On March 28 2008, the Fair Trade Commission (FTC) announced its plan to relax corporate regulation laws. To implement the plan, the FTC will submit an amendment to the Monopoly Regulation and Fair Trade Act for parliament to pass during the first half of this year. Some of the key aspects of the FTC's plan are highlighted below.
The maximum amount of investment that an investor is allowed to make in another company is 40% of the investor's net worth. This restriction will be abolished. Instead the FTC will implement an anti-trust watchdog system in which the business groups subject to the investment restriction will be required to periodically disclose detailed information concerning their inter-company share transfers. By implementing such a system, the FTC hopes that it will enable market participants to effectively monitor the corporate governance of the relevant business groups.
For a company to qualify as either (i) a business group subject to limitations on mutual investments or (ii) a business group subject to limitations on debt guarantee, it needs to satisfy a minimum threshold requirement of the net worth of W2 trillion ($2 billion). The FTC plan seeks to relax this minimum threshold requirement. The FTC plans to lift the corporate debt-ratio requirement pursuant to which only a company with a debt ratio of less than 200% is allowed to switch into a holding company. The FTC also plans to lift the current rule that limits an investor to hold a stake of 5% or less in a non-affiliated company.
The FTC plan entails an increase in the grace period from the current four years (including the one-time extension provided by the FTC) to five years for a company that fails to satisfy the requirements for switching into a holding company. This includes the requirement to hold at least 40% of the issued shares in an affiliated company (20% if that affiliated company is a listed company), and the requirement for a non-financial company not to hold any shares in an affiliated company that is a financial company.
The current regulation that requires a grand-subsidiary company (sonjahoesa) to fully own its great-grand-subsidiary company (jeungsonhoesa) will be lifted as well, as the plan allows a grand-subsidiary company to own a great-grand-subsidiary company as long as it owns that great-grand-subsidiary company with a partner company, and a grand-subsidiary company has at least 30% ownership in the great-grand-subsidiary company. The threshold for companies that are required to submit a business combination report will be increased from the current threshold of net worth or profit of at least W100 billion to W200 billion.
A company is required to submit a business combination report 30 days before the date of the execution of the merger documents, but the FTC's plan calls for the company to submit the business combination report after the execution of the merger documents but before the registration of the merger with the relevant authority.