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Newsletter | December 2016, Issue 4
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CORPORATE
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In Attempt to Reinvigorate Troubled Korean Companies, Government Introduces a 3-year Special Act
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The Special Act for Business Reinvigoration (commonly known as the “One Shot Law”) will be temporarily enforced for three years, beginning on August 13, 2016. The One Shot Law aims to promote rapid and smooth business improvement of Korean companies that face insolvency threats.
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Deliberation Committee and Implementation Guidelines
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In accordance with the One Shot Law, the business restructuring deliberation committee (“Deliberation Committee”) was established to deliberate on business restructuring plans of the affected companies. On August 18, 2016, the first Deliberation Committee meeting took place, where the “business restructuring plan implementation guidelines” (“Implementation Guidelines”) was finally confirmed. The Implementation Guidelines took effect on August 19, 2016.
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Affected Companies
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The One Shot Law applies to Korean (domestic) companies that engage in business restructuring to resolve “excess supply.”
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The criteria used to determine “excess supply” are specifically provided in the Implementation Guidelines, which provide that a company has “excess supply” if:
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the average operating profit ratio to the sales amount for the last three years decreases by 15% or more (compared to the average operating profit ratio for the past 10 years);
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manufacturing business satisfies two or more – and service business satisfies one or more – of the five sub-indicators (including operation rate, in-stock rate, price/cost change rate, service production index) compared to the number of workers, and the industry indicator; or
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there is no expectation for the recovery of demand in the near future, or the gap between supply and demand cannot be narrowed due to the difficulties in responding to the changes in demand, because of the industry characteristics.
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However, whether the “excess supply” exists may be determined differently if the Deliberation Committee acknowledges that: (i) it is highly probable that a company will face “excess supply” in the near future; or (ii) it is difficult to determine whether the above criteria for “excess supply” are satisfied due to the short history of the industry and insufficient information.
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Post-Approval of Company’s Restructuring Plan
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Once a domestic company obtains approval for its business restructuring plan (“Approved Company”), it may be entitled to enjoy:
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exemptions from certain requirements of the Korean Commercial Code, including mitigated requirements for small-sized mergers, and simplified procedures for general shareholder meetings;
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exemptions from certain requirements of the Monopoly Regulation and Fair Trade Act (“MRFTA”), including suspension or mitigation of the regulation on debt ratio of a holding company, regulation on stock ownership standards, and regulation on investment in domestic companies, other than affiliates; and
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tax and funding benefits.
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According to the “comprehensive assistance plans for the companies approved for business restructuring under the Special Act for Business Reinvigoration” which was released on July 28, 2016, tax benefits will be provided, including mitigation of follow-up management requirements regarding legitimate mergers.1
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(1) Mitigation requirement for share ratio to the acquisition price from 80% to 70%; and (2) exclusion of overlapping assets caused by the merger from the fixed assets of the merged company, which are mandatorily required to be held
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Back to Main Page
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If you have any questions regarding this article, please contact below:
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For more information, please visit our website:
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