duty of loyalty to the company but did not mention a direct duty of loyalty to shareholders.

The discussion also mentioned the indifferent response of young investors. Park Kwang-hyun, representing minority shareholders, criticized, "MZ generation investors have already turned their eyes to the U.S. market or virtual assets," adding, "Reforms at a level tolerable to management cannot bring them back to the domestic market."

The current amendment to the Commercial Act is pending in the National Assembly’s Legislation and Judiciary Committee. The Democratic Party announced plans to hold a related public hearing at the subcommittee of the Judiciary Committee on the 30th and aims to process the amendment at the plenary session as early as the beginning of next year.

Kim Ji-hyun, Reporter for Legal Times

※This article is based on content supplied by Law Times.

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