Following the People Power Party, the Democratic Party of Korea also proposed a bill to relax the criminal penalties for management under the ‘relaxation of breach of trust law.’ Although this is a personal proposal from the assemblyman, it has been evaluated as a part of the ruling party's two-track strategy to address the excessive punishment issues related to the current breach of trust law that the business sector has been demanding continuously, while also promoting improvements to corporate governance, such as the ‘mandatory buyback of treasury stock.’ The relevant bill is expected to be processed with an agreement between the ruling and opposition parties in the regular session in September.
According to the political circles on the 15th, ‘five-term senior member’ Assemblyman Kim Tae-nyun of the Democratic Party of Korea presented a representative amendment to the Commercial Law and Criminal Law for ‘prevention of abuse of breach of trust’ the day before. This is the first time that a bill related to the ‘relaxation of breach of trust’ has been proposed within the Democratic Party since the 22nd National Assembly.
Assemblyman Kim noted, “The abuse of breach of trust is dampening the capital market and even diminishes the strategic judgment and investment incentives of corporations,” explaining the background of the bill proposal by stating, “We aim to eliminate the excessive criminal risks and to enable healthy management decisions.”
The current Commercial Law stipulates that if the incorporators, company executives, or representatives of bondholders violate duties entrusted to them for the company and obtain unfair profits for themselves or third parties, they shall be punished for ‘special breach of trust.’ However, this provision is almost identical to the ‘breach of trust in business’ already present in the Criminal Law, and many have pointed out that it constitutes double punishment. Thus, the content is to delete the ‘special breach of trust’ clause stated in Article 622 of the Commercial Law.
Additionally, through the revision of the Criminal Law, new content was established to the effect that “if a manager reasonably makes judgments solely for their own benefit without conflicts of interest, the application of breach of trust will be excluded.” In other words, if a manager does not intentionally pursue personal profit, they should be able to make reasonable decisions based on the information and expertise they possess, and should not be subject to criminal punishment based on the outcome. This aims to clearly distinguish between intentional seeking of personal benefits and legitimate management decisions.
Within the ruling party, there are interpretations that this amendment is a move to align with the ruling party's push for ‘corporate governance improvement.’
On the 3rd, the Democratic Party passed through an agreement with the opposition to amend the Commercial Law to expand the duties of loyalty for directors to ‘the company and shareholders’ and to formalize this. In the upcoming temporary National Assembly in July, there are plans to handle a second amendment to the Commercial Law with a focus on introducing a concentration voting system and expanding the separate election of audit committee members. The ruling party also plans to push for a mandatory buyback of treasury stock, which entails buying back shares from the market and eliminating them, during the regular session in September. This is aimed at realizing the promise of President Lee Jae-myung and the goal of achieving a KOSPI of 5000 within the year.
However, there have been ongoing concerns that as the responsibilities of management expand, the fear of abuse of lawsuits such as breach of trust increases. The intention behind the ‘relaxation of breach of trust’ proposal is to reflect the voices of the business community and the opposition in legislation to maintain the momentum for ‘corporate governance reform.’ A ruling party official mentioned, “If breach of trust becomes a topic of controversy, the amendment to the Commercial Law for corporate governance reform may stall. The aim is to move quickly to the next stage.”
The ‘relaxation of breach of trust law’ is intertwined with the Criminal Law, and if coordination with the Ministry of Justice and others progresses swiftly, it seems highly probable that it will be processed with an agreement between the ruling and opposition parties in the upcoming regular session.
During the agreement process for last amendment to the Commercial Law, it has been reported that there was already a consensus between the ruling and opposition parties on the push to revise the exemption clause for breach of trust in the Criminal Law. Assemblyman Ko Dong-jin of the People Power Party, a former president of Samsung Electronics, along with his party colleague Assemblyman Yoo Sang-bum, has also proposed an amendment to the Criminal Law to formalize the ‘principle of management decision’ by the Supreme Court so that when management makes decisions for the benefit of the corporation and results in losses, they cannot be punished for breach of trust.
Assemblyman Oh Gi-hyung, chairperson of the Democratic Party’s KOSPI 5000 Special Committee, who is leading the amendment of the Commercial Law, stated during a lecture at the Democratic Party member study group ‘Economy is the Democratic Party’ that “since the business community expressed concern about the issue of breach of trust, I suggested to the leadership to actively consider it,” adding that discussions on the relaxation of breach of trust will begin in earnest at the regular session in September.
Assemblyman Oh explained about the possibility of handling the related bills in the regular session in September, saying, “We are trying to actively resolve this. However, since the criminal system is a long-standing institution, we need to consult with the Ministry of Justice, the Supreme Court, and others to determine how far we can go.”
Assemblyman Kim Nam-geun, a commissioner of the KOSPI 5000 Special Committee, also stated, “We need to gather opinions from the business community and investors, and the issue of the mandatory buyback of treasury stock should also be discussed together,” adding, “If related bills are proposed in July and August, we should be able to organize them and discuss them in earnest during the regular session.”