A one-lie … A management attack is possible within 3 days of buying shares

Photo = News 1

In addition, it was confirmed that the reform to the Commercial Law, which the Democratic Party handled by the Legislative Law Commission of the National Assembly on the 8th, included a clause that could avoid the condition of ‘six-month tenure’ in the exercise of the rights of minority shareholders. Democratic Party lawmaker Paik Hye-ryeon, secretary of the ruling party’s judicial committee, repeatedly stated that “publicly traded companies have a mandatory 6-month share holding period,” but the actual legal text turned out to be different from the facts.

The ruling party is reported to have been a tragedy that occurred in trying to handle the bill on its own without seeking opinions. Consequently, if the amendment to the Commercial Law passes the plenary session of the National Assembly, it is possible to attack the management rights in just three days after the purchase of shares.

According to the full text of the reform to the Commercial Law of the Democratic Party, which was published in the information system of bills of the National Assembly on the 9th, articles 7 and 10 were recently established in articles 542-6, that regulate minority sovereignty.

Paragraph 7 establishes that articles 406-2 (articles 324, 408-9, 415 and 542) refer to a person who owns shares corresponding to 50/10 or more of the total number of shares issued in a listed company of continuously for six months (articles 324, 408-9, 415 and 542). It is said that the rights of the shareholders can be exercised according to the case of applying mutatis mutandis.

This article establishes the conditions for the exercise of multiple representation litigation included in the reform of the Trade Law. Multiple representative litigation is one of the minority shareholder rights that parent company shareholders can sue for damages against executives of subsidiaries and grandchildren. According to this clause, the condition of ‘continue withholding for 6 months’ can be interpreted as mandatory.

The problem is clause 10. Paragraph 10 establishes that “notwithstanding the provisions of articles 542-2 (2) of paragraphs 1 to 7, it will not affect the exercise of the rights of minority shareholders in accordance with other paragraphs of this chapter. “.

Experts in commercial law point out that this clause is a provision that neutralizes the requirement to retain it for the previous six months. Joon-seon Choi, professor at Sungkyunkwan University School of Law, said: “There is a provision that gives priority to the mandatory 6-month retention rule in the case of minority shareholders of publicly traded companies ( Article 542-2 (2)), but it is independent of the exercise of the rights of minority shareholders by general companies. “This means that minority shareholders can choose between the regulations of listed companies and the rules of companies unlisted “.

In the simplest terms of the law, it appears that listed companies have the obligation to maintain “six months of participation” when they exercise the rights of minority shareholders. It means that you can use the rules of a private company (general company).

Experts note that, in fact, this is close to “trick” or “cheat.” To the general public, who do not know the law, it seems as if the tenure obligation were declared for 6 months, but in fact it is analyzed that the door was opened to allow the attack on the management rights of listed companies 3 days after the purchase of the share and the change of name of the shareholder.

The rights of minority shareholders refer to rights that include the convening of an extraordinary general meeting of shareholders, the right to request the removal of directors and auditors, and the right to request access to accounting books. It was introduced so that shareholders could control business management. However, it is being used as a means to attack management rights. In the case of listed companies, the condition of ‘maintaining the obligation for six months’ has been guaranteed, so they have had time to defend themselves from attacks on management rights.

Photo = Yonhap News

In 2015, Samsung C&T barely prevented the attack from the American activist hedge fund Elliot Management (Elliot) because the court ruled that a publicly traded company must have a stake for at least 6 months when exercising minority shareholder rights.

Under the Democratic Party’s amendment to the Business Law, Elliott could attack Samsung C&T regardless of the stock holding period.

It is observed that small and medium-sized companies with a small market capitalization will become more vulnerable to attacks from the administration. As a result of a simulation conducted by the Korea Economic Daily in September in accordance with the government amendment to the commercial law, 1,169 out of 1,380 listed in the KOSDAQ (excluding companies intended to acquire companies) must remove directors and auditors in the next ordinary meeting of shareholders if they have an investment of 10 billion won. It was found that minority shareholder rights, such as shareholder proposals (3% stake), can be exercised immediately. This was equivalent to 84.7% of all KOSDAQ companies. Professor Choi was concerned that “if the trade law amendment passes, the Korean stock market will become a playground for hot money.”

I contacted Representative Paik several times to hear an explanation of this, but did not receive a response.

The Democratic Party plans to propose an amendment to the Commercial Law in the plenary session to be held on the 9th at 2:00 p.m. If the power of the people proceeds with an obstructionism (obstruction of legitimate parliamentary conduct), the amendment to the Commerce Law on the 10th will go beyond the plenary session from the 10th. Subsequently, it is expected that the amendment to the Trade law is implemented as early as this month after the government’s enactment.

Reporter Mi-Hyun Cho / So-Hyun Kim [email protected]