Um Soo-jin, a researcher at Hanwha Investment & Securities, argued on the 25th that South Korea's National Assembly should prioritize the pending Capital Markets Act amendment over the recently passed Commercial Act amendment to provide effective shareholder protection. Um published a report titled 'Commercial Act is Far, Capital Markets Act is Near' stating that while the Commercial Act establishes post-event accountability standards for directors, the Capital Markets Act contains mechanisms enabling shareholders to receive direct financial compensation or prevent rights violations before they occur. The Commercial Act amendment, which passed the National Assembly, codifies directors' fiduciary duties to shareholders, adjusts the 3% audit committee member ownership rule, and mandates cumulative voting for large listed companies - measures Um characterizes as improving director selection probability rather than blocking corporate misconduct or immediately enhancing shareholder value. The Capital Markets Act amendment pending in the National Assembly includes mandatory tender offer requirements when control changes hands, fair merger ratio calculation mandates, and spin-off share allocation rights - provisions Um describes as providing immediate and practical safeguards for minority shareholders in South Korea's corporate restructuring landscape.
Commercial Act Amendment Establishes Post-Event Accountability Standards
The Commercial Act's first amendment codifies directors' fiduciary duties to shareholders as a behavioral standard for post-event accountability, according to Um's report. The amendment adjusts the 3% rule for audit committee member shareholding calculations and mandates cumulative voting systems for large listed companies. Um states these provisions increase the probability of shareholders electing preferred board members but do not fundamentally block improper corporate actions or directly enhance shareholder value.
Capital Markets Act Proposes Mandatory Tender Offer System
The Capital Markets Act amendment introduces a mandatory tender offer system requiring controlling shareholders to purchase minority shares at the same premium price when corporate control transfers. Um's report identifies this as the amendment's flagship provision for immediate shareholder protection. The system addresses historical cases where controlling shareholders captured premiums above market price during mergers and acquisitions while minority shareholders received no comparable benefits. Um notes that the United Kingdom and Japan already operate various forms of mandatory tender offer systems guaranteeing minority shareholders investment recovery opportunities.
Fair Merger Ratio Calculation Addresses Historical Valuation Disputes
The Capital Markets Act amendment mandates fair merger ratio calculations incorporating asset value and earnings value, replacing the current system that uses only stock prices as the merger valuation basis. Um's report states the existing regulation allows controlling shareholders to time mergers advantageously, citing disputes surrounding the 2015 Samsung C&T and Cheil Industries merger, recent Doosan Group restructuring, and SK Group reorganization. Um argues the fair valuation mandate would prevent minority shareholders in merged entities from suffering unjust share dilution.
Spin-Off Share Allocation Provision Targets Dilution Prevention
The Capital Markets Act amendment includes a provision for preferential allocation of spin-off subsidiary shares to parent company shareholders when core business divisions undergo physical splits with separate listings. Um's report describes this as an immediate financial compensation mechanism defending minority shareholders against equity dilution. Um stated that minority shareholders suffer property losses when corporate restructuring or control changes undermine their original investment rationale without compensation, making swift Capital Markets Act adoption urgent before large-scale management sales or inter-affiliate mergers commence.
FAQ
What did Um Soo-jin argue about South Korea's shareholder protection legislation on the 25th?
Um Soo-jin, a Hanwha Investment & Securities researcher, argued that South Korea's National Assembly should prioritize the pending Capital Markets Act amendment over the recently passed Commercial Act amendment for effective shareholder protection. Um published a report stating the Capital Markets Act provides mechanisms for direct financial compensation and preventive rights protection, while the Commercial Act establishes only post-event accountability standards for directors.
What provisions does the pending Capital Markets Act amendment contain?
The Capital Markets Act amendment pending in South Korea's National Assembly includes three main provisions: a mandatory tender offer system requiring controlling shareholders to purchase minority shares at premium prices during control transfers, a fair merger ratio calculation mandate incorporating asset and earnings values instead of stock prices alone, and preferential allocation of spin-off subsidiary shares to parent company shareholders during physical divisions with separate listings.
Why does Um Soo-jin consider the Capital Markets Act more effective than the Commercial Act for shareholder protection?
Um's report states the Commercial Act amendment codifies director behavioral standards and improves board election processes but does not block corporate misconduct or directly enhance shareholder value. The Capital Markets Act amendment provides immediate financial compensation mechanisms and preventive safeguards, addressing historical cases where controlling shareholders captured merger premiums while minority shareholders received no comparable benefits, such as KB Financial's Hyundai Securities acquisition and the 2015 Samsung C&T-Cheil Industries merger.
