From now on, corporate venture capital (CVC) units under general holding companies are banned from joining as limited partners (LPs) in funds that invest in companies funded by the owner (same person).
The Korea Fair Trade Commission on the 23rd put up for public notice a draft amendment to the Enforcement Decree of the Monopoly Regulation and Fair Trade Act centered on these measures. The public notice period runs until Sept. 1.
Currently, CVCs under general holding companies are barred from investing in companies funded by the owner or relatives within the corporate group to which they belong. However, it has been allowed for them to contribute as LPs to external funds that then invest in companies funded by the owner or relatives. This allows an indirect investment in companies subject to the investment ban by inserting a fund. In response, the Korea Fair Trade Commission (FTC), through this decree amendment, defined as an unlawful act any contribution by a CVC to a fund whose primary purpose is to invest in companies subject to the investment ban.
Also, under the current Fair Trade Act, companies affiliated with business groups subject to limits on mutual investment cannot guarantee financial institution loan debts for domestic affiliates. But there was a workaround in which a special purpose company (SPC) was set up to lend funds borrowed from a financial institution to a company in a business group subject to limits on mutual investment, and another affiliate agreed to assume the SPC's financial institution debt. In response, the Korea Fair Trade Commission (FTC) also included in this decree amendment a provision defining as an unlawful act debt guarantees executed through an SPC as an intermediary.
A new rule was also established that if a relative who was excluded from being related to the owner after being recognized as independently managed from the owner serves as an executive at an affiliate on the owner's side, that person is again included as related to the owner.
An official at the Korea Fair Trade Commission (FTC) said, "We will fully review opinions submitted during the public notice period by stakeholders and relevant ministries," adding, "We plan to finalize and implement the amendment after procedures such as review by the Ministry of Government Legislation."