The third Commercial Act amendment, which includes a mandate to "cancel treasury shares," passed the National Assembly's Legislation and Judiciary Committee's first subcommittee on bill review on the 20th. The amendment is expected to clear the full session of the Legislation and Judiciary Committee next week and pass the plenary session during the February extraordinary session.
Oh Ki-hyeong, a Democratic Party of Korea lawmaker who chairs the K-capital market special committee, met reporters at the National Assembly after the subcommittee wrapped up that afternoon and said, "The third Commercial Act amendment passed with 7 in favor and 4 against out of 11 members present."
The amendment requires newly acquired treasury shares to be mandatorily canceled within one year. Existing treasury shares are given a six-month grace period. Accordingly, corporations must cancel treasury shares within 1 year and 6 months after the law takes effect. If violated, directors will be subject to fines of 50 million won.
There are some exceptions to the mandatory cancellation of treasury shares. In special cases such as business necessity and the implementation of an employee stock ownership plan, the company may draw up a disposal plan for treasury shares and obtain approval at a shareholders meeting. In addition, if there is a statutory cap on foreign equity, an exception allows disposal within three years after the law takes effect.
The amendment also provides that if a company disposes of treasury shares instead of canceling them, it must acquire them equally according to the number of shares held by each shareholder. If a capital reduction procedure is required due to involuntary cancellation of treasury shares, it is simplified to allow a board resolution instead of a special resolution at a shareholders meeting.
Oh said, "The point is that the board's substantive authority over treasury shares has been transferred to the shareholders meeting," adding, "What the board used to decide at its discretion has been shifted to the shareholders meeting, and the shareholders meeting can decide how much to hold."