Gov't to push for Capital Markets Act amendment on shareholder protection

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Gov't to push for Capital Markets Act amendment on shareholder protection

Published: 02 Dec. 2024, 16:00 Updated: 02 Dec. 2024, 19:20

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

Financial Services Commission Chairman Kim Byoung-hwan speaks during a press briefing held at the government complex in central Seoul on Monday. [NEWS1]

The government will push for a bill to parliament this week aimed at bolstering minority shareholder protection during mergers and acquisitions (M&A), the Financial Services Commission (FSC) said Monday.

The proposed amendment to the Capital Markets Act replaces an earlier plan to revise the Commercial Act, which has been shelved following strong opposition from business lobbies. The alternative plan will apply only to public companies and a relatively smaller scope of operations. The narrower focus, the financial authorities suggest, will minimize any potential negative outcomes that may restrict corporate activities.

“A revision to the Commercial Act has been discussed in order to protect minority shareholders’ rights, but many concerns have arisen,” said FSC Chairman Kim Byoung-hwan during a briefing on Monday.

“Though the revision [of the Capital Markets Act] may seem limited, it holds significance considering that most major cases that were criticized for lacking protection for minority shareholders involved financial transactions,” said Kim.

Under the revised rules, board members of listed companies will be explicitly required to protect general shareholders’ interests in decisions related to M&As, share transactions, sales of key assets or operations and corporate split- or spin-offs.

The bill also aims to mandate that all M&A deals undergo review by external institutions with the results to be publicly shared, unlike the current rule that allows the optional disclosure for mergers between listed affiliates, in order to ensure transparency in determining merger ratios.

The alternative proposal will affect some 2,500 publicly traded companies, rather than more than 1 million corporate entities, and apply only to specific business activities. This targeted approach will mitigate any potential negative effects and minimize uncertainties in business operations for companies, according to the FSC.

The previous proposal to revise the Commercial Act aimed to extend “the duty of loyalty” imposed on board directors to not only the company but also all shareholders, in a bid to prevent owners of major stakes from sacrificing gains for minor shareholders for their own financial benefit.

Major business lobby groups opposed the proposal in a joint statement in June, claiming that the bolstered rules will increase legal risks posed by activist shareholders.

BY SHIN HA-NEE [[email protected]]