[Law Firm Now] Barun Holds Commercial Act Amendment Seminar: "This Amendment Is a Corporate Law Revolution"

Barun Successfully Concludes Seminar on the Amended Commercial Act by the Lee Jaemyung Administration
Professor Lee Sanghun: "This Amendment is a Revolution in Corporate Law"
"The Essence of Loyalty to Shareholders is Entire Fairness"

The seminar on the amended Commercial Act, hosted by Barun Law LLC (Chief Lawyers: Lee Donghun, Lee Younghee, and Kim Dohyung), concluded successfully.

According to the legal community on the 15th, the seminar titled "The Amended Commercial Act under the New Administration - Focusing on Directors' Duty of Loyalty to Shareholders," was held the previous day at Trade Tower in Gangnam-gu, Seoul, and organized by the Barun Venture Business Support Center (Director: Lee Eungse, lawyer). The event drew a large number of participants, including corporate legal team members, lawyers, and accountants, confirming the high level of interest in the amended Commercial Act.

On the afternoon of the 14th, Lee Donghun, the lead attorney of Barun Law Firm, delivered the opening remarks at a seminar on the amended Commercial Act held in the main conference room of Trade Tower in Gangnam-gu, Seoul. Photo by Choi Seokjin

This seminar was held to provide a comprehensive analysis of the key points of the Commercial Act amendments recently promoted by the Lee Jaemyung administration, including: expansion of the duty of loyalty of directors to include shareholders, introduction of electronic general meetings of shareholders, mandatory cumulative voting, and expanded separate election of audit committee members. The seminar also aimed to share insights on how management and lawyers should respond and prepare following the amendments.

In his opening remarks, Lee Donghun, chief lawyer at Barun, introduced Professor Lee Sanghun of Kyungpook National University School of Law, the keynote speaker, as "the first to point out, since 2008, that the exclusion of shareholders from directors' duty of loyalty in practice is a structural problem of Korean corporate law. Over the past 17 years, up to the current amendment, he has conducted in-depth research on this issue and published more than 30 papers, making him the foremost authority in this field."

He added, "I hope that today's seminar, through concrete interpretations and practical implications of the expanded duty of loyalty to shareholders under the amended Commercial Act, will greatly assist individual companies in establishing their response strategies."

Before Professor Lee's lecture, Minhoon Lee, a lawyer at Barun, summarized and presented the main contents of the amended Commercial Act. He also explained provisions not included in this amendment but expected to be introduced soon through further amendments, such as mandatory cumulative voting and the expansion of separately elected audit committee members, as well as the mandatory cancellation of treasury shares, which is currently being discussed in political circles, particularly among the ruling party.

He explained the background of introducing electronic general meetings of shareholders as follows: "There is a demand to improve shareholder accessibility, to provide a legal basis for listed companies to hold electronic general meetings, and, considering factors such as asset size, to require certain listed companies to hold electronic general meetings concurrently, thereby enhancing the fairness and transparency of decision-making in listed companies, as well as the responsibility of corporate governance."

He also analyzed that, regarding the strengthening of the '3% rule' for the appointment and dismissal of audit committee members in listed companies, the determination of whether the largest shareholder owns more than 3% of the total issued shares will always be calculated together with related parties. This is expected to limit the voting rights of controlling shareholders, strengthen the rights of minority shareholders, and increase the possibility of failing to meet quorum requirements.

Regarding the change in the title of independent director, he stated, "Compared to the existing concept of outside director, this further strengthens independence and responsibility. If the requirement of one-third is not met, there is a possibility of fines and designation as an administrative issue, so caution is necessary."

He emphasized, "As further amendments such as mandatory cumulative voting and the expansion of separately elected audit committee members are being discussed, listed companies need to continuously monitor and respond to these developments."

On the afternoon of the 14th, Minhoon Lee, a lawyer at Barun, presented the main contents of the amended Commercial Act at a seminar held in the conference room of Trade Tower in Gangnam-gu, Seoul. Photo by Seokjin Choi

Professor Lee Sanghun evaluated the amended Commercial Act as a call for management that prioritizes the cost of capital, and as a paradigm shift from past decision-making frameworks that favored the company alone, to one that protects the rights of general shareholders at a level equal to that of the company (and its controlling family).

Referring to Article 1 of the Constitution, which declares, "The Republic of Korea is a democratic republic," he said, "Until now, the public interest of the company has been emphasized, and courts have even declared that 'the interests of shareholders are merely factual interests, not legal interests.' The implication of the new duty of loyalty to shareholders is to change this unreasonable notion that the company can invest and shareholders can suffer losses."

Professor Lee warned, "If mainstream corporate law scholars or opponents of the amendment believe that 'this amendment merely changes what was already obvious,' they are gravely mistaken. This amendment to the Commercial Act is a paradigm shift comparable to moving from the geocentric to the heliocentric model?a revolution in corporate law."

He continued, "If you understand this, there is nothing difficult even without guidelines. There is no need to worry about specific cases. It is a very commonsense law. Even if you don't promise to completely reform yourself, as long as you decide to act in good faith and not infringe on shareholders' interests in line with the new paradigm, there is nothing particularly difficult."

On the afternoon of the 14th, at a seminar held in the main conference room of Trade Tower in Gangnam-gu, Seoul, Professor Lee Sanghun of Kyungpook National University School of Law presented on the implications and impact of the amendment to the Commercial Act regarding directors' duty of loyalty to shareholders. Photo by Choi Seokjin

Professor Lee stated, "The addition of shareholders to the scope of directors' duty of loyalty in the amended Commercial Act means that, since shareholders have not been properly protected until now, their rights must be protected from now on."

He emphasized, "The essence of loyalty to shareholders is 'entire fairness,' which combines substantive fairness (fair price) and procedural fairness (fair process). The goal is to maximize the pie and divide it fairly, without anyone taking a secret share."

He added, "Substantive fairness means enhancing corporate value while narrowing the gap between corporate and shareholder value, and procedural fairness means reflecting the opinions of general shareholders."

Professor Lee argued that, in addition to the provision on directors' duty of loyalty, the term 'shareholder' should also be added to other provisions of the Commercial Act, such as the duty of confidentiality for directors, not just the company.

He also suggested that it would be more appropriate for an institution with greater expertise in stocks and the economy, such as the Financial Supervisory Service, to create government guidelines, rather than the Ministry of Justice, similar to the Ministry of Economy, Trade and Industry in Japan.

Professor Lee stated, "The addition of a provision to protect the interests of all shareholders and to treat the interests of all shareholders fairly implies that not only the company but also the interests of all shareholders must be taken into account. In situations where the interests of the controlling shareholder conflict, the meaning of 'all shareholders' ultimately refers to the protection of general shareholders."

He emphasized, "Since the expansion of the duty of loyalty to shareholders will have a significant impact, it is essential to check for any conflicts of interest with all shareholders in major corporate decisions."

After the lecture, Professor Lee received numerous questions from participants.

Lee Donghun, chief lawyer, stated, "It is meaningful to provide a forum for expert, insightful analysis of the concrete interpretation and practical implications of the amended Commercial Act. Barun will continue to provide professional legal services to help companies maintain stable business operations in the changing legal environment."

They are taking a commemorative photo after a seminar on the revised Commercial Act held in the main conference room of Trade Tower, Gangnam-gu, Seoul, on the afternoon of the 14th. From the left, Seungyeop Han, lawyer at Barun Law LLC, Huntaek Lim, lawyer, Inhwan Jang, advisor, Sanghoon Lee, professor, Younghee Lee, chief lawyer, Minhoon Lee, lawyer, Hyunjung Park, lawyer. Barun Law LLC