The Financial Services Commission (FSC) on the 6th announced its "Korea Exchange Rule Amendment and Duplicate Listing Guidelines." Under the announcement, duplicate listings will in principle be prohibited going forward and permitted only in exceptional cases. The guidelines require, for post-split listings, the consent of the parent company's shareholders' meeting, applying by analogy the "3% rule" used for the appointment of audit committee members under the Commercial Act. Legislative precedents for this approach include China's "Rules on the Spin-off of Listed Companies," an administrative rule based on the country's Securities Law, and Hong Kong's "Exchange Rules." Germany's Federal Court of Justice rulings in the Holzmüller and Gelatine cases also follow a similar structure. The United States has no such regulation, and in the United Kingdom, from 2024, splits and listings have become matters for the parent company's board of directors to decide alone.
The guidelines make subject to regulation not only cases of splits, but general subsidiary listings, and even the local listing of subsidiaries located overseas. In such cases, obtaining the consent of the parent company's shareholders for a subsidiary listing is presumed to constitute fulfillment of efforts to protect shareholders. However, the market will likely perceive this too as a burden requiring the approval of the parent company's shareholders' meeting. Under the Commercial Act, independence is guaranteed for all corporations, and obtaining the consent of the parent company's shareholders regarding the management matters of an independent subsidiary is itself nonsense. There is no such legislative precedent either. For cases other than post-split listings, rather than regulating in detail through guidelines, it would be desirable to approach the matter with the principle that they are not subject to regulation.
If the consent of the parent company's shareholders is required for a post-split listing, this should be established by law. The Commercial Act strictly stipulates by statute the matters requiring a resolution of the shareholders' meeting and those requiring a resolution of the board of directors. Effectively enforcing something not found in law through guidelines, which are administrative directives, could amount to an abuse of administrative power.
Even worse is the application by analogy of the "3% rule" used at the parent company's shareholders' meeting for the appointment of audit committee members under the Commercial Act. The "3% rule" comprises the "aggregate 3% rule" applied to the largest shareholder and the "individual 3% rule" applied to other major shareholders. Following the July of last year amendment to the Commercial Act, these "3% rules," applicable after July 23, 2026, are rules under which, when appointing or dismissing audit committee members at listed companies with total assets of 100 billion won or more, the largest shareholder and its specially related persons may exercise voting rights up to only 3% either on an aggregate or individual basis, while other major shareholders have their voting rights limited to 3%. Specially related persons include a spouse, including in a common-law relationship, blood relatives within the sixth degree, and relatives by marriage within the fourth degree. The "individual 3% rule," introduced into the original Commercial Act in 1962, when the number of companies was small, is an anti-market provision that no country in the world adopts. Now that even the "aggregate 3% rule" has been created, this shows signs of spreading like a poisonous mushroom. Not all duplicate listings will be transactions involving major shareholders, yet restricting the property rights of all major shareholders in cases of duplicate listing through administrative directives rather than by law is harsh.
Section 144 of the U.S. Delaware General Corporation Law (DGCL) requires that, when approving a "controlling shareholder transaction" by a resolution of the meeting, it be resolved by "a majority of the voting power exercised by the disinterested stockholders." Korea's Commercial Act also already provides, in Article 368, Paragraph 3, that "a person who has a special interest in a resolution of a general meeting shall not exercise voting rights." If one insists on obtaining the consent of the parent company's shareholders' meeting for a duplicate listing, one may proceed in accordance with the above provision of the Commercial Act. With a perfectly viable provision in place, why apply such an overreaching rule by analogy to discriminate against all major shareholders?
