Cabinet passes contentious ‘one-shot’ act

The Ministry of Trade, Industry and Energy said on Tuesday that the three-year temporary law aimed at bolstering corporate activities through self-reform was approved by the cabinet and will be enacted on August 13.

Under the new law, the government estimates it will provide 8.7 trillion won ($7.9 million) in financial backing to companies that apply for the controversial “one-shot” program. The companies also will receive tax benefits and relaxed regulations on mergers and acquisitions.

The law applies only to companies that are in industries that are in a global glut or slump, like steel, shipping and shipbuilding. Operating profits for the most recent three years must have declined by more than 15 percent over the average operating profit made in the last 10 years.

A 20-member committee of government officials, lawmakers and workers from the private sector will review the companies’ business reform plans, which include details on production efficiency, new product development and business expansion, 30 days before approval. This is a cut from the previous 60 days.

The “one-shot” act was approved by lawmakers in February, seven months after the bill was proposed. However, even today, critics still accuse the government of showing favoritism to major big businesses. The law not only will ease regulations on corporate governance for the next three years, it will also make it easier for conglomerates to expand through less strict requirements on M&As and commerce and antitrust regulations. Other question whether companies would actually apply for the program, arguing it could it hurt stock values.

One of the biggest concerns has been the government’s ease on governance regulations, which include allowing holding companies to own only 50 percent in so-called great-grandson companies, which are created or financed by subsidiaries’ units, for three years. Currently the holding companies have to own 100 percent of the units.

This suspension on regulations is expected to encourage major conglomerates like Hyundai Motor and Hanwha Group to convert to holding companies.

Additionally, conglomerates will be given a year grace period instead of the current six months to sell stakes they have in affiliates when companies restructure cross-shareholding on the back of new investments.

Industry insiders have pointed out that the “one-shot” law emphasizes corporate restructuring rather than on reforming businesses to enhance competitiveness. As a result, investors could have a negative view on companies that apply for the program, making it more difficult for companies to attract investors.

The government, however, says that the “one-shot” law is designed to help companies with potential to preemptively secure and enhance their competitiveness, adding it is not designed to support already insolvent companies. The ministry also stressed that although the one-shot program has no restrictions on the size of the company, it is mostly designed to support small and midsize businesses.

It will reject companies who are seeking to overhaul their management to ensure successors or providing unfair support to affiliates.

“We will strictly review especially on the business reform plans by conglomerates on whether their goal is inheriting management controls,” said a government official.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]