As the National Assembly's Legislation and Judiciary Committee began reviewing a Commercial Act amendment mandating treasury share cancellation, analysis shows the legislation could significantly reduce the capital of Korean listed companies. Concerns are particularly acute over potential side effects from capital reduction if "involuntary treasury shares" acquired for business needs such as mergers are included in the cancellation requirement.
According to data obtained by Rep. Kim Jae-seob of the People Power Party through the Korea Listed Companies Association on January 2, approximately 38.6%, or 933 of 2,417 listed companies, would see their capital reduced if the amendment takes effect. The analysis includes not only voluntary treasury shares acquired for shareholder returns but also involuntary treasury shares inevitably held through restructuring processes such as M&A or corporate spin-offs.
The key concern is that uniform cancellation of such involuntary treasury shares would directly reduce corporate capital through what is known as "capital reduction." When capital decreases, Commercial Act provisions trigger "creditor protection procedures," during which creditors including banks may demand early loan repayment or interest rate increases. This could create unexpected liquidity pressure for companies.
Industry groups have expressed support for the intent behind treasury share cancellation while voicing concerns that blanket cancellation without considering acquisition circumstances would burden corporate management. Particularly with active industrial restructuring expected ahead, concerns have been raised that mandatory cancellation of merger-acquired treasury shares could slow the pace of business reorganization.
Eight economic organizations including the Korea Chamber of Commerce and Industry and the Korea Enterprises Federation have already conveyed to the National Assembly that "reasonable exception clauses and supplementary measures are needed to preserve the legislative intent while minimizing uncertainty in corporate management." However, with the opposition party announcing plans to process the bill in a plenary session on January 5, controversy over capital reduction risks is expected to continue.