JIPYONG LLC

On 9 December 2020, the amendment of the Monopoly Regulation and Fair Trade Act (hereinafter the “Fair Trade Act”) passed the plenary session of the National Assembly.  This is the first full amendment in 40 years since its enactment, and it is expected to take effect one year after the date of the presidential promulgation. 


Regulation of corporate groups is strengthened.

(1) Expansion of targets subject to profit-taking regulations

The current Fair Trade Act prohibits companies in corporate groups subject to public disclosure from providing unfair benefits to its affiliated companies if the owner family’s share is 30% or more for listed companies and 20% or more for unlisted companies.  This regulation is referred to as “illegal profit-taking by the owner family”.

The amended Fair Trade Act expands the regulated scope of affiliates receiving unfair benefits to include: (1) affiliates of which the owner family’s share is 20% or more whether listed or not; and (2) subsidiaries of these affiliates if they have more than 50% equity interest.  As a result the number of regulated companies is expected to increase from 210 to 598 (as of 1 May 2020).

(2) New criteria for merger filing based on the transaction value

The current Fair Trade Act requires notification of corporate mergers if the acquired company’s sales revenues or total assets equal or exceed KRW 30 billion.  Since acquisition of small venture companies or start-ups with big growth potentials may not meet this criterion for merger filing despite a high merger price, there have been growing concerns that such merger may result in entrance barriers or a future monopoly.

The amended Fair Trade Act mandates all mergers below the KRW 30 billion mark to be reported to the Fair Trade Commission if the price of acquisition is above a certain level and the acquired company is engaged in significant activities in the domestic market such as providing goods or services or utilizing domestic research facilities or researchers.

(3) Stricter Equity Criteria for Holding Companies

In order to limit control over corporations through holding companies, any newly formed or converted holding company or existing holding company acquiring a new subsidiary or 2nd tier subsidiary must have at least 30% equity interest in listed companies and 50% equity in unlisted companies (up from the current 20% for listed and 40% for unlisted companies).

(4) Restriction on voting rights of public interest companies affiliated with corporate groups subject to public disclosure

A public interest company belonging to corporate groups subject to public disclosure requirements must disclose, after BOD resolution, any stock trading with affiliated companies or inside trading above certain threshold.

In particular, exercise of voting rights by a public interest company concerning stocks of its domestic affiliate is prohibited as a matter of law, if the public interest company belongs to a corporate group subject to mutual investment restrictions.  However, if the domestic affiliate is a listed company, voting rights can be exercised for up to 15% of the total outstanding shares including shares exercisable by affiliated persons on matters limited to appointment or dismissal of executives, merger, etc. necessary to counter a hostile M&A.

(5) Restriction of voting rights on cross-shareholding by corporate groups subject to mutual investment restrictions

The current Fair Trade Act prohibits establishment or expansion of cross shareholding by companies belonging to corporate group subject to mutual investment restrictions.  However, the current Act does not directly regulate cross shareholding that existed before the corporate group became subject to mutual investment restrictions.  

The amended Act extends the restriction to exercise of voting rights on pre-existing cross-held shares if the corporate group becomes newly subject to mutual investment restrictions once the law goes into effect.


Enforcement of the Fair Trade Act is strengthened.

(1) Regulation of concerted actions through information exchange

While exchange of information such as price is regulated or prohibited in the U.S. and EU in the context of concerted actions, current Korean Fair Trade Act does not explicitly address information exchanges.  Indeed, in many cases involving price exchanges, Korea’s Supreme Court declined to find illegal concerted action in the absence of any “agreement” to fix prices.

The amended Act added to the type of illegal concerted action information exchange that practically limits competition such as exchange of pricing and production volume.  Moreover, if there is an appearance of concerted action such as simultaneous increase in price coupled with exchange of related information, collusion may be presumed.

(2) Introduction of private right of action

The current law does not allow private right of action for violation of the Fair Trade Act.

The amended Act allows private persons to file an action with the court to prohibit or prevent unfair trade practices with the exception of illegal assistance to related parties.

(3) Obligation to produce evidence in actions for damages

Under the current Civil Procedural Act, document production may be refused on account of trade secrets, and other documents such as electronic files or videos are exempt.  Also, there isn’t any particular sanction for not complying with production orders other than presumed possession of the document in question.

According to the amended Act, courts may order corporations to produce documents in relation to unfair trade practices (with the exception of concerted actions and illegal assistance to related parties), and corporations may not refuse production of trade secrets necessary for assessment of damages.  Non-compliance with production order may be construed as admission of facts to be established by the document in question.

(4) Increase in Fine Limit

The upper limit of the fine for each violation of the Act has been doubled.  The limit for illegal concerted act has increased from 10% to 20% of the related sales, from 3% to 6% for abuse of market dominance, and from 2% to 4% for unfair trade practices.

(5) Streamlining of criminal penalties

Unnecessary and unused criminal penalties have been removed for violations such as mergers, refusal to deal, discrimination, exclusion of competitors, trading with restrictive conditions, and resale price maintenance.


Investment promotion policies have been strengthened

(1) Allowing general holding companies to own Corporate Venture Capitals (CVCs)

In order to promote investments and M&As with respect to venture businesses, it is now possible for general holding companies to own shares in investment companies for small and medium business start-ups under the Act on Promotion of Venture Investments and in specialized new technology venture financing companies (also known as “CVCs”) under the Specialized Credit Finance Business Act.

However, to prevent negative side effects such as increased corporate control through outside capital and the owner family’s illegal profit-taking, such general holding companies may only own such CVCs as wholly-owned subsidiaries.  Also, new provisions have been added, such as prohibiting investment companies for small and medium business start-ups and specialized new technology venture financing companies from exceeding 200% in debt ratio, prohibiting investment businesses from otherwise operating financial or insurance businesses simultaneously, limiting investments into investment funds created by investment companies for small and medium business start-ups or specialized new technology venture financing companies, and prohibiting investments to CVC affiliates and companies in which the owner family maintains shares.

If a general holding company owns shares in an investment company for small and medium business start-ups or in a specialized new technology venture financing company, the general holding company must report such fact to the Fair Trade Commission.  An investment company for small and medium business start-ups or a specialized new technology venture financing company that is a subsidiary of a general holding company must also report to the Fair Trade Commission the details of its investments and investors as well as such details of all investment funds it operates.

(2) Relaxed regulation of venture holding company

The venture holding company system was introduced to facilitate venture businesses, but it was not utilized much due to restrictions unsuited for venture businesses such as application of the same limitation applied to general holding companies restricting acquisition of non-affiliated company shares and requiring general holding companies to have the same holding ratio for venture holding subsidiary or sub-subsidiary.

The amended Act relaxed the shareholding requirement with respect to unlisted subsidiaries from 40% to 20% in case of establishing a venture holding company at the subsidiary level, and reduced the shareholding requirement with respect to both listed and unlisted subsidiaries from 100% to 50% in case of establishing a venture holding company at the 2nd tier subsidiary level.