[Dividend Pressure Aftermath] Financial Companies, Becoming the 'First Target' of Collective Litigation System?

If Passed in Parliament Next Month, 'Retroactive Application' Possible
Shareholders Dissatisfied with Dividends Predict Lawsuit Rush

Shareholders May Sue If They Believe They Have Been Harmed

[Asia Economy Reporter Sung Ki-ho] As the government plans to submit a class action lawsuit bill to the National Assembly next month, concerns are growing that financial companies will become the 'primary targets.' This is because the financial authorities have recommended a 'dividend payout ratio within 20%,' and shareholders who believe they have suffered losses may file class action lawsuits against the CEOs of financial companies. Critics point out that the government's class action lawsuit policy, combined with the financial authorities' pressure on dividends, creates a paradoxical situation where financial companies end up suffering damages.

According to the National Assembly and financial circles on the 5th, the Ministry of Justice plans to submit a draft bill for the Class Action Act (tentative name) to the National Assembly next month. This bill was announced for legislative notice last September. The bill, proposed separately by Baek Hye-ryun, the secretary of the National Assembly Legislation and Judiciary Committee (Democratic Party), and Oh Ki-hyung, also from the same party, aims to make it easier for shareholders to file lawsuits for damages arising from 'power imbalance' relationships.

The problem is that 'retroactive application' is possible. Although the Ministry of Justice has suggested a six-month period after promulgation as the effective date for the Class Action Act, there is a prevailing view that retroactive application could lead to class action lawsuits by shareholders of financial companies dissatisfied with dividend restrictions. Professor Jang Young-soo of Korea University Law School stated, "Since the legislative process is still underway and it is uncertain whether courts will accept such lawsuits, it is difficult to make definitive statements," but he pointed out, "The government’s proposal targets all sectors for class actions, so lawsuits regarding dividend restrictions on financial companies could also occur."

Financial Companies Review Various Legal Risks Amid Shareholder Backlash

The government's dividend reduction coincides with financial companies' earnings announcements, intensifying controversy. Critics argue that it is excessive government intervention in corporate management and infringes on shareholders' rights and property rights. Recently, a petition on the Blue House's public petition board criticized the government’s dividend restriction pressure, stating it "only drove away foreign and institutional investors."

In response to strong backlash from some shareholders, financial companies have begun legal reviews. A financial holding company official said, "The investor relations (IR) department is receiving numerous inquiries from shareholders regarding dividends," adding, "There is a possibility of legal risks such as lawsuits and complaints, so we are currently reviewing the matter internally."

Experts advise that safeguards should be established during the legislative process to protect financial companies from damages caused by the policy. Professor Jang said, "Once lawsuits begin, companies will inevitably suffer significant damage regardless of the trial outcome," and emphasized, "In the bill review process, in-depth discussions on retroactive application and burden of proof must take place."