SEOUL, December 04 (AJP) - South Korea’s C-suite and boards must now weigh shareholder rights as heavily as employee considerations under the revised Commercial Act, a shift posing as a setback to bold, owner-driven decision-making long associated with chaebols.
The implications of the overhaul were a central focus at a capital markets and M&A seminar hosted in Seoul by law firm Shin & Kim on Thursday, where corporate lawyers and market participants examined how the revised law could reshape boardroom choices in major transactions.
“There are still no clear legal precedents on how directors should navigate conflicts between different shareholder interests under the revised Act,” said Oh Jong-han, managing partner at Shin & Kim, in opening remarks. “This creates a situation where companies and directors are having to make decisions without established benchmarks on what will ultimately be judged as acceptable.”
Merger ratios under closer scrutiny
One of the most immediate pressure points is merger ratios. Under the revised Commercial Act, directors involved in mergers deemed to have been executed at unfair ratios now face heightened risks of shareholder damages claims, as well as potential criminal liability for breach of fiduciary duty.
“In affiliated-company mergers, directors must examine far more carefully whether the deal — including its timing and exchange ratio — genuinely benefits the company’s shareholders,” said Lee Dong-geon, head of Shin & Kim’s Corporate Governance Strategy Center. “The risk profile has clearly changed. Decisions once viewed as business judgment are increasingly being scrutinized through the lens of shareholder fairness.”
Shareholder losses may trigger injunctions
Another area of uncertainty is whether shareholder losses could be interpreted as losses to the company itself. If courts adopt such an interpretation, shareholders may gain stronger grounds to seek injunctions halting transactions before completion, invoking their rights to preserve corporate interests.
“This opens the door to preventive legal action at much earlier stages of M&A,” Lee said, noting that such remedies were previously difficult to access unless direct damage to the company could be demonstrated.
Practitioners warned that this shift could significantly raise the bar for board approvals in restructurings and group transactions.
Boards face higher decision-making burden
While the revisions are not expected to derail routine deals, experts emphasized that complex transactions — particularly those involving related parties or capital restructuring — will now require greater procedural rigor. Boards will be expected to document their decision-making more extensively, rely on independent valuations and demonstrate clearly that a proposed transaction serves the collective interests of shareholders.
“With limited case law to guide interpretation, directors are operating in a legal gray zone,” Oh said. “Until clearer standards emerge, conservative decision-making is likely to prevail.”
Experts noted that the revised Commercial Act signals a structural shift in Korea’s capital markets — one that strengthens shareholder protections but also injects new uncertainty into how boards navigate high-stakes transactions.
reporter
Candice Kim
candicekim1121@ajupress.com
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