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The so-called 'third amendment to the Commercial Act', which would in principle require companies to cancel treasury shares they hold, has cleared the bill review subcommittee of the National Assembly Legislation and Judiciary Committee.
The First Bill Review Subcommittee of the National Assembly Legislation and Judiciary Committee announced that it put the amendment to the Commercial Act to a vote at its meeting on the afternoon of the 20th. Lawmakers from the People Power Party opposed the bill, arguing that a uniform obligation to cancel treasury shares could neutralize defenses against hostile mergers and acquisitions (M&A), but the bill passed as lawmakers from the Democratic Party of Korea and the Cho Kuk Innovation Party voted in favor.
Kim Yongmin, Chair of the Bill Review Subcommittee No. 1 of the National Assembly Legislation and Judiciary Committee, is announcing the opening of the subcommittee at the National Assembly on the 20th. Photo by Yonhap News
The amendment stipulates, as a general rule, that when a company acquires its own shares, it must cancel them within one year. The Democratic Party of Korea believes that canceling treasury shares reduces the number of shares in circulation, thereby increasing earnings per share (EPS) and effectively enhancing shareholder value.
Kim Jaeseop, a lawmaker from the People Power Party, proposed an alternative amendment stipulating that treasury shares acquired for unavoidable reasons such as corporate mergers and acquisitions (M&A) would be exempt from the cancellation obligation, but it was not accepted. Oh Kihyung, a lawmaker from the Democratic Party of Korea, told reporters immediately after the bill passed, "The opposition proposed that treasury shares with specific purposes be treated as an exception, but we believed it was not appropriate to distinguish them because of the potential for abuse."
Oh said, "The core of the amendment to the Commercial Act that passed today is that the decision on whether to hold treasury shares, which used to be made by the board of directors, can now be made at the general meeting of shareholders," adding, "If the treasury shares held are not canceled within one year, a new sanction will be imposed in the form of fines on the directors." He also announced that for treasury shares already acquired, "the period has been set at one year and six months."
The Democratic Party of Korea plans to handle the third amendment to the Commercial Act at a full session of the Legislation and Judiciary Committee on the 23rd and then submit it to the plenary session of the National Assembly in February. Previously, the Democratic Party of Korea had led the passage of the first amendment to the Commercial Act, which expanded the scope of directors' duty of loyalty to shareholders, and the second amendment to the Commercial Act, which included mandatory cumulative voting and an expansion of separate elections for audit committee members.
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