"Amendment to Commercial Act Causes Side Effects on Corporate Competitiveness... Facing Civil and Criminal Uncertainty" (Comprehensive)

Joint Briefing by Relevant Agencies... Explaining the Background of the Request for Reconsideration of the Commercial Act
"Companies Must Take Market Demands for Corporate Governance Reform Seriously"

Amid the government's exercise of the right to request reconsideration (veto) on the Commercial Act amendment passed under opposition party leadership, Kim Seok-woo, Deputy Minister of Justice (Acting Minister), stated on the 1st, "There is a significant concern that it could cause side effects on the management environment and competitiveness of the majority of companies, including not only large corporations but also small and medium-sized enterprises."

At a joint briefing held at the Government Complex Seoul on the same day, Acting Minister Kim said, "It was judged necessary to pursue alternatives that minimize side effects through more in-depth discussions, which led to the request for reconsideration."

The joint briefing was attended by Deputy Minister Kim, Kim Beom-seok, First Vice Minister of Strategy and Finance, and Kim So-young, Vice Chairman of the Financial Services Commission.

Acting Minister Kim explained that the introduction of the Commercial Act amendment would cause directors to face uncertainties related to civil and criminal liabilities in overall corporate decision-making. He said, "The purpose of this bill is understood to mean that directors should fairly treat the interests of all shareholders, not just those of certain groups, in the management decision-making process. However, the wording regulates all acts of directors for all corporations."

He added, "In reality, it is difficult to clearly determine from the wording which decisions fairly treat the interests of majority or all shareholders," and explained, "There is a high possibility that it could hinder proactive management activities."

He emphasized, "The government has comprehensively considered the issues and proposed an amendment to the Capital Markets Act as an alternative that can more effectively protect general shareholders by specifying capital transactions with a high possibility of infringing on general shareholders' interests, such as mergers and splits of listed companies."

Acting Minister Kim said, "It would be more appropriate for our reality to gradually expand the scope of application as practices for protecting general shareholders and improving corporate governance centered on listed companies are established and related precedents accumulate," and added, "Companies should also seriously accept the market's demand for corporate governance improvement expressed during this discussion process." He further said, "We earnestly ask the National Assembly to conduct another in-depth discussion on the bill requested for reconsideration today and the alternatives proposed by the government to seek a desirable solution."

Regarding the Everland convertible bond (CB) case, which is cited as a basis for the necessity of the Commercial Act amendment, continuous institutional improvements will be made. Vice Chairman Kim So-young said, "Some institutional improvements have been made regarding CBs, such as strengthening issuance and distribution disclosure and rationalizing conversion price adjustments," and added, "We plan to continue further institutional improvements."

In response to opinions that the Commercial Act amendment is necessary due to Hanwha Aerospace's paid-in capital increase case, Acting Minister Kim emphasized, "Even in resolving issues related to paid-in capital increases, simply generalizing directors' duty of loyalty as in the current (Commercial Act) amendment cannot solve the problems."

Kim Beom-seok, First Vice Minister of Strategy and Finance, explained the government's plan to promote the Capital Markets Act amendment, saying, "The Capital Markets Act amendment is already pending in the Political Affairs Committee," and added, "Since economic organizations and the business community have expressed their intention to actively participate in discussions on the Capital Markets Act amendment during the process of discussing the Commercial Act, it is expected to proceed quickly."