Lee Bok-hyun, Expanding the Scope of Public Debate on Commercial Law Revision to Include 'Abolition of Breach of Trust Crime'?

Sudden Notice Before Commercial Law Amendment Briefing
Emphasis on Expanding Directors' Duty of Loyalty to 'Shareholders'
Business Community Concerns Over Expanded Breach of Trust Charges
Proposal to Abolish Breach of Trust Crime Based on Personal Opinion
Abolition of Special Breach of Trust Crime and Introduction of Business Judgment Rule
Foundation for Proper Public Discussion on Commercial Law Amendment

[Image source=Yonhap News]

Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), has introduced the idea of 'abolishing the crime of breach of trust' under the Criminal Act in relation to the amendment of directors' duty of loyalty (Article 382-3 of the Commercial Act). This is interpreted as an expansion of the public discussion scope on the amendment of the Commercial Act in response to opposition from the business community. Discussions on amending laws related to the 'crime of breach of trust' have been attempted for over a decade. However, proper discussions have not taken place due to the prejudice of 'favoring conglomerates.' Previously, Governor Lee proposed the 'business judgment rule' as grounds for exempting directors from liability when amending the Commercial Act. The business community opposes including 'shareholders' as subjects of the directors' duty of loyalty, arguing that it would increase the possibility of interpreting breach of trust and lead to abuse of lawsuits (criminal prosecution) against management (registered directors).

On the morning of the 14th, Governor Lee held a briefing at the FSS office in Yeouido, Seoul, regarding the 'Commercial Act amendment issue,' stating, "If I had to choose between maintaining or abolishing the crime of breach of trust outright, abolishing it would be better."

This briefing was not a pre-scheduled event but was suddenly shared with reporters around 6 p.m. the previous day. It is known that the Governor arranged this to directly express his opinion, judging that the business community's opposition to the amendment of the Commercial Act was excessive. An FSS official explained, "From the perspective of capital market advancement, the amendment of the Commercial Act to expand the scope of directors' duty of loyalty to 'shareholders' was proposed, but voices fearing that it would lead to 'frivolous lawsuits' under the crime of breach of trust have grown, preventing healthy discussions."

The crime of breach of trust (Article 355, Paragraph 2 of the Criminal Act) refers to a person handling another's affairs who, by violating their duties, obtains property benefits or causes a third party to obtain them, thereby causing damage to the principal. It is a law reflecting a uniquely Korean characteristic that is hard to find in foreign countries. The business community describes the crime of breach of trust as 'Ihyeonryeong Bihyeonryeong (耳懸鈴鼻懸鈴),' meaning unclear or ambiguous. The scope of the crime of breach of trust is not clear, so it becomes grounds for prosecution depending on the prosecutor's interpretation, and there are no clear standards for judgments.

Governor Lee said about the crime of breach of trust, "It criminalizes everything by claiming that a person handling another's affairs obtains benefits by violating duties and causes damage to the company and shareholders," adding, "The crime of breach of trust in business can apply to indirect intent; even if the main intention is for the company, if someone is harmed in the process, criminal punishment applies." This directly addressed the business community's criticism that the crime of breach of trust is a means to investigate the families of conglomerate heads.

[Image source=Yonhap News]

Governor Lee emphasized, "As a personal opinion of the FSS Governor, the position is clear that the subject of directors' duty of loyalty should be expanded to 'shareholders,' and this should be accompanied by raising protections for minority shareholders and clarifying the standards for abolishing punishment under the crime of breach of trust to narrow the scope of criminal punishment."

He further explained, "It is desirable that management's decisions be made with balance in the boardroom, not in criminal courts, and if disputes arise, they should be resolved through monetary compensation in civil courts." This pointed out that unlike major advanced countries such as the United States and the United Kingdom, where violations of directors' duty of loyalty are addressed only through civil lawsuits, in Korea both civil lawsuits and criminal punishments are possible.

If abolishing the crime of breach of trust is difficult, he argued that the application requirements for the crime should be made stricter. Governor Lee said, "It is also possible to specify private purpose pursuit as a requirement for detention related to the crime of breach of trust," adding, "It should be made predictable whether criminal punishment is excluded clearly within the realm of company law."

He said, "As another alternative, if it is difficult to touch the crime of breach of trust under the Criminal Act, we can consider clearly defining the business judgment rule when amending the Commercial Act and at least abolishing the 'special breach of trust' stipulated in the Commercial Act." The 'special breach of trust' stipulated in the Commercial Act generally carries heavier penalties than the crime of breach of trust under the Criminal Act. It applies when directors, etc., violate their duties and cause property damage to the company.