New legislation enacted to facilitate business restructuring - ‘One-shot Act’
In February, 2016, the Korean National Assembly approved a new legislation to facilitate business restructuring with expectations of strengthening the industrial competitiveness and revitalizing the economy. Dubbed One-shot Act (the “Act”), this special legislation will be enacted temporarily for a period of three years when it is enforced as scheduled in August 2016.
According to the Ministry of Trade, Industry and Energy, the new legislation will affect companies engaged in businesses suffering from excess supplies which raise the need for improvement in productivity and financial soundness. Affected companies will be forced to set specific goals of improvement and implement restructuring measures. Regulatory barriers will be suspended and special treatment will be provided to help companies achieve the established goals for improvement. Detailed guidance on what businesses are suffering from excess supplies and how to test the appropriateness of potential business restructuring plans from perspectives of the enhancement of productivity and financial soundness will be set forth in underlying regulations to be developed.
The new legislation mainly addresses special treatment or deregulation in the two categories of laws including the Commercial Act and the Anti-Monopoly and Fair Trade Act (the “AMFT Act”).
1. Special treatment under the Commercial Act are:
• Introduction of small-scale spin-off based on resolution at board of directors -
The Act will exempt an approved company from having a special resolution at a shareholders’ meeting, but instead, allow the company to have a resolution at the board of directors for expeditious small-scale spin-off if the business to be spun off represents 10% or less of the total assets of the company. Such benefit will be given to the approved company only one-time during the period of business restructuring.
• Eased requirements for a small-scale M&A -
The Act will exempt a surviving company from the requirements of a resolution at a shareholders’ meeting, but instead, allow the company to have a resolution at the board of directors in the case where the market capitalization of a dissolving company is 20% or less of the market capitalization of the surviving company. Also, the shareholders opposing to a merger will be refrained from exercising appraisal right.
• Eased requirements for simplified merger -
The Act will allow a dissolving company to have a resolution at the board of directors (rather than a special resolution at a shareholders’ meeting) in the case where the surviving company owns 80% or more of the shares in the dissolving company (currently, the surviving company should own 90% or more).
• Changes in procedures -
For an approved company, the period for formal objections from creditors will be curtailed from 30 days to 10 days, the period for a call to general shareholders’ meeting will be reduced from two weeks to seven days, and the period for the exercise of appraisal right by dissenting shareholders will also be shortened from 20 days to 10 days, respectively.
• The period for the approved company to acquire shares from the dissenting shareholders will be extended from one month to three months (from two months to six months for the unlisted company).
2. Special treatments under the AMFT Act will suspend the existing restrictions for a specified period if a company is authorized to implement restructuring measures as follows:
• Special treatment for a holding company -
The grace period for a holding company owning shares of 40% or less in a subsidiary will be extended to three years (up from one to two years). The grace period for a holding company’s control in a grandson subsidiary via joint investment by subsidiaries will be extended from one year to three years. The grace period for a subsidiary owning less than 100% shares in a grandson subsidiary will change from one year to three years.
• Special treatment for a business conglomerate subject to restrictions on cross- shareholdings -
The grace period for the cross investment by an approved company belonging to a business conglomerate group refraining from cross investment regulated under the AMFT Act will be extended from six months to one year. The grace period for allowing guarantee for debt between the approved companies will be extended from two years to three years.