Special act on revitalising companies to take effect in August 2016

1. Special provisions under the KCC and FISCMA:
• Small-scale spin offs, small-scale merger and short-form merger: the Act permits the approval of small-scale spin-offs by a resolution of the board of directors (rather than the shareholders) under certain circumstances, and relaxes the requirements of small-scale mergers and short-form mergers;
• Merger, etc. procedures: the Act reduces the notification period for shareholders’ meetings and the publication period for reference dates required for mergers, spin-offs, comprehensive share exchanges and transfers and business transfers, from two weeks to seven days;
• Creditor protection procedures: the Act shortens the creditor objection period from one month to 10 days and allows approved companies to forego creditor protection procedures if they submit a bank guarantee or insurance policy covering their liabilities; and
• Appraisal rights: the Act shortens the period during which dissenting shareholders may exercise their appraisal rights from 20 days to 10 days following the date of the shareholders’ resolution, and it extends the period during which approved companies are obligated to purchase the relevant shares of minority shareholders, from one month to three months for listed companies and from two months to six months for unlisted companies.

2. Special provisions under the MRFTA:
• Restrictions on holding companies: The applicable debt ratio restrictions and shareholding ratio limitations on the amount of shareholdings a holding company may have in its direct subsidiaries or non-affiliate companies would not be applied for three years;
• Restrictions on holding companies’ subsidiaries and second-tier subsidiaries: The applicable shareholding ratio limitations on the amount of shareholdings a holding company’s subsidiaries may have in second-tier subsidiaries or the shareholding limitations on holding shares in other affiliates would not be applied for three years; and
• Cross shareholding restrictions and debt guarantee restrictions: the Act extends or newly adopts, as applicable, grace periods for application of cross shareholding restrictions and debt guarantee restrictions.

3. Tax and financial support: the Act, through the STTCL (Articles 126-26 through 126-31) and LSTTCL (Article 57-2), provides special tax benefits, including tax deferral on gains, etc., and financial and R&D support to approved companies.

4. Support for removal of regulatory obstacles: the Act allows certain companies to request official interpretations and opinions on the applicability of laws and regulations to the relevant corporate restructuring activities and regulatory improvements.

Because further details, including the definition of the term ‘oversupply’ and requirements of corporate structuring, are still to be determined by the enforcement decree, it will be necessary to monitor the progress of the enforcement decree’s adoption. Also, given the treble damages provision of the Act, companies planning to carry out corporate restructuring to obtain benefits under the Act should thoroughly review the applicable laws and regulations before formulating their restructuring plans.

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