Pushing for Bill Submission During Regular Session
Discussions on Easing Breach of Trust Regulations Also Underway
The Democratic Party of Korea will begin discussions on additional amendments to the Commercial Act during the regular National Assembly session in September, aiming to reform the treasury stock system. Key issues include whether to mandate the cancellation of treasury shares or to strengthen mechanisms for fair disposal.
The Democratic Party's KOSPI 5000 Special Committee, chaired by Oh Ki-hyung, held a forum at the National Assembly on the 25th to discuss "Rational Improvement Measures for the Treasury Stock System," thereby initiating related discussions. Assemblyman Oh Ki-hyung stated, "The first and second rounds of amendments to the Commercial Act, including the expansion of directors' duty of loyalty, have been completed, and the next task is the issue of treasury stocks. We will consider whether to mandate cancellation through the Commercial Act or address it through the Capital Markets Act, and will coordinate opinions throughout the regular session by listening to experts."
Assemblyman Kim Namgeun emphasized, "There are over 200 companies that hold more than 10% of their own shares, indicating widespread abuse. To prevent shareholders from being harmed-for example, when treasury shares are transferred at low prices to friendly parties during management disputes-we should, in principle, require mandatory cancellation. However, exceptions should be made for employee compensation or the exercise of rights related to convertible bonds and bonds with warrants."
Experts also presented a range of opinions. Hwang Hyunyoung, a research fellow at the Korea Capital Market Institute, pointed out, "There are few legislative precedents that mandate the cancellation of treasury shares, so a sophisticated approach is necessary. The system must also be harmonized with current practices, such as using treasury shares for employee compensation or as consideration in mergers and acquisitions."
Cheon Junbeom, CEO of the management consulting firm WiseForest, suggested, "If mandatory cancellation is deemed too restrictive, enhanced disclosure requirements could serve as an alternative means of oversight."
In contrast, the business community is opposed to mandatory cancellation. Kim Chun, Director of Policy at the Korea Listed Companies Association, argued, "Since the recent amendment to the Commercial Act has already expanded directors' duty of loyalty to shareholders, resolutions to dispose of treasury shares that harm shareholder interests can now be sanctioned with civil and criminal liability. Therefore, strengthening regulations on disposal, rather than mandating cancellation, can also ensure fairness."
Kim further stressed, "Since companies need means for cash management and defending management rights, any institutional reform must be accompanied by supplementary measures."
The Democratic Party aims to introduce a bill mandating either the cancellation of treasury shares or the fair disposal of such shares during the regular session. However, in light of concerns about stifling corporate activity, there are also internal discussions about linking these reforms to more business-friendly measures, such as easing or abolishing the crime of breach of trust.
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