The Democratic Party of Korea said it will move quickly to pass the third amendment to the Commercial Act, which mandates the cancellation of treasury shares. It pushed back against the business community's view that mandatory cancellation would leave a gap in management control defenses, saying it was like "going back to when the KOSPI was at 2,500."
The Democratic Party's K-capital market special committee held a roundtable at the National Assembly on the morning of the 11th and again explained the details of the third amendment to the Commercial Act now under review by The National Assembly's Legislation and Judiciary Committee.
The third amendment to the Commercial Act proposed by the special committee requires corporations to cancel newly acquired treasury shares within one year and to have their disposition plans for treasury shares approved at the shareholders meeting each year. It also strengthens board accountability by allowing fines of up to 50 million won to be imposed on individual directors for violations.
Oh Ki-hyeong, the Democratic Party lawmaker who chairs the special committee, said, "The claim that the Commercial Act amendment mandating cancellation of treasury shares is anti-market and anti-corporate is a distortion," adding, "Until now, treasury shares have been used as a tool for certain shareholders to defend management control, and the intent of the third amendment to the Commercial Act is to prevent that."
He went on, "Many corporations acquire treasury shares to enhance shareholder value, but later dispose of them to related parties," adding, "Ultimately, the intent of the amendment is to transfer the board's authority to the shareholders. If you oppose the purpose of the bill, isn't that saying we should go back to when the KOSPI was at 2,500?"
Lee So-young, a Democratic Party lawmaker on the special committee, said, "The very idea that the public and the National Assembly should step in to protect managers' control over management is not found in advanced capitalist countries," adding, "A company becomes prey to hostile mergers and acquisitions (M&A) when its stock is undervalued. If the share price rises and it earns shareholders' trust, outsiders cannot threaten management control."
Kim Nam-geun of the same party said, "The very use of treasury shares as a tool to defend the management control of a particular controlling shareholder can harm other shareholders," adding, "If there is consensus among all shareholders, you can pass an agenda item at the shareholders meeting to hold a large amount of treasury shares."
Earlier, the Ministry of Justice offered its view on the third amendment to the Commercial Act, saying, "We agree with mandating cancellation to restrict the use of treasury shares for defending management control or strengthening control," while also noting, "We need to discuss alternative measures that can protect top-quality corporations in key national industries from hostile M&A by foreign speculative capital."
The Democratic Party again affirmed its position to process as quickly as possible the third amendment to the Commercial Act that includes mandatory cancellation of treasury shares. The Legislation and Judiciary Committee reviewing the amendment will hold a public hearing on the 13th to discuss mandatory cancellation of treasury shares.
Kim Hyun-jung, the Democratic Party's floor spokesperson, said, "At the level of the party's floor leadership, we are naming the Commercial Act amendment as the bill to be handled first," adding, "Once the public hearing process is completed, I want to make clear that we plan to process it in the fastest order."