Financial Groups and Banks Expected to Reap Benefits from Commercial Act Revision

The recent passage of a revision to the Commercial Act in South Korea is expected to have a significant impact on the country’s financial sector. Market watchers are predicting that the shares of financial groups and banks, which have been undervalued for a long time, will see a re-rating following this development.

One of the key aspects of the revision is the expansion of fiduciary duty to include both firms and shareholders, providing greater rights protection for minority and retail investors. This move is aimed at preventing questionable business practices that have often led to short- to medium-term share price drops.

Retail investors have long criticized the lack of shareholder influence in corporate decisions, particularly in cases of corporate mergers or spinoffs that have negatively affected share prices. The revision is expected to address these concerns and ensure that minority shareholders have a say in such matters.

Additionally, the revision will also impact holding firms’ financial support for struggling subsidiaries and the practice of physical spinoffs, where existing shareholders do not receive stakes in the newly spun-off entities. This has been a point of contention among minority shareholders, who have borne the brunt of share price declines in such scenarios.

Furthermore, the revision is expected to revisit the government’s role in commercial lenders’ operations, particularly in terms of social contribution packages and measures that have impacted shareholders. The revision will make it harder for the government to force commercial lenders to forfeit their net income for such purposes.

Overall, the passage of this revision is seen as a positive step towards protecting the rights of minority shareholders and ensuring greater transparency and accountability in the financial sector. The revision is set to come into effect unless vetoed by the acting President, triggering a revote in the National Assembly.
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