[Legal Focus] ⑩ Stricter Review of Subsidiary IPOs... Shareholder Protection Decides Listing Success or Failure

New shareholder consent requirement for physically split subsidiaries
Attorney Jang Ji-woon: "Advance preparation such as disclosure, IR, and shareholder impact assessment is important"

With the Financial Services Commission and the Korea Exchange having established guidelines on duplicate listings, a suggestion has emerged that companies pursuing a subsidiary's initial public offering (IPO) must pay even more attention not only to their listing strategy but also to protecting general shareholders and securing procedural legitimacy.

Daeryun LLC Attorney Jang Ji-woon explained on the 28th, "These guidelines are not a system to prohibit subsidiary listings themselves, but present how faithfully a company considered the interests of general shareholders during the listing process as an important review factor."

Until now, duplicate listing has been pointed out as a representative factor undermining trust in the domestic capital market. Companies have pursued subsidiary listings to raise funds and strengthen business competitiveness, but criticism has continued that separating a parent company's core business causes so-called "parent company discount," in which corporate value is diluted. In particular, the point that general shareholders' interests were not sufficiently reflected in the process of listing a subsidiary after a physical split has also been steadily raised.

These guidelines present the principle of "prohibition in principle, exception permitted" rather than uniformly restricting duplicate listings. If a subsidiary established through a physical split pursues a duplicate listing, the parent company must effectively obtain the consent of general shareholders through a general shareholders' meeting. The voting rights of the largest shareholder and related parties are limited to 3%, and both a majority of attending shareholders and consent of at least one-quarter of the total number of issued shares must be satisfied.

On the other hand, for a general subsidiary that is not created through a physical split, shareholder consent is operated as a recommended matter, but if it is not carried out, the Korea Exchange's review may become stricter. However, if the subsidiary's assets, sales, and operating profit are all less than 10% of the parent company's, the shareholder consent requirement is exempted.

Attorney Jang said companies must sufficiently review the impact that the subsidiary's listing will have on the parent company and general shareholders, and be able to objectively explain the process and the basis for their judgment. He explained that expanding dividends, cancelling treasury shares, and in-kind distribution of subsidiary shares can be reviewed as measures to protect general shareholders, and that deliberation through an independent committee and faithful disclosure can also be positively evaluated in the Exchange's review.

The Korea Exchange is expected to strengthen its review going forward, focusing on the subsidiary's independence and the level of investor protection. It is expected to comprehensively examine whether the subsidiary has an independent business model and revenue structure, and whether its business does not overlap with the parent company.

Attorney Jang particularly emphasized the importance of securing procedural legitimacy. The Commercial Act imposes on directors the duty of care of a good manager and the duty of loyalty, and recently there has been ongoing discussion about expanding the scope of protection of the duty of loyalty to general shareholders.

He said, "Whether the board of directors made a reasonable decision based on sufficient information, and whether that process was objectively recorded and disclosed, may become important criteria for judgment going forward," adding, "If a shareholder impact assessment is judged to have been conducted merely as a formality or the opinion-gathering procedure is judged insufficient, it can work unfavorably in the Exchange's review, and can also lead to a shareholder representative suit or a damages dispute even after listing."

He added, "Rather than responding right before the preliminary listing review, it is important to organize the board operation system from the planning stage, conduct a shareholder impact assessment, and design the disclosure and IR strategy as a single compliance system," adding, "Such preparation will help not only with the Exchange's review but also with preventing disputes with shareholders after listing."

Reporter Jung Ye-jin yejin0311@inews24.com

[Read Full Article]
[Legal Focus] ⑩ Stricter Review of Subsidiary IPOs... Shareholder Protection Decides Listing Success or Failure (Go to Link)