S-Space College of Law/Law School (법과대학/대학원) The Law Research Institute (법학연구소) 법학 법학 Volume 50, Number 1/4 (2009)
Freeze-out of Minority Shareholders under the Draft New Commercial Code
- Issue Date
- 서울대학교 법학연구소
- 법학, Vol.50 No.1, pp. 321-350
- 강제매수; 주식매수청구권; 현금합병; 간이합병; 차입매수; cash-out merger; controlling shareholder; commercial code; 가치평가; corporate governance
- The draft new Korean Commercial Code includes the mechanism for acquisition
of dissenting minorities. The compulsory buy-out threshold is set at 95%
level. The proposed provisions below (translation by Lee & Ko, Korea, and the
author) are general ones that allow a controlling shareholder to purchase
compulsorily the shares owned by a minority, no matter whether the majority
was acquired in a takeover bid or not. The minorities also have the right to be
bought out at the same level. However, there is no sophisticated mechanism for
determination of a fair price than the current one applicable to the shareholders’
appraisal claims. Also, the Korean law does neither know the concept of the
“entire fairness” as developed in Singer v. Magnavox Co., 380 A.2d 969 (Del.
1977) nor the fiduciary duty of majority shareholders to minority shareholders.
The new squeezeout institution may work properly if and only if the Korean
courts contemporaneously develop the fairness standard applicable to valuation as
well as procedure and introduce the fiduciary duty of major shareholders to
minority shareholders. This is more so because the draft bill also allows the
cash-out merger transaction in Article 523, No.4.
Article 360-24 (Controlling Shareholder’s Right to Request for Sale)
(1) The shareholder who possesses 95% or more of the total issued and
outstanding shares of a company under his own account (hereinafter,
“Controlling Shareholder”) may request the other shareholder the sale
of the shares possessed by such other shareholder (hereinafter, “Mino-...