Shareholder suit bill advances

The long-debated class action lawsuit law is inching closer to approval, with some politicians predicting that it will take force in 2004. The lawsuit measure, in its present form, would apply to all publicly traded companies, although firms with less than 2 trillion won ($1.69 billion) in assets would be safe from such lawsuits until July 2005.
The Legislation and Judiciary Committee’s review subcommittee approved the measure yesterday.
The legislation in its present form does not reflect all the measures businessmen sought to protect themselves from what they called abusive or frivolous suits. The Grand National Party, which controls the Assembly, had called for provisions that would allow suits only after a finding by a government financial body and require a cash deposit before filing a case. Those provisions are not in the legislation that cleared the subcommittee yesterday.
Class action lawsuits are those filed on behalf of group of shareholders with an identical grievance, and the proposed legislation only allows filing of such suit for financial fraud complaints: book-rigging, stock price manipulation or false disclosures and audits.
At least 50 shareholders who collectively owns either 0.01 percent of a firm’s shares or own shares valued at 100 million won would be required for a suit to be filed. The court would have the right to investigate the qualifications of shareholders as plaintiffs. The court could also ask for basic information from financial authorities. If a court rejected the filing of a lawsuit, aggrieved shareholders would have the right to appeal the decision.
The legislation subcommittee’s text has some significant changes from the original plan proposed by the government in 2001, which limited lawsuits to those against firms with 2 trillion won or more in assets. That would have limited the scope of the law to only about 90 Korean firms.
The proposal must still clear the full committee and the Assembly, but most observers sounded confident that final approval would come in August.

by Lee Sang-ryeul