Opposition Party Backs Ruling Party's Amendments
The People Power Party is planning to advocate the government’s and the ruling party’s amendments to the Commercial Act, the Monopoly Regulation and Fair Trade Act and the Financial Group Supervision Act and come up with measures for side effect prevention at the same time. The party is going to look into the potential side effects of the introduction of shareholder derivative litigation, major shareholders’ voting rights to be limited to 3 percent during separate audit committee member election, and revocation of the Korea Fair Trade Commission’s exclusive right to accuse.
“In the United States, the multiple derivative suit has been exceptionally accepted on condition that the separation of legal personality between parent and subsidiary companies is not easy,” said Choi Joon-seon, honorary professor at the Sungkyunkwan University Law School, adding, “In Japan, it has been applied only to fully-owned subsidiaries, that is, the bill advocating shareholder derivative litigation is almost unprecedented worldwide.”
The commercial law revision for the litigation, which will allow a parent company shareholder to file a suit against a subsidiary board member, is likely to mean continuous litigation risks on the part of enterprises. The Federation of Korean Industries recently said that the introduction of shareholder derivative litigation would increase listed companies’ litigation risks by up to 390 percent.
“Once it is introduced, an increasing number of foreign competitors will file suits with malicious intentions against South Korean companies,” Seoul National University Professor Lee Gyung-mook pointed out. The honorary professor also mentioned that speculative foreign capitalists would take advantage of the new bill with South Korean companies having no means for protecting themselves.
“As for Samsung Electronics, which has the largest market cap in South Korea, the suit can be filed with no more than 40 billion won or so,” said a business community source, adding, “Only 1.25 billion won or so is required to acquire 0.01 percent of Samsung Life Insurance, the largest financial subsidiary of Samsung Group, and lawsuits can be brought against the five Samsung Group subsidiaries including Samsung Card and Samsung Asset Management in this manner.”
In addition, it takes just 5.12 billion won to get 0.01 percent of Hyundai Motor Group, the second-largest conglomerate in South Korea. SK Group, the third-largest, is particularly vulnerable to the risk as its key subsidiaries’ shareholdings in their subsidiaries are relatively larger. For example, SK Telecom has a shareholding of over 50 percent in no less than 18 subsidiaries, including SK Broadband and SK Communications. Approximately 1.94 billion won is enough to acquire 0.01 percent of SK Telecom shares.