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Jipyong News|KOREA LEGAL INSIGHT

The Minutes Are the Defense: One Year of Korea’s Expanded Duty of Loyalty

2026.08.03

1. A Year of Board Resolutions Under a New Standard
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Nearly one year ago to the week, amended Article 382-3 of the Korean Commercial Code (KCC) took effect, requiring directors to discharge their duties for the benefit of shareholders as well as the company, to protect the interests of shareholders as a whole, and to treat all shareholders equitably.  Alone among the 2025 corporate reforms, this amended Article 382-3 took effect immediately upon promulgation on July 22, 2025.  Every board resolution on a conflicted transaction—one in which the interests of the controlling shareholder and the minority diverge—passed since is measured against the new standard, and the 2026 general meeting season is the first conducted under it, with institutional investors already invoking the statute in their engagement with companies and proxy advisors tightening their voting guidelines in response. 
 
The change matters most in a recurring type of Korean transaction: a deal that harms no one at the company level but disadvantages minority shareholders, such as an affiliate merger at an unfavorable exchange ratio.  Under prior law, directors owed fiduciary duties to the corporate entity alone, so a transaction that redistributed value among shareholders without depleting corporate assets sat largely beyond the reach of director liability.  That shield is gone.  This article leaves the policy debate over the “Korea discount”—the persistent tendency of Korean listed companies to trade below both their underlying asset values and their global peers—to others and addresses a practical question: what might a board do differently when approving a conflicted deal? Because the amended provision took effect only twelve months ago, there is as yet no court precedent or other authoritative guidance on how best to guard against the liabilities it creates.  What follows is therefore offered not as a prescription but as our perspective anchored in a single theme: disciplined, well-documented process has become the board’s most reliable protection. </div>
 
 
2. Why Process Is Now Determinative

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The trigger transactions are those in which controlling and minority interests diverge: affiliate mergers, spin-offs followed by separate listings, comprehensive share exchanges, related-party dealings, dilutive issuances placed with friendly hands, and dealings in treasury shares.  Before the amendment, the legal question in each was whether the company suffered damage, an outcome test the company-level accounting usually answered in the directors’ favor.  Now the question is whether the directors protected shareholders as a whole and treated them equitably, and that question cannot be answered from the balance sheet.  A court must examine what the board knew, what alternatives it weighed, what independent input it obtained, and what the record shows about each step.  Under an outcome test, a thin record was harmless so long as the numbers held.  Under a process test, the record is the defense: directors who followed a rigorous procedure but reached a contestable valuation are defensible, while directors who reached a defensible valuation through a perfunctory procedure may not be. 
 
Two cautions frame what follows.  The new duty is not Delaware entire fairness imported into Korean law; Korea remains a civil law jurisdiction, where directors can face criminal breach-of-trust liability and where statutory text and shareholder-meeting procedures shape outcomes in ways that differ from U.S. practice, and no appellate court has yet construed the amended language, although lower courts have begun to apply it in injunction proceedings.  That uncertainty cuts against complacency, not toward it, because the first judicial answers will be written on board records being created today. </div>
 
 
3. Practical Steps to Consider

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Constitute a genuinely independent committee.  In a conflicted transaction, one prudent step is to form a special committee of directors substantively independent of the controlling shareholder, not merely compliant with independent-director designation rules.  A director who sits on affiliate boards, owes a career to the controlling family, or has material ties to the counterparty is unlikely to be regarded as genuinely independent.  The committee ideally has a written mandate to evaluate and negotiate the transaction, to retain its own advisors at company expense, and to decline the transaction if its terms are not fair.  Interested directors should be excluded from deliberation and voting under KCC Article 391(3), which bars a director with a special interest in a matter from voting on the related board resolution, and the minutes should record that exclusion explicitly.  Where a company’s articles of incorporation do not provide for a standing board committee, the board can achieve much of the same protection by charging its independent directors with this role on an ad hoc basis and documenting their mandate accordingly. 
 
Obtain independent valuation support.  Reliance on statutory formula pricing or management figures is no longer adequate.  The committee should retain a financial advisor of its own selection to opine on fairness from the perspective of the shareholders at risk.  Where a statutory formula still governs, as it does for affiliate mergers, the committee should nonetheless test the resulting ratio against intrinsic-value methodologies and standalone alternatives, and should document why the terms are fair to minority shareholders rather than merely formula-compliant. 
 
Document alternatives and shareholder impact.  Minutes and board materials now carry decisive evidentiary weight.  The record should show that the board identified the conflict, considered the transaction’s differential impact on controlling and minority shareholders, evaluated realistic alternatives, including not proceeding, and articulated the rationale for the path chosen.  Minutes reciting unanimous approval after brief discussion invite liability; a record showing hard questions asked and answered protects better than one showing no questions at all. 
 
Treat the disclosure statement as advocacy.  Under the amended FSCMA Enforcement Decree, a listed company’s board must prepare, sign, and publicly disclose a written opinion addressing the purpose and expected effects of a merger, the appropriateness of the price, the fairness of the merger ratio, and any dissenting director views.  This statement is the public face of the board’s process.  One that tracks the committee’s actual analysis and discloses dissent honestly reinforces the directors’ position in litigation; boilerplate that diverges from the internal record will be used against those who signed it. 
 
Consider disinterested shareholder approval.  Proposals under legislative discussion would treat resolutions approved by shareholders unaffiliated with the controlling group as presumptively fair, alongside codification of a business judgment rule.  None is yet law.  But voluntarily conditioning the most conflicted transactions on a majority-of-minority vote is already the strongest process protection available, and boards should weigh its execution risk against the durable liability protection it confers, documenting that weighing either way. </div>
 
  
4. Applying the Same Approach to Takeover Defense

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The same logic governs takeover defense, with an asymmetry: a defending board owes its duties to all shareholders, including those who might prefer to sell into the offer, so the justification for defensive measures has narrowed even though they remain permissible.  New-share issuances and treasury-share placements to friendly parties are the most exposed, and each issuance is a discrete board decision to which the duty applies transaction by transaction; the mandatory cancellation regime now applicable to treasury shares has independently constrained their use as a defensive currency.  The Korea Zinc contest, fought through the courts even before the amendment took effect, previews the intensity of scrutiny defensive placements now attract, and the first post-amendment tests have already arrived through the same channel: in one recent management rights dispute, minority shareholders sought preliminary injunctions against a listed company’s issuance of exchangeable bonds backed by treasury shares, arguing that the issuance entrenched the controlling shareholders in breach of the directors’ duty to treat all shareholders equally.  Activists can be expected to invoke the new duty aggressively, so the answer is preparation rather than paralysis: a standing defense protocol, pre-identified independent advisors, and a committee structure that can be activated under deal-clock pressure.</div>
 
  
5. Why the Record Decides the Case

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The amendment expands the grounds for personal liability, and Korean law already arms minority shareholders of listed companies with low statutory thresholds for derivative suits and inspection rights over board minutes and accounting records.  Yet plaintiffs bear the burden of proof and Korea has no U.S.-style discovery, so disputes will be decided largely on the documents existing at the time of the decision.  A complete contemporaneous record deprives plaintiffs of the inference of unfair process on which their claims depend; a sparse one supplies it.  For this reason, there is much to be said for treating every conflicted-transaction file as a potential litigation file from the outset.  Boards may also find the record tested before any lawsuit: institutional investors are now sending engagement letters that ask precisely the process questions set out above, and a board that cannot answer them privately may find it difficult to answer them in court.  D&O policies and indemnification provisions written against the old liability landscape are worth reviewing now, not least because recruiting qualified independent directors for this work depends on them.</div>
  
  
6. The Cross-Border Angle and What to Watch

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For foreign investors the reform cuts both ways.  Nominee directors on Korean portfolio companies and joint ventures owe the new duty to all shareholders of the Korean entity, not to the appointing fund or parent, and conflicted matters at the venture level should run through the same committee process.  One structural caveat: in a straight secondary share purchase the target’s directors typically have no authority to intervene, so the duty may not be engaged and protection in such structures remains incomplete.  For non-control minority positions, conversely, the reform meaningfully strengthens both institutional protection and the legal footing for engagement.  
  
The architecture is still being built.  The second KCC amendment takes effect in September 2026, mandating cumulative voting for large listed companies and expanded separate election of audit committee members, and some issuers have already sought charter amendments to blunt its effect, drawing proxy advisor and National Pension Service scrutiny.  The first amendment’s phased provisions, including the one-third independent director requirement and the strengthened 3% rule, take effect this month.  A proposed FSCMA amendment introducing fair value pricing for listed-company mergers has cleared the National Policy Committee, the interpretive guidelines the Ministry of Justice was tasked with preparing on the new duty remain a key watch item, and the mandatory tender offer debate continues.  Each development tightens the same screw: conflicted transactions will be judged on process. </div>
 
  
7. Putting These Measures into Practice

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A year into the new regime, there is little to be gained from waiting for judicial clarification before acting.  The duty is in force, the first proxy season under it has already reshaped issuer behavior, and the guidance that eventually emerges is likely to be shaped by records being created today.  Boards may therefore wish to begin building the relevant discipline: standing committee protocols, pre-qualified independent advisors, upgraded minute-taking, disclosure statements treated as advocacy, and serious consideration of disinterested shareholder approval for the most conflicted deals.</div>

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