The Democratic Party of Korea is pushing to introduce a Majority of the Minority (MOM) system to protect minority shareholders from harm caused by physical spin-offs and the listing of subsidiaries. Under the system, corporate restructuring led by major shareholders would be blocked unless approval is secured from a majority of minority shareholders.
Representative Park Hong-bae said Tuesday that he had proposed a partial amendment to the Financial Investment Services and Capital Markets Act containing these provisions.
Under the amendment, when a listed company pursues a physical spin-off, it must obtain approval from a majority of attending shareholders excluding major shareholders, as well as from at least one-quarter of the total issued shares excluding major shareholders' holdings. The system is designed to obtain substantive consent from minority shareholders for transactions in which the interests of controlling shareholders and minority shareholders conflict.
"It must not be repeated that major shareholders take profits while maintaining control, and minority shareholders bear the burden of falling stock prices and value impairment," Park said. "For Korea's capital market to leap forward into an advanced market, protecting investors and securing market trust are as important as corporate autonomy."
Advanced capital markets are already using the MOM system. According to the Korea Corporate Governance Forum and others, countries including Australia, Canada, the United Kingdom, and Singapore operate minority shareholder approval procedures for conflict-of-interest transactions.
"This amendment is an institutional improvement that goes beyond protecting minority shareholders to enhance the fairness and transparency of the capital market," Park stressed. "To resolve the Korea Discount and realize a Korea Premium, I will continuously push for legislation to protect shareholder rights."
The Democratic Party plans to activate the National Policy Committee to process the Capital Markets Act amendment as soon as the parliamentary committee structure is finalized. In addition to Park's bill, several Capital Markets Act amendments are pending, centered on a mandatory tender offer system and the introduction of preemptive rights for new shares to protect minority shareholders.
Separately, Park also proposed an amendment to the Act on External Audit of Stock Companies, which would require listed companies to immediately report to the general shareholders' meeting and the Securities and Futures Commission if they refuse an auditor's request for the submission of materials.
"In some listed companies, cases are repeatedly occurring in which companies refuse an auditor's request for materials or obstruct audit work to induce a disclaimer of audit opinion, which then leads to delisting procedures," Park said, explaining the background of the proposal.
