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Korean Financial Supervisory Service Mandating Disclosure of Transaction Documents When Filing Report on Material Facts
In light of the recent amendment to the internal policies of the Financial Supervisory Service of Korea (FSS), companies that file a “Report on Material Facts” on or after April 29, 2019, will also be required, as a matter of principle, to disclose the underlying transaction documents in full.
1. Current Practice
Companies that are required to submit a Business Report under the Financial Investment
Services and Capital Markets Act (FSCMA) are required to submit a Report on Material Facts
(as defined in the FSCMA) with respect to certain types of M&A transactions, and in connection with such filings, the FSCMA prescribes the underlying transaction documents to be attached to the Report (Section 161(3) of FSCMA, Section 171(4)(8) of the Enforcement Decree of FSCMA and Section 4-5(1)(1) of the Regulation on Securities Issuance and Disclosures).
However, in practice, companies making such filings often did not attach the required underlying transaction documents to the Report on Material Facts and even when such documents were attached to the report, it was a permitted practice only to disclose them to the FSS and to make the Report on Material Facts available to the public without the attachments.
2. Amendment to the Internal Policies
FSS’s recent amendment to its internal policies, however, as set forth in its “Notice of Change in Policy re: Submission and Disclosure of Attachments to Report on Material Facts”, significantly deviates from the current practice of not attaching and publicly disclosing the transaction documents, as follows:
A. The FSS will not accept any filing application without the statutorily required attachments (including the underlying transaction documents); provided, however, in the event the disclosure requirement (i.e., approval of transaction) is triggered prior to the execution of the transaction documents, the transaction documents can be submitted subsequently as a supplement to the initial filing.
B. The underlying transaction documents, as a matter of principle, will be publicly disclosed; but to the extent necessary, the following matters may be redacted for purpose of public disclosure:
- Personal information, personal credit information, financial transactions information
- Classified military information
- Core industrial technology
- Trade secrets
- Human resources and other internal business management information
- Internal evaluation
- Matters comparable to (1) through (6) above, which, if disclosed, may substantially infringe upon the company’s business, credit and legal position.
It should be noted, however, that unredacted copies of the relevant transaction documents are required to be submitted for the FSS’s review even if they are redacted for public disclosure.
The amended internal policies described above will apply to all Report on Material Facts filed on or after April 29, 2019.
In light of this amendment to the internal policies of the FSS, it is quite possible that the transactions documents for M&A transactions pursued by Korean listed companies would have to be made publicly available. As such, in connection with M&A transactions where the filing of a Report on Material Facts would be required, the relevant parties would need to be mindful of the fact that the transaction document may need to be disclosed in full to the public.
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