Kim & Chang

On February 6, 2025, the Ministry of Employment and Labor (the “MOEL”) released an updated labor-management guidance on ordinary wage (the “Guidance”) in response to the recent Supreme Court en banc decisions overruling its previous position on ordinary wage. The Guidance aims to clarify the newly established legal principle on ordinary wage and mitigate potential disputes and confusion surrounding its application. On December 19, 2024, the Supreme Court issued two en banc decisions and overruled its previous decision on ordinary wage (i.e., the December 18, 2013 en banc decision, the “2013 Supreme Court Decision”) by eliminating the “fixed” element of the requirement of ordinary wage. The 2013 Supreme Court Decision held that wage items that are paid to employees only if the employee is employed at a particular time are not “ordinary wage” because they are neither compensation for “prescribed labor” nor meet the “fixed” requirement for ordinary wage. Although this has been considered a well-established court precedent on this issue, the Supreme Court recently overruled this position and presented a new basis for determining which wage items should be included in ordinary wage. The new en banc decisions abolished the “fixed” element and reestablished the definition of ordinary wage as “…compensation for prescribed labor that is paid on regular and uniform basis…” In other words, the Supreme Court held that employees who provide prescribed labor in its entirety will not be denied the inclusion of relevant wage items in ordinary wage merely because there are certain conditions attached to the payment of such wage items (e.g., the condition that the employee must be employed on the day of payment or that the employee must work a minimum number of days during the prescribed working days to receive the wage item). The Guidance summarizes the MOEL’s response to some of the most frequently raised questions surrounding the Supreme Court’s en banc decisions in a Q&A format. We highlight some of the key clarifications below. (1) Should a wage that is conditioned on current employment (i.e., employed on the day of payment) be considered ordinary wage? If the wage is pre-determined in consideration of the prescribed work and is paid on a “regular” and “uniform” basis, it will fall under the scope of ordinary wage even if it is conditioned on current employment. Case example: Regular bonuses paid quarterly to current employees constitute ordinary wage. (2) For a new employee who has not yet become eligible to receive a regular bonus due to his/her short tenure, would the regular bonus still fall under ordinary wage? If the regular bonus meets the requisite criteria and is thus treated as ordinary wage, it should be included in the calculation of ordinary wage even if the employee has not yet become eligible to receive it. Case example: Even if an employee joins the company after the bonus payment date and is thus not yet eligible to receive the bonus, the annual regular bonus should nonetheless be included in the ordinary wage for the calculation of overtime work allowance. (3) How should a regular bonus be factored into the calculation of ordinary wage? Pursuant to Article 6, Paragraph 2, Items 5 and 7 of the Enforcement Decree of the Labor Standards Act, ordinary hourly wage shall be calculated by dividing the “annual aggregate regular bonus” by the “annual total hours for the calculation of ordinary wage.”(4) Should wages conditioned on “current employment” or the “number of completed working days” be paid in proportion to the completed service period? In line with the Supreme Court decision, the validity of the conditions attached to the “payment” of a regular bonus should be reviewed separately from the question of whether it should be included in ordinary wage. Therefore, unless there is a reason to determine otherwise, such “payment” conditions are valid and employers are not obliged to pay such regular bonus if its conditions are not satisfied.To facilitate the seamless application of the new legal principle and the updated guidelines under the Guidance, the MOEL announced that it will (i) conduct labor-management explanatory sessions and meetings, (ii) provide guidance on updating collective bargaining agreements, rules of employment and employment agreements, and (iii) assist businesses in restructuring their compensation structures. Employers that have the payment of certain wage items conditioned on the employee being employed on the day of payment or on the employee having to work a minimum number of days will have to review and revise their salary system and/or prepare for potential disputes. Unions will also take a keen interest on the development of these issues. https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=31856    

With Donald Trump’s victory in the US presidential election held on November 5, 2024, the second Trump administration will begin on January 20, 2025. The Republican Party also won the Senate and House Majority, achieving the so-called “Trifecta.” As a result, Trump 2.0 is expected to be able to push forward strong policies for the following two years until the next midterm elections. As Trump 2.0 is expected to implement tariff and trade policies with stronger momentum compared to the first term, it is crucial to prepare for these anticipated changes in light of President-elect Trump’s campaign promises and statements. 1. Tariffs President-elect Trump has repeatedly emphasized the need to introduce a universal tariff since the early days of his presidential campaign. The Republican Party Platform1 also expressed support for raising the standard tariffs. In addition, the Trump administration is trying to make up for the budget deficit from domestic tax cuts (including corporate taxes) through tariffs. He also claims that solving the trade deficit through tariff increases will also solve the problem of inflation. If the Trump administration introduces a universal tariff, the legal basis for doing so will most likely be the International Emergency Economic Powers Act (the “IEEPA”). The IEEPA was already invoked during Trump’s first term to impose tariffs on Mexican products to address undocumented immigrant issues with Mexico. According to the IEEPA, the president can take a wide range of measures on economic transactions in case of a threat to US national security. Moreover, these measures may be taken more quickly because they do not require the United States Department of Commerce to conduct an investigation or issue a report, as required under Section 232 of the Trade Expansion Act or Section 301 of the Trade Act of 1974, which were invoked during Trump’s first term. In addition, it is possible that the Section 232 of the Trade Expansion Act will be invoked to impose tariffs on more products. Also, Trump 2.0 may negotiate to reduce quotas for items that are currently subject to quotas. Moreover, there were several cases in which high anti-dumping duties (“AD”) and countervailing duties (“CVD”) were imposed on the grounds of adverse facts available (“AFA”) or particular market situations (“PMS”) due to the alleged non-cooperation of the parties subject to the investigations during the first Trump administration. During that time, AD/CVD rates were revised by the judgment of the US Court of International Trade in many cases. Given such experiences, Trump 2.0 is expected to refine the basis for applying AFA and PMS to AD/CVD investigations. 2. Supply Chain In addition to the universal tariffs, Trump 2.0 is expected to take stronger measures against China and Mexico. During his election campaign, President-elect Trump said that he would revoke China’s Permanent Normal Trade Relations (“PNTR”) status and impose an additional 60% tariff on Chinese products on top of the above mentioned universal tariffs. Furthermore, the Trump administration may invoke Section 301 of the Trade Act of 1974 to impose stronger import bans on Chinese products. Moreover, the Uyghur Forced Labor Prevention Act (the “UFLPA”), which was enacted during the Biden administration, is also expected to be more actively enforced against China. Meanwhile, there is an ongoing tension with Mexico over immigration issues and circumvention of AD/CVD measures. In particular, President-elect Trump has threatened to impose additional tariffs if the Mexican Government fails to properly control undocumented immigrants. He also mentioned imposing tariffs of up to 2000% on cars produced by Chinese companies in production facilities in Mexico and exported to the US. In addition, in the review process of the United States-Mexico-Canada Agreement (the “USMCA”) scheduled for 2026, there is a possibility that more restrictions on the proportion of Chinese raw materials/parts in Mexican products will be imposed and that the rules of origin will be strengthened. In addition, Trump 2.0 may attempt to control the import of Mexican products by referring labor-related issues at Mexican factories to dispute settlement systems, including the Rapid Response Mechanism (the “RRM”) under the USMCA. 3. Environment Trump 2.0 is expected to promote energy production using fossil fuels and reduce incentives for environment-friendly businesses by easing environmental regulations. However, there is a bipartisan support to introduce a carbon tax, which could generate tax revenue and block the import of foreign products with heavy carbon emissions, as well as carbon tax regulations such as the Providing Reliable, Objective, Verifiable Emissions Intensity and Transparency Act of 2024 (the “PROVE IT Act of 2024”) and the Foreign Pollution Fee Act. In addition, President-elect Trump has consistently criticized the Inflation Reduction Act (the “IRA”), one of the key achievements of the Biden Administration, and has even said that he will immediately abolish it. However, a significant portion of the states where companies are benefiting from the IRA are Republican states, and 15 of the 18 Republican House of Representatives members, who signed the letter asking President-elect Trump not to abolish the IRA, were re-elected. As a result, Trump 2.0 may make adjustments through executive orders instead of the complete abolition of the IRA, which would face significant backlash. President-elect Trump has vowed to fully impose universal tariffs, additional tariffs on China and tariffs on Mexico within 100 days of taking office on January 20. As discussed above, Trump 2.0 is expected to implement its campaign promises more quickly and assertively compared to the first term, with the Republican Party controlling both the executive and legislative branches. Therefore, companies will need to manage their supply chain risks related to exports to the US, assuming that (i) new tariffs will be imposed, (ii) the trade remedy measures will be more actively used, (iii) the US will pursue decoupling from China, and (iv) warnings of measures against circumvention of AD/CVD through Mexico will be materialized. Companies are advised to pay attention to the selection of key personnel of Trump 2.0 and the actions of the presidential transition team, and prepare for the policy direction of Trump 2.0 as it takes shape over time. https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=30969 1 2024 Republican Party Platform: Republican Party’s campaign promises for the 2024 Presidential Election.

Recently, in the context of corporations restructuring their business and governance structures, active legislative discussions regarding changes to related laws and regulations are taking place. These include (i) discussions in relation to the reintroduction of the mandatory tender offer rule, and (ii) amendments to the Korean Commercial Code (the “KCC”) to encompass shareholders within the scope of directors’ duty of loyalty, which are aimed at establishing shareholder-oriented corporate governance schemes and protecting ordinary investors. The mandatory tender offer rule is designed to protect minority shareholders during the acquisition of a controlling stake in a company by requiring an acquirer who obtains a controlling interest from the primary shareholder to extend an offer to buy shares from other shareholders at a price comparable to what was paid for the controlling stake. Initially established with the amended Securities Exchange Act of 1997, the mandatory tender offer rule was abolished in 1998. However, discussions about its reintroduction have been underway since late 2022, through amendment bills to the Financial Investment Services and Capital Markets Act (the “FSCMA”). On December 21, 2022, the Financial Services Commission (the “FSC”) issued a press release at the “Seminar on How to Protect Ordinary Investors During Changes in Management Control via Stock Acquisitions,” underscoring the need for the mandatory tender offer rule to be reintroduced. On May 30, 2023, a group of 11 members, led by Changhyun Yoon, proposed a partial amendment bill to the FSCMA that included provisions for reintroducing the mandatory tender offer rule in the 21st National Assembly. However, the bill was ultimately shelved, and no revisions to the FSCMA were made. Currently, in the 22nd National Assembly, legislative efforts to amend the FSCMA – including proposals for the reintroduction of the mandatory tender offer rule aimed at enhancing the protection of ordinary shareholders – are ongoing. Meanwhile, active discussions focused on explicitly incorporating the protection of shareholder interests within directors’ duty of loyalty under the KCC are also underway. In August 2024, the Financial Supervisory Service (the “FSS”) convened a meeting with representatives from academia and research institutions to explore ways to broaden the scope of directors’ duty of loyalty while alleviating associated liabilities. During the meeting, participants offered diverse perspectives on enhancing governance structures, bolstering the protection of shareholder interests and ensuring fairness in the corporate decision-making process. Based on these discussions, it is anticipated that the FSC will soon formulate and announce the Government’s stance on making an amendment to the KCC to explicitly include shareholders within the scope of directors’ duty of loyalty. The details on the aforementioned discussions are as follows: 1. FSC Prepares Amendment Bill to FSCMA to Reintroduce Mandatory Tender Offer Rule and Proposes Partial Amendment Bill to FSCMA for Its Implementation During the 2024 Comprehensive National Audit by the National Policy Committee on October 24, 2024, the FSC emphasized the need to introduce the mandatory tender offer rule, stipulating a threshold of “50%+1 share,” which aims to protect minority shareholders during the acquisition of shares to gain control over listed companies. Based on the disclosed information, it appears that the FSC began drafting an amendment bill to the FSCMA around October 28, 2024. Among the amendment bills currently proposed to the 22nd National Assembly, those concerning the reintroduction of the mandatory tender offer rule and their specific provisions are summarized below. Category Bill No. 2204873 (Proposal Led by Myounggu Kang) Bill No. 2200692 (Proposal Led by Hoonsik Kang) Applicability of Mandatory Tender Offer When a person/entity becomes the largest shareholder by acquiring 25% or more of the shares in a listed corporation, it is required to make a tender offer to purchase a certain number of additional shares from other shareholders. However, exceptions to this requirement may be allowed to prevent potential infringement on the rights of other shareholders. When a person/entity becomes the owner of 25% or more of a listed corporation (including cases where the combined ownership of the entity and its related parties reaches or exceeds 25% of the total shares), it is required to make a tender offer for all remaining shares, excluding the shares it already owns, based on the total issued shares of the listed corporation after the acquisition. However, exceptions to this requirement may be allowed in consideration of preventing potential infringement on the rights of other shareholders. Public Notice of Mandatory Tender Offer and Submission of Tender Offer Statement Any person/entity intending to initiate a mandatory tender offer within 15 days following stock acquisition must publicly disclose the issuer of the stocks it intends to acquire, the purpose of the acquisition, the specific types and quantities of stocks it plans to acquire, and all relevant terms and conditions of the contemplated mandatory tender offer. - Terms and Methods of Mandatory Tender Offer A person/entity that initiates a mandatory tender offer shall purchase shares at a price that meets or exceeds the threshold established by the Presidential Decree. The price of the mandatory tender offer shall be equal to or greater than the price specified by Presidential Decree, taking into consideration the prior acquisition price. Prohibition on Purchase of Shares Through Ways Other Than Mandatory Tender Offer Any person/entity that initiates a mandatory tender offer is prevented from purchasing shares other than through the tender offer from the date it acquires the controlling shareholder’s shares until the end of the tender offer period. - Restrictions on Revocation of Mandatory Tender Offer A mandatory tender offer is irrevocable. However, it may be withdrawn under exceptional circumstances, such as the presence of a counteroffer, or if the person/entity making the mandatory tender offer dies or is dissolved, or becomes bankrupt. - Restrictions on Voting Rights in Case of Violation of Tender Offer Obligation If a person/entity that has acquired shares from the aforementioned controlling shareholder fails to issue the required tender offer announcement or provides false statements regarding material facts, its voting rights may be restricted. - Investigation With Respect to Mandatory Tender Offer and Related Measures The FSC may require the submission of materials or have the Governor of the FSS conduct an investigation if necessary for investor protection and may order the correction of the mandatory tender offer statement or suspend or prohibit the mandatory tender offer on an as-required basis. - To our understanding, the FSC has been opposing the bill proposed by a group of assemblymen led by Hoonsik Kang, which mandates that any person acquiring 25% or more of a company’s stock shall also acquire all (100%) of the remaining shares, irrespective of whether they become the largest shareholder. The foregoing position has taken into consideration criticisms from the business community regarding potential adverse impacts on the M&A market. If the amendment bill to the FSCMA, which reinstates the mandatory tender offer rule, is passed and implemented by the National Assembly, it is anticipated to positively impact minority shareholders. Since mandatory tender offers include a control premium in the offer price, minority shareholders can gain the opportunity to exit the company on terms similar to those offered to the majority shareholder, thereby allowing them to recover their investment in the relevant company. However, it is important to recognize the following criticisms raised in the business and academic communities: The survey results on corporate acquisitions, indicating that the vast majority of M&A transactions in Korea involve stock purchases, have been used by advocates of the mandatory tender offer to support its introduction. However, these conclusions arise from skewed statistical interpretations, which either stem from narrowly misinterpreting disclosed information or excluding transactions involving controlling rights in determining the number of M&A transactions. While sharing of control premium embodies the principle of shareholder equality, it can also significantly restrict the freedom of stock transfer. In balancing these two aspects, shareholder equality does not necessarily always take precedence over the freedom to transfer shares. Control premiums reflect the potential value of gaining control over a company and are ultimately not the company’s assets. Therefore, the decision to share these benefits is a matter to be resolved among the shareholders, not an issue directly involving the company. While value-destroying mergers and acquisitions are undesirable, it would be more appropriate to implement other measures, such as enhancing the authority and responsibilities of the board of directors, to resolve such an issue. 2. Discussions on Expansion of Scope of Directors’ Duty of Loyalty Under KCC There seems to be a growing debate on whether directors’ duty of loyalty under the KCC should encompass the protection of shareholders’ interests. On August 21, 2024, the FSS held the “Academic Conference on the Enhancement of Corporate Governance” to explore ways to enhance corporate governance systems. The conference aimed to gather insights from the academic community regarding potential legislative amendments, specifically focusing on expanding the scope of directors’ duty of loyalty under the KCC and implementing measures to limit excessive liability. Here are some highlights of the thoughts raised by the academia at the conference: The prevailing opinion was that it would be essential to explicitly define what “duty of loyalty to shareholders” would entail, in light of the fact that even though the current KCC presumes the protection of shareholders’ interests, the courts interpret the relevant provision in a limited manner. While there was a consensus on the necessity of reducing the excessive liability of directors when introducing the duty of loyalty to shareholders, it was also agreed that the timing and scope of the abolition of the crime of breach of trust (which was proposed as an alternative) would require further in-depth discussion. Multiple viewpoints were expressed, including the need for measures to prevent controlling shareholders from acting in their own interests. Suggestions included introducing a dissenting shareholder appraisal right to safeguard shareholders’ interests and establishing clarification of procedures to ensure fairness in cases of conflicts of interest among shareholders. On August 28, 2024, the FSS held a meeting with research institutes to discuss enhancements to corporate governance. The meeting focused on gathering and deliberating upon the opinions of participating institutes regarding the proposed introduction of directors’ duty of loyalty to shareholders. Key takeaways from the research institutes’ opinions were as follows: Since the corporate value enhancement policy aims to reshape the mindset and actions of market participants, it would be essential to implement this policy in a consistent manner from a long-term perspective. Considering the characteristics of the Korean corporate governance structure, it would be important to explore measures that ensure fair decision-making in companies with controlling shareholders, as well as means to protect minority shareholders. These could include strengthening disclosure standards and imposing restrictions on the reappointment of outside directors, among other initiatives. To improve the effectiveness of the general meeting of shareholders, it would be essential to provide detailed information about the relevant agenda items and to promote electronic voting. Additionally, facilitating corporate CEOs’ active participation in investor relations (“IR”) events will further enhance communication with shareholders. There were mixed opinions, including support for introducing directors’ duty of loyalty to shareholders to safeguard their interests, alongside some opposition due to concerns about potential side effects. However, both sides acknowledged the importance of enhancing existing systems to address significant events, such as mergers. During the “Major Policy Progress and Future Plans for the Capital Market” meeting with foreign journalists held on November 11, 2024, the FSC announced its plan to present the Government’s stance on the proposed amendment to the KCC, which includes the proposed introduction of directors’ duty of loyalty to shareholders. Meanwhile, the opposition party has recently adopted the proposed amendment to the KCC, which includes an expansion of directors’ duty of loyalty to shareholders, as part of its official platform. The amendment has been submitted to the subcommittee of the Legislation and Judiciary Committee. This indicates that discussions regarding the proposed amendment, including the directors’ duty of loyalty to shareholders, are actively taking place in the National Assembly. The reintroduction of the mandatory tender offer rule and the expansion of directors’ duty of loyalty are likely to have a significant impact on the corporations’ business activities, particularly in the area of corporate restructuring transactions. Although the proposed amendment to the FSCMA, which involves the reintroduction of the mandatory tender offer rule, has been submitted to the relevant committee, there is a possibility that the details of the bill may be altered during the subcommittee and plenary sessions of the National Assembly. Therefore, it remains unclear how the proposed amendment will ultimately be implemented. Furthermore, regarding the KCC, there may be proposed amendments in the future that stem from discussions with academic and research institutions during meetings organized by the financial authorities. Alongside the introduction of directors’ duty of loyalty to shareholders, there could also be additional discussions on advisory shareholder proposals aimed at improving shareholder returns and facilitating capital reallocation. The proposed amendments to the FSCMA and the KCC seem to have been initiated by the Government with the dual objectives of revitalizing the M&A market and protecting minority shareholders. Given the specifics of these proposed amendments, it is highly likely that they will result in significant alterations to M&A transactions – impacting schedules, timelines and corporate governance restructuring transactions. Therefore, it is crucial to remain informed on legislative developments, as well as the key details and progress of the discussions regarding the enhancement of related systems. https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=30968

The amendments to the Enforcement Decree of the Foreign Investment Promotion Act proposed by the Ministry of Trade, Industry and Energy (the “MOTIE”) on December 20, 2023, were promulgated and became effective on August 27, 2024 (the “Amendments” or “Amended Enforcement Decree”). The Amended Enforcement Decree revised and supplemented the provisions relating to the operation of the foreign investment security review system and its processes by establishing Article 5(2). As a result, the foreign investment security review system has been strengthened through the establishment of a legal basis to initiate an ex officio review even in the absence of a foreign investment notification, among other measures. The specifics of the Amendments are as follows. 1. Authorization for Ex Officio Review and Clarification of Grounds for Initiating Foreign Investment Security Review The Amended Enforcement Decree newly established the legal basis for an ex officio review, which allows the initiation of a foreign investment security review for transactions without filing a report on the foreign investment, by providing that it may be initiated at the request of the ministers of relevant ministries or when deemed necessary by the Minister of Trade, Industry and Energy. Accordingly, a foreign investment security review may be initiated not only when there is a foreign investment notification that triggers a review by the Foreign Investment Committee, but also if requested by the ministers of relevant ministries or the National Intelligence Service, or deemed necessary by the Minister of Trade, Industry and Energy. With respect to the review preclusion period, the Amended Enforcement Decree stipulates that the Minister of Trade, Industry and Energy may not deliberate or decide whether an investment endangers national security, in the following cases: (i) a transaction is not subject to a national security review in response to a foreign investor’s application for pre-clearance pursuant to Article 5(2)-2 of the Amended Enforcement Decree, (ii) a transaction has been approved following a foreign investment security review pursuant to Article 5(2)-6 of the Amended Enforcement Decree, and (iii) three years have passed since the notification. However, this does not include cases where a new deliberation and decision are necessary due to significant changes in circumstances after the notification. 2. Clarification of Authority to Request Submission of Additional Materials and Information The Amended Enforcement Decree provides express grounds for the heads of the relevant administrative agency and the National Intelligence Service to request additional information and materials from the applicant during the foreign investment security review process. In the past, there had not been an explicit provision in the law authorizing the Government to require applicants to submit additional materials beyond the application and material originally submitted, although in practice, such supplemental requests were regularly made. Thus, the Amendments are intended to increase the transparency of the system. 3. Additional Grounds for Initiating Foreign Investment Security Review and Clarification of Relationship With Similar Review Procedures Under Other Laws Article 5(1)-2b, which stipulates the specific grounds for review by the Foreign Investment Committee, has been amended to add “the case where there is high probability of leakage of national high-tech strategic technologies under the National High-Tech Strategic Industries Act,” to clarify that a foreign investment security review may be initiated even when investing in companies that possess national high-tech strategic technologies. On the other hand, Article 5-2(10) of the Amended Enforcement Decree provides grounds to omit the security review process under the Foreign Investment Promotion Act, if the foreign investment (i) falls under Article 5(1)-2b Item 5 (i.e., high likelihood of leakage of national core technology) or Item 6 (i.e., high likelihood of leakage of national high-tech strategic technology), and (ii) has been approved following review under other laws. 4. Clarification of Grounds for Formation of Expert Committee and Authorization for Fact-Finding The new provision provides the legal basis for the establishment of an Expert Committee for foreign investment security review, strengthening the stability of the review process. 5. Improving Effectiveness of Pre-Confirmation Procedure In order to assist foreign investors in making prompt decisions and to promote foreign investment, the review deadline has been set at 30 days (not counting additional time required for supplementing any information) when a foreign investor requests a preliminary confirmation of whether a transaction falls within the jurisdiction of the Foreign Investment Committee. 6. Adjustment to Review Deadlines and Rationale In order to streamline the review process by reasonably adjusting the review deadlines for each stage of the foreign investment security review procedure, the Amended Enforcement Decree (i) requires the Expert Committee to complete its review within 90 days from the date of the request for preliminary review, with a one-time extension of 30 days if necessary, and (ii) establishes a new provision that requires the MOTIE to decide whether the foreign investment constitutes a national security risk within 45 days from the date that the Expert Committee reports its review results. However, the Amended Enforcement Decree only sets the review deadlines and does not specify how to resolve a situation where the deadlines are exceeded. Therefore, it remains to be seen how it will be applied in practice. 7. Elimination of Disclosure Obligation In the past, the Enforcement Decree of the Foreign Investment Promotion Act required public disclosure of the contents of the decision approving or prohibiting the acquisition of shares by foreigners for national security reasons, the reasons for the decision and any conditions imposed. However, the Amended Enforcement Decree eliminates this disclosure obligation. The Amended Enforcement Decree has clarified the legal basis and procedures relating to the foreign investment security review process by establishing the legal grounds for ex officio review by relevant administrative agencies, confirming the Government’s right to request additional materials and information from the applicant and clarifying the review deadlines for each stage of the review process, among others. Companies contemplating foreign investments that may be subjected to the jurisdiction of the Foreign Investment Committee are advised to utilize mechanisms such as the pre-confirmation process to check whether the proposed investment would be subjected to a foreign investment security review. https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=31076

In the 2024 edition of WWL: Korea, 151 attorneys, patent attorneys and certified public accountants across 22 fields from Kim & Chang were selected as “National Leaders” in their respective fields. This year, our firm obtained the most listings out of all Korean law firms once again, demonstrating the expertise and extensive capabilities of our professionals. The following is a complete list of our rankings this year: Arbitration: Una Cho, Matthew J. Christensen, Byung-Woo Im, Sae Youn Kim, Chul-Won Lee, Hyungkeun Lee, Sue Hyun Lim, Harold Noh, Joel E. Richardson, Byung-Chol (B.C.) Yoon Banking: Sang Jin Ahn, Young Kyun Cho, Joon Young Kim, Ie Hwan Yoo Business Crime Defence & Investigations: Jeong Ho Ahn, Myungsuk Sean Choi, Hwa Soo Chung, Byung-Suk Lee, Scott Lee, Seung Ho Lee, Kyson Keebong Paek Capital Markets: Bo Yong Ahn, Yong Ho Choi, Myoung Jae Chung, Young Man Huh, Chang Hyeon Ko, Seon-Jee Lee, Ie Hwan Yoo Commercial Litigation: Jeong Ho Ahn, Chang Hoon Baek, Jin Yeong Chung, Sang Ho Han, Sang-Wook Han, Yong Sang Kim, Hye Kwang Lee, Hyo Je Lee, Jung Keol Suh, Byung-Chol (B.C.) Yoon Commercial Mediation: Matthew J. Christensen, Sae Youn Kim, Sue Hyun Lim, Joel E. Richardson Competition: Jay Ahn, In Seon Choi, Kee Hong Chun, Brian Tae-Hyun Chung, Jin Yeong Chung, Maria Hajiyerou, Jung Hyun Han, Ye Sun Han, Jihye Hong, Jung Won Hyun, Kyung Taek Jung, Youngjin Jung, Gene-Oh (Gene) Kim, Kyoung Yeon (Kay) Kim, Hemi Lee, Hyungyu Lee, Kyung Yul Lee, Jeong-Suh Park, Sang Hyuk Park, Luke Shin, Sung-Joo Yoon Construction & Real Estate: Matthew J. Christensen, Byung-Woo Im, Daewoong Lee, Dong-Seok (Johan) Oh, Yon Kyun Oh Corporate Tax: Sung Gweon Cho, Im Jung Choi, Seung Hwan Jin, Byung-Moon Jung, Sang Woo Lee, Tae-Yeon Nam, Jeong-il (J.I.) Park, Seung Jong Yang Data: Dong Shik Choi, Haewon Han, In Hwan Lee, Min Chul Park, Ari Yoon Energy: Young Kyun Cho, Kwang Yeoun Hwang, Chang Sup Kwon, Daewoong Lee, Ken Nam, Min-Young Oh, John Sangho Park, Chang-Hee Shin Environment: Hyeong Jun Hwang, Kyoung Yeon (Kay) Kim, Yoon Jeong Lee Franchise: Anthony (Haejin) Jeong, Byung In (Jared) Lee, Hi Sun Yoon Intellectual Property: Duck Soon Chang, Sang-Wook Han, Eun Jin Jung, Angela Kim, In Hwan Kim, Won Kim, Ann Nam-Yeon Kwon, Jason J. Lee, Man Gi Paik, Chun Y. Yang, Jay (Young-June) Yang Labor & Employment: Paul Cho, Hong Young Ha, Chun Wook Hyun, Matthew F. Jones, Wan Joo, Ki Young Kim, Weon Jung Kim, Do Hyung Lee, Heon-Yup Lee, Jung Taek Park, Deok Il Seo M&A and Governance: Bo Yong Ahn, Heejun Choi, Myoung Jae Chung, Young Man Huh, Do Young Kim, Gene-Oh (Gene) Kim, Ji Pyoung Kim, Joon B. Kim, Shin Kwon Lim, Jong Hyun Park, Sang Taek Park Private Funds: Heesung Ahn, Myoung Jae Chung, Young Man Huh, Shin Kwon Lim Product Liability Defence: Sang Ho Han, Jay J. Kim, Sung Jin Kim, Chul-Won Lee, Chunsoo Lee, Inhak Lee, Yoon Sang Lee, Brian C. Oh Restructuring & Insolvency: Chang Hoon Baek, Jin Yeong Chung, Chiyong Rim Trade & Customs: Youngjin Jung, Juhong Kim, Seong Joong Kim, Jin Hwan Lee Transport – Aviation: Robert Gilbert Transport – Shipping: Byung-Suk Chung, Chul-Won Lee, Jae Bok Lee About WWL: Korea: WWL: Korea is one of the National Guides published by WWL, an internationally recognized legal media group. WWL: Korea selects National Leaders in Korea based on independent research and surveys/interviews with employees and clients, and publishes the resulting analysis report. https://www.kimchang.com/en/insights/detail.kc?sch_section=1&idx=30028  

Kim & Chang was named “Outstanding” in all 24 categories in the 2024 edition of asialaw,once again receiving the highest recognition across all surveyed categories. Moreover, 65 of our attorneys and patent attorneys were recognized as Korea’s “Leading Lawyers” in their respective areas of expertise. Below are the details of our wins this year. Firm Rankings (named “Outstanding” in all 24 categories in Korea) Practice Areas Banking and finance Capital markets Competition/antitrust Construction Corporate and M&A Dispute resolution Intellectual property Investment funds Labour and employment Private equity Regulatory Restructuring and insolvency Tax Industry Sectors Aviation and shipping Banking and financial services Consumer goods and services Energy Industrials and manufacturing Infrastructure Insurance Media and entertainment Pharmaceuticals and life sciences Real estate Technology and telecommunications Individual Rankings Aviation: Young Min Kim Banking and financial services: Young Kyun Cho, Kye Sung Chung, Myoung Jae Chung, Young Man Huh, Chang Hyeon Ko, Hoin Lee, Ie Hwan Yoo Banking and Finance: Young Kyun Cho, Kye Sung Chung, Ick Ryol Huh, Young Min Kim, Ie Hwan Yoo, Hi Sun Yoon Capital markets: Myoung Jae Chung, Young Man Huh, Yong-Ho Kim, Chang Hyeon Ko, Hoin Lee Competition/antitrust: Jay Ahn, Kee Hong Chun, Brian Tae-Hyun Chung, Maria Hajiyerou, Jung-Won Hyun, Kyung Taek Jung, Youngjin Jung, Eun Hee Kim, Gene-Oh (Gene) Kim, Kyoung Yeon (Kay) Kim, Tae Hyuk Ko, Hwan Beom Lee, Luke Shin Corporate/M&A: Kye Sung Chung, Young Man Huh, Kyung Taek Jung, Joon B. Kim, Wan Suk Kim, Kyung Yul Lee, Shin Kwon Lim, Jong Koo Park, Young Jay Ro Dispute resolution: Jin Yeong Chung, Byung-Woo Im, Don Jeon, Hye Sung Kim, Sae Youn Kim, Hyo Je Lee, Hee Won (Marina) Moon, Byung-Chol (B.C.) Yoon Energy: Young Kyun Cho, Chang Sup Kwon, Chang-hee Shin Labour and employment: Weon Jung Kim, Deok Il Seo Insurance: Jay Ahn, Jae Ho Baek, Chul-Won Lee Intellectual property: Duck Soon Chang, Hyun-Jin Chang, Sang-Wook Han, In Hwan Kim, Young Kim, Sang Hun (Andrew) Lee, Jay (Young-June) Yang Investment funds: Young Man Huh Media and entertainment: Dong Shik Choi, Min Chul Park Pharmaceuticals and life sciences: Myung Soon Chung, Eun Hee Kim, Hwan Beom Lee Private Equity: Wan Suk Kim, Shin Kwon Lim Real estate: Keun Ah Cho, Yon Kyun Oh Regulatory: Myungsuk Choi, Seung Ho Lee, Hee Won (Marina) Moon, Kook Hyun Yoo Restructuring/insolvency: Jin Yeong Chung, Jungho Hong, Janghoon Kim, Chiyong Rim Shipping: Byung-Suk Chung, Young Min Kim, Jin Hong Lee, Chul-Won Lee, Hi Sun Yoon Tax: Taeheung Ha Technology and telecommunications: Dong Shik Choi, Min Chul Park About asialaw: asialaw is a legal directory annually published by asialaw, a legal media company associated with Delinian, covering law firms and legal practitioners in the Asia-Pacific region. Drawing from law firm submissions, client and peer feedback, independent research and data analysis, asialaw published its rankings of Korean law firms in 13 practice areas and 11 industry sectors. https://www.kimchang.com/en/insights/detail.kc?sch_section=1&idx=30314    

Kim & Chang once again received “Tier 1” (top-tier) rankings in all areas surveyed for Korea in the 2024 edition of IFLR1000. Additionally, 54 of our attorneys were recognized as “Market Leaders,” “Women Leaders,” “Highly Regarded,” “Expert Consultants,” “Rising Star Partners,” “Rising Stars,” and “Notable Practitioners” in their respective practice areas. The following list details our wins this year. Firm Rankings (“Tier 1” in all eight practice areas) Banking and finance Capital Markets: Debt Capital Markets: Equity Capital Markets: Structured finance and securitization M&A Private Equity Project development Restructuring & Insolvency Individual Rankings Market Leader Young Kyun Cho, Myoung Jae Chung, Kyung Taek Jung Women Leader Yoon Kyung Chang, Chang-hee Shin, Jackie Yang Highly Regarded Bo Yong Ahn, Myoung-Soo Cho, Jin Yeong Chung, Kye Sung Chung, Ick Ryol Huh, Young Man Huh, Gene-Oh (Gene) Kim, Geon Ho Kim, Janghoon Kim, Jae Myung Kim, Yong-Ho Kim, Young Min Kim, Chang Hyeon Ko, Bong Suk Koo, Hoin Lee, Sang Goo Lee, Sookyung Lee, Dong-Seok (Johan) Oh, Jong Koo Park, Chiyong Rim, Chang-hee Shin, Youngjin Sohn, Yong Seung Sun, Ie Hwan Yoo, Seung Jae Yoo, Hi Sun Yoon Expert Consultant Yon Kyun Oh Rising Star Partner Heesung Ahn, Dae-Hyuk Choi, Jungho Hong, Teo Kim, Chang Sup Kwon, Min-Young Oh, John Sangho Park Rising Star Sungjin Kim, Eun-Young Lee, Hyun Wook Lew, Jackie Yang Notable Practitioner Hyungjune An, Yoon Kyung Chang, Hyeon Deog Cho, Robert L. Gilbert, Bo Hyun Kim, Do Young Kim, Hye Sung Kim, Jung-Chull Lee, Kyung Yoon Lee, Sun Yul Lee, Jina Myung, Jong Hyun Park, Kwon-Eui Park, Tae Min Yun About IFLR1000: IFLR1000, the guide to the world’s leading financial and corporate law firms, annually publishes rankings based on law firm submissions, client feedback and independent research. In the 2024 edition, IFLR1000 ranked Korean law firms and lawyers in eight practice areas. https://www.kimchang.com/en/insights/detail.kc?sch_section=1&idx=30313  

A bill aimed at amending the English Arbitration Act 1996, the primary legislation governing arbitrations in England, Wales and Northern Ireland (the “Bill”), was introduced into the House of Lords on July 18, 2024. The Bill was initially submitted to the House of Lords in November 2023, but was discarded due to the UK general election in July 2024. Following revisions, it has been reintroduced and will undergo review by the House of Lords Committee in September 2024 before it is presented to the House of Commons for further consideration and potential enactment into law. In a survey conducted in 2021 by Queen Mary University of London and White & Case, London was chosen as the most preferred arbitration seat among practitioners worldwide. In practice, London is frequently designated as an arbitration seat for cases administered by institutions such as the International Chamber of Commerce (the “ICC”). Therefore, understanding the key components and implications of the Bill is essential. The key provisions of the Bill to amend the Arbitration Act 1996 are as follows: Clarification of Law Applicable to Arbitration Agreements In arbitration, (i) the substantive governing law of a contract, and (ii) the governing law of an arbitration agreement contained within the contract are conceptually distinct. As the latter can determine the formation and validity of the arbitration agreement, it holds significant importance in arbitration proceedings, especially when the parties have not explicitly specified the law applicable to the arbitration agreement. Under the current English Supreme Court’s precedent, if parties do not expressly specify the governing law of the arbitration agreement but do identify the substantive law of the contract, the latter is deemed to govern the arbitration agreement. However, the Bill proposes a departure from this established practice of arbitration law. It provides that, if the parties do not expressly designate the governing law of the arbitration agreement, the law of the seat of arbitration, which is English law, will be the governing law of the arbitration agreement. Additionally, the Bill clarifies that merely specifying the substantive governing law of the contract does not constitute an explicit designation of the governing law of the arbitration agreement. Streamlining Process for Challenging Arbitral Awards Section 67 of the Arbitration Act 1996 allows parties to contest an arbitration arguing a lack of jurisdiction or disputing the merits. Traditionally, English courts have conducted a full rehearing in cases of jurisdictional challenges, as seen in the Dallah case.1 The Bill introduces provisions that limit the court’s ability to rehear these challenges. Specifically, courts may be prohibited from accepting new evidence or arguments during jurisdictional disputes regarding arbitral awards. Furthermore, they may also be prohibited from reevaluating evidence that has already been reviewed by the arbitral tribunal. Nonetheless, the Bill includes exceptions to these restrictions. These exceptions may apply (i) if a party could not have presented the evidence during arbitration even with reasonable diligence, or (ii) if it is otherwise required in the interests of justice. The specific criteria and the extent of these exceptions will need to be further clarified in the future. Other Key Proposed Amendments Additionally, the Bill proposes several measures to improve the speed and efficiency of arbitration proceedings including: (i) a provision granting the arbitral tribunal the authority to make an award on a summary basis without a fact-finding procedure if it determines that the issue, claim or defense “has no real prospect of success;” and (ii) a provision stating that an emergency arbitrator, appointed to address urgent matters prior to the full tribunal being constituted, will have power similar to that of the regular arbitral tribunal. Furthermore, provisions have been added and supplemented to enhance the independence of arbitrators, including: (iii) a provision imposing a duty to disclose any circumstances that might give rise to doubts as to the impartiality of an arbitrator or arbitrator candidate; and (iv) a provision strengthening the immunity of arbitrators regarding their resignations to foster impartiality. For arbitrations conducted in England, Wales and Northern Ireland under the Arbitration Act, parties may appeal on legal grounds in certain circumstances – a unique feature not typically found in the arbitration laws of other countries that follow the UNCITRAL Model Law on International Commercial Arbitration (the “UNCITRAL Model Law”). Additionally, the Bill introduces provisions that diverge from the UNCITRAL Model Law, making it crucial to thoroughly examine the implications and significance of designating England, Wales and Northern Ireland as the seat of arbitration. Specifically, once the Bill passes through Parliament and is enacted, the formation and validity of arbitration agreements for arbitrations seated in England, Wales and Northern Ireland will likely be governed by English law, unless the parties have explicitly chosen a different applicable law for the arbitration agreement. This approach seemingly conflicts also with the stance of the Supreme Court of Korea, which has traditionally aligned with precedents set by the English Supreme Court (e.g., Supreme Court Decision 2017Da225084, July 26, 2018). Given that English law is known for its broader recognition of the formation and validity of arbitration agreements, it is anticipated that parties will need to review the governing law, dispute resolution and jurisdiction clauses more diligently when entering into contracts with international elements. Furthermore, according to the Bill, if the issue, claim or defense in an arbitration case lacks a substantial chance of success, the arbitral tribunal may issue a summary award, thereby expediting the arbitration process. Additionally, if parties seek to challenge arbitral awards in English courts (via a set-aside action), they may be restricted from submitting new evidence or claims beyond what was already submitted during the arbitration proceedings. Consequently, regardless of the contract’s governing law, it becomes essential for parties involved in arbitrations seated in England, Wales and Northern Ireland to thoroughly review all relevant facts and documentation from the outset and to adopt a strategic approach to the arbitration proceedings. https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=30336 Footnotes 1 Dallah Real Estate & Tourism Holding Co v. Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46.

A set of amendments proposed by the Korea Fair Trade Commission (the “KFTC”), which were intended to encourage companies to adopt a fair trade voluntary compliance program (“CP” or “CPs”) in accordance with the Monopoly Regulation and Fair Trade Act (the “MRFTA”),went into effect on June 21, 2024. The amended Enforcement Decree of the MRFTA (the “Enforcement Decree”) specifies the criteria and process for evaluating CPs as well as standards for reducing the level of corrective orders and/or administrative fines for companies with outstanding CPs. In addition, an amended Notification on Specific Criteria for Imposing Administrative Fines for MRFTA Violations (the “Administrative Fine Notification”), which includes criteria for reducing administrative fines for companies operating CPs in exemplary ways, went into effect on August 28, 2024. The CP system, adopted in 2001, is designed to promote a culture of voluntary compliance with fair trade regulations. As of the end of 2022, approximately 730 major companies had adopted and implemented the CP system. The Korean Government has included the facilitation of the CP system as one of its National Governance Tasks amid the global demand for Environmental, Social and Governance (“ESG”) management. Through the amended MRFTA and Enforcement Decree that went into effect on June 21, 2024, the KFTC established a legal basis for the CP system, including CP evaluation, incentives, as well as designation and cancellation of CP evaluation agencies. The KFTC also enacted a new set of rules – Rules for Operating and Evaluating Fair Trade CPs (the “CP Rules”), which contain detailed provisions pertaining to the CP evaluation process and related matters. The amended Administrative Fine Notification provides detailed criteria for reducing administrative fines for companies that have exemplary CPs, while strengthening the criteria for reducing such fines for cooperation with the KFTC. The key details of the amended MRFTA, Enforcement Decree and Administrative Fine Notification, and the new CP Rules are as follows: CP Evaluation Criteria and Procedure Requirements for requesting CP evaluation: A company that meets the requirements for CP implementation and has operated a CP for at least one year may request an evaluation. The KFTC evaluates the company’s performance in the immediately preceding year based on (i) criteria set forth in the CP Rules, including whether the company has met all requirements for CP implementation, and (ii) the CP’s operational status.   Criteria for additional points: Consecutive requests for CP Evaluation: Companies that apply for consecutive annual CP evaluations can earn up to one additional point depending on the period. Supporting other companies’ CP implementation: If the company’s partner implemented a CP with the company’s operational support and obtains a rating of B or higher, the company can earn points (0.7 points for each partner, up to a maximum of 4 points). Performance of voluntary dispute resolution body: Companies may earn 0.2 points for participating in a CP event and submitting survey responses, 0.4 points for presenting a case study, 0.4 points for providing materials (e.g., CP operating materials), 0.7 points for establishing an internal voluntary dispute resolution body, and 0.3 points for receiving and processing dispute claims. Rating withholding and adjustment: CP evaluation ratings may be withheld, adjusted, invalidated, or not granted if they were assigned based on inappropriate grounds. Requirements for Incentives Including Fine Reduction Fine reduction: The fine may be reduced by a maximum of 20%. For a rigorous evaluation, companies rated AA or higher are subject to an in-depth interview – in addition to the existing document/on-site evaluations. A one-time reduction of up to 10% (for AA rating) or 15% (for AAA rating) based on the fine after the second adjustment, is allowed once during the rating’s validity. However, an additional fine reduction of up to 5% may be granted if the company proves that it detected a violation through an effective CP operation and ceased the violation prior to the commencement of the investigation. A reduction of the fine is allowed only once during the rating’s validity (two years). In addition, a violation of law is not eligible for a fine reduction or mitigation of a corrective order, even when a company meets the evaluation criteria if (i) the violation occurred before adopting the CP, (ii) the violation involves certain types of hardcore cartels (e.g., bid rigging) that raise significant anti-competitive issues, or (iii) high-level officers of the company are directly involved in the violation. Mitigation of corrective order: A one-time mitigation during the rating’s validity may apply to the level of required public disclosure of a violation of law. Public disclosure by publication: The size and number of publications may be reduced by one level (for AA rating) or two levels (for AAA rating). Public disclosure on the business premises or through electronic media: The period of disclosure may be reduced. Not eligible for reduction or mitigation: Violations involving the following cases are not eligible for fine reduction or the mitigation of a corrective order, as they are contrary to the CP system’s purpose of preventing legal violations: When the company’s employee in charge of the CP is involved in the violation; When the violation occurred before the implementation of the CP; If the violation involves certain types of hardcore cartels (e.g., price fixing, output restriction, bid rigging, market allocation, or collusion on transaction/payment terms); or When high-level officers of the company (e.g., directors) are directly involved in the violation. Evaluation Costs and Designation of Evaluation Agency Evaluation costs: Based on the principle of “payment by beneficiary” (i.e., the party benefiting from the relevant system should bear the costs), the company bears the cost of the CP evaluation (KRW 6.6 million for the initial evaluation and KRW 4.4 million for subsequent evaluations). However, the evaluation costs are reduced for medium-sized and small businesses as follows: For medium-sized companies or institutions with annual sales of less than KRW 300 billion, the evaluation cost is reduced by 50% (i.e., KRW 3.3 million for the initial evaluation and KRW 2.2 million for subsequent evaluations). Small businesses and companies with an AAA rating in the previous year’s CP evaluation are entirely exempt from the evaluation costs. Designation of evaluation agency: The KFTC may designate the Korea Fair Trade Mediation Agency (which is currently conducting CP evaluations) or other institutions that have issued fair trade-related certifications and performed evaluations for at least two years, as evaluation agencies and provide notice thereof. Going forward, the KFTC is expected to continue to promote CPs to ensure that CPs become an integral part of business management (as was mentioned in the KFTC’s Enforcement Plan for 2024). Various incentives, such as exemption from official investigations, adjustment of the level of public disclosure order, fine reduction, among others, are provided based on the results of CP evaluations. Accordingly, companies should strive to obtain a high rating in the CP evaluation through the implementation and operation of CP systems that align with the amended requirements. https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=30465    

An amendment to the Financial Investment Services and Capital Markets Act (the “Amended FSCMA”) was promulgated on January 23, 2024, to require the prior disclosure of insider transactions. Specifically,if any executive or major shareholder of a listed company (an “Insider”) intends to buy or sell “Specified Securities” issued by the company (which include equity securities (e.g., stocks), convertible bonds, bonds with warrants and related depository receipts) in an amount exceeding a certain threshold, they must disclose information about the transaction in advance of the scheduled trading date. In line with the Amended FSCMA, corresponding amendments were made to the following: (i) the Enforcement Decree of the FSCMA (the “Amended FSCMA Enforcement Decree”), (ii) the Regulations on Disgorgement of Short-Swing Profits and Unfair Trading Investigation and Report, Etc. (the “Amended Short-Swing Profits Regulations”), and (iii) the Capital Markets Investigation Operations Manual (the “Amended Investigation Manual”) on July 9, 2024. These amendments, along with the Amended FSCMA, entered into force on July 24, 2024 (collectively, the “Amended FSCMA Regulations”). Since the Financial Services Commission’s announcement in September 2022 (available in Korean, Link), the Amended FSCMA Regulations have been under continuous discussion due to market concerns over potential declines in stock prices from large-scale insider sales. Below, we have outlined key details about the prior disclosure requirement for insider transactions involving listed companies under the Amended FSCMA Regulations. With the implementation of the prior disclosure requirement for insider trading, any Insider who intends to buy or sell Specified Securities issued by that company in an amount exceeding a certain threshold must disclose the purpose, price, volume and period of the transfer at least 30 days prior to the scheduled trading date. Scope of Insiders Subject to Prior Disclosure Requirement Executives and major shareholders of listed companies are classified as Insiders subject to the prior disclosure requirement. Here, “executives” include not only directors and auditors, but also de facto executives, such as those responsible for giving work orders; and a “major shareholder” is defined as any shareholder who (i) holds at least 10% of the shares in the listed company, or (ii) has the power to exert de facto influence over the management of the company (Article 173-3 (1) of the Amended FSCMA). However, financial investors who are expected to (i) have a relatively higher level of internal control standards, and (ii) be less likely to misuse material non-public information (such as pension funds, collective investment vehicles (e.g., private equity funds, including special purpose companies), banks, insurance companies, specialized credit finance companies, financial investment businesses, venture capital firms and the Korea SMEs and Startups Agency) are not subject to the prior disclosure requirement. Furthermore, in order to ensure the equal treatment of domestic and foreign investors, foreign investors with a status equivalent to domestic financial investors are also excluded from being subject to the prior disclosure requirement (Article 200-3 (1) of the Amended FSCMA). Scope of Transactions Subject to Prior Disclosure Requirement The prior disclosure requirement applies when an insider subject to the requirement buys, sells or otherwise trades Specified Securities issued by the relevant listed company (which include equity securities (e.g., stocks), convertible bonds, bonds with warrants and related depository receipts) (Article 173-3 (1) of the Amended FSCMA). The reporting requirement is exempted when the aggregate trading volume and value of the Specified Securities over the six months prior to the start date of trading and during the trading period are both (i) less than 1% of the total number of issued and outstanding shares of the listed company, and (ii) less than KRW 5 billion. Furthermore, the prior disclosure requirement does not apply to instances where transactions are executed for unavoidable reasons. These include situations (i) where there is no risk of misuse of material non-public information, including when the sale or purchase of shares is inevitable due to a statutory requirement, or is intended for stabilization or market creation,[1] and (ii) where transactions are conducted as a result of external factors, such as succession/inheritance, share dividends, mergers and acquisitions involving the transfer or acquisition of shares, acquisitions or disposals of shares due to split-ups or mergers, or covering (or reverse trading) due to a decrease in the collateral value of shares. Procedures and Method of Prior Disclosure of Insider Transactions Specifically, the parties subject to the prior disclosure requirement must specify the (anticipated) trading amount, price, volume and period of the Specified Securities to be traded in their transaction plan reports. This information must be reported to the Securities and Futures Commission and the Korea Exchange, and publicly disclosed at least 30 days before the trading commences (Article 173-3 (3) of the Amended FSCMA, Article 200-3 (3) of the Amended FSCMA Enforcement Decree, and Article 9-4 of the Amended Short-Swing Profits Regulations). As the transaction plan must be reported 30 days before the commencement of the transaction, the reporting requirement applies to transactions for which payment is made on or after August 23, 2024 (and which are executed by floor trading on August 21, 2024), which is 30 days after the effective date of the amended FSCMA (July 24, 2024). In addition, a party who has previously reported a transaction plan is not permitted to report a new one until the implementation of the previous plan is completed (Article 173-3 (2) of the Amended FSCMA). In principle, parties subject to the prior disclosure requirement must trade the Specified Securities in accordance with the transaction plans they reported. However, the Amended FSCMA allows the transaction amount to deviate by up to 30% from the amount specified in the transaction plan, providing flexibility to the parties in responding to changing market conditions (Article 173-3 (3) of the Amended FSCMA and Article 200-3 (6) of the Amended FSCMA Enforcement Decree). Unavoidable Circumstances in Which Transaction Plans May Be Withdrawn (Article 173-3 (4) of the Amended FSCMA, Article 200-3 (7) of the Amended FSCMA Enforcement Decree, and Articles 9-6 and 9-7 of the Amended Short-Swing Profits Regulations) A transaction plan may be withdrawn under unavoidable circumstances, such as (i) the death or bankruptcy of the filing party, (ii) a significant amount of loss anticipated due to increased market volatility (i.e., where the relevant stock price changes by 30% or more from the closing price of the day preceding the reporting date of the transaction plan), (iii) the impossibility of executing a sales or purchase transaction due to reasons attributable to the counterparty, or (iv) rapidly changing market conditions (e.g., the delisting of the relevant company, a suspension of trading, etc.) after the submission of the transaction plan. Administrative Fines for Violations of Prior Disclosure Obligations for Insider Trading (Articles 429 (5) and 429 (6) of the Amended FSCMA, Articles 379 (6) and 379 (7) of the Amended FSCMA Enforcement Decree, and Attached Table 2-3 of the Amended Investigation Manual) Failing to disclose or falsely disclosing a transaction plan, failing to implement the relevant transaction plan, or any other violation of the disclosure obligations, can result in an administrative fine of 0.02% of the listed company’s market capitalization, up to KRW 2 billion maximum. The Amended FSCMA Enforcement Decree includes detailed provisions allowing administrative fines to be imposed differently depending on certain factors, such as market capitalization, trading amount and the severity of the violation. The purpose of enforcing the prior disclosure requirement for insider trading is to enhance the transparency and predictability of large-scale insider transactions, thereby preventing unfair trading practices and safeguarding general investors. For insiders, including major shareholders, the prior disclosure of substantial share sales can help mitigate the risk of raising unnecessary suspicions about the use of non-public information in these transactions. For major shareholders, however, there may be a number of factors to take into account when reviewing transaction structures for large-scale share trading. As major shareholders are now required to disclose information about their large-scale transactions in advance, they will inevitably be exposed to the risk of stock price fluctuations from the date of disclosure until the date of transaction. It is also worth noting that under the Amended FSCMA Enforcement Decree, transactions of institutional investors (e.g., private equity funds), mergers and acquisitions, and transactions for corporate restructuring (e.g., acquisitions or disposals of shares due to split-ups or mergers) are exempt from the prior disclosure requirement. https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=30461 Footnotes [1] Where, exceptions to the disgorgement of short-swing profits apply mutatis mutandis under Article 198, Subparagraphs 1 through 12 of the Amended FSCMA Enforcement Decree.