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Newsletter | February 2016, Issue 1
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CORPORATE
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National Assembly Passes the "Special Act for Business Reinvigoration"
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On February 4, 2016, the National Assembly held a plenary session, and passed the "Special Act for Business Reinvigoration" (the "One-Shot Legislation").
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The act is a temporary legislation. It will become effective on August 13, 2016, and stay in effect for 3 years.
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Applicability
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The One-Shot Legislation aims to reduce the time and costs associated with reorganization of business (through M&A, new business entry or otherwise) by companies that have their business reorganization plans approved by the Business Reorganization Plan Review Committee of the Ministry of Trade, Industry and Energy (the "Approved Companies"). The One-Shot Legislation does not limit its applicability based on company size or type of industry.
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However, the legislation does explicitly provide that it is only applicable to reorganizations for the purpose of "reliev[ing] oversupply." The legislation also requires that a separate (not yet announced) Presidential Decree set the detailed standards for satisfying such a condition.
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In addition, certain benefits under the One-Shot Legislation are not available to companies that are affiliated with large enterprise groups (as defined in the Monopoly Regulation and Fair Trade Act (the “FTL”)).
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Key Provisions
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| 1. |
Special Provisions under the Korea Commercial Code
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The One-Shot Legislation permits expeditious reorganization of business by implementing special provisions in the Korea Commercial Code.
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Among others, the One-Shot Legislation:
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Reduces the notification period for shareholders’ meetings and the publication period for reference dates required in connection with mergers, spin-offs, and business transfers;
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Newly establishes provisions, which allow the approval of small-scale spin-offs by a resolution of the board of directors under certain circumstances,
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Relaxes the conditions for small-scale merger/spin-off, and short-form merger/spin-off; and
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Reduces the creditor protection and shareholder appraisal periods.
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| 2. |
Special Provisions under the FTL
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The One-Shot Legislation implements special provisions under the FTL, which:
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Extend the exemption periods for leverage ratio restriction and the requirement to hold minimum percentage of equity interests in direct subsidiaries imposed on holding companies;
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Extend the exemption periods for the requirement to hold minimum percentage of equity interests in second-tier subsidiaries and the restriction on co-investment in second-tier subsidiaries that are imposed on direct subsidiaries of holding companies; and
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Extend or newly adopt, as applicable, grace periods for application of cross shareholding restrictions and debt guarantee restrictions.
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| 3. |
Tax Support under the Special Tax Treatment Control Law (the “STTCL”)
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To provide the legal basis for tax support contemplated under the One-Shot Legislation, the STTCL was amended on December 15, 2015. The amendment includes new tax benefit provisions that exempt or defer imposing certain taxes (e.g., exemption of securities transaction tax or deferral of corporate income tax.) in connection with business reorganizations.
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The detailed scope of the applicability of the tax benefits provided under the STTCL is to be defined under the not yet announced Presidential Decree.
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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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