The Ministry of Justice has conveyed its position that management defense mechanisms should be included in the Democratic Party of Korea's "mandatory treasury stock retirement" bill being pushed through a third revision of the Commercial Act.
According to the ministry's opinion submitted to the National Assembly and confirmed by the office of Rep. Cho Bae-sook of the People Power Party on the Legislation and Judiciary Committee on Sunday, the Justice Ministry said it "agrees with the mandatory treasury stock retirement measure" but pointed out that alternatives are needed since such mandatory retirement would eliminate a company's means of defending management control.
"Consideration is needed for the reality that treasury stock has effectively served as the only management defense tool under the current corporate law framework," the ministry said. "Discussion of alternative measures to fill this gap is necessary."
The ministry suggested poison pills (stock purchase rights) and dual-class shares as possible alternatives.
A poison pill is a system that grants existing shareholders the right to purchase company shares below market price during a hostile merger and acquisition process. Dual-class shares give greater voting rights to shares held by major shareholders.
The ministry also added, "Alternative measures should be discussed to protect excellent companies in key national industries from hostile takeovers by foreign speculative capital," and "Protection measures for dispersed ownership companies vulnerable to such attacks are also needed."