Ruling Party to Finalize Third Commercial Act Amendment Mandating Share Buyback Cancellation Within One Year by Year-End

(Seoul=Yonhap Infomax) Nam Kyoung Hwang – The Democratic Party of Korea announced plans to complete the third round of amendments to the Commercial Act, which would require companies to cancel treasury shares within one year of acquisition, by the end of this year.

Han Jeong-ae, Policy Committee Chair of the Democratic Party, stated at a party strategy meeting at the National Assembly on the morning of the 25th, "There have been numerous cases where treasury shares were misused for the benefit of specific shareholders." She added, "Through the Commercial Act amendment, we will clarify the nature of treasury shares and eliminate so-called 'treasury share magic' from our capital markets."

Han continued, "The amendment will mandate the cancellation of treasury shares within a set period after acquisition. However, for specific purposes such as employee compensation, companies will be required to obtain special shareholder approval at the general meeting to retain or dispose of such shares, thereby strengthening shareholder rights."

"We will do our utmost to ensure the third Commercial Act amendment is discussed and implemented swiftly for a healthier capital market," Han added.

Oh Ki-hyeong, the lawmaker who sponsored the third amendment, emphasized, "Institutional reforms for the 'Korea Premium' must continue." Oh, who also chairs the KOSPI 5,000 Special Committee, said, "Yesterday, after extensive discussions, we submitted the Commercial Act amendment to reform the treasury share system. The need for such reform was already included in the previous administration's Financial Services Commission (FSC) Value-Up policy, and the prior government also revised enforcement decrees in response to criticism of treasury share practices."

Oh pointed out, "There has been much criticism. Companies often disclose that they acquire treasury shares to enhance shareholder value, but then retain them without cancellation, which constitutes false disclosure. Furthermore, disposing of treasury shares to related parties of the CEO under the pretext of strengthening control has openly deceived the market."

He added, "Another issue is excessive retention of treasury shares by companies, which is inefficient. There have been calls to halt such practices without shareholder consent."

Oh explained, "Under the proposed amendment, treasury shares must be cancelled within one year of acquisition. Exceptions for retention or changes in disposal methods will require shareholder approval at the general meeting. Treasury shares held by the company will have no rights, and further issuance of exchangeable bonds (EB) will no longer be permitted."

Additionally, "Even in exceptional cases where treasury shares are disposed of with shareholder approval, the procedures for new issuance must be followed. Treasury shares can no longer be used to defend the management rights of specific shareholders. When existing or new shares are issued and treasury shares leave the company, the procedures for new issuance must be observed," he said.

Oh further noted, "Before any decision at the general meeting, directors must persuade shareholders. The fiduciary duty of directors to shareholders is already in effect. If directors violate this duty or shareholder decisions, they will be liable for damages claims."

nkhwang@yna.co.kr

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