South Korea has narrowed the scope of forced share disposal orders for violations of the mandatory tender offer rule, limiting them to stakes acquired above 25% rather than the entire acquired holding. The 25% threshold is regarded as the minimum needed to retain management control. The change reflects market concerns that stripping acquirers of even minimal control could sharply chill the domestic mergers and acquisitions market and excessively infringe on corporate property rights.
According to the National Assembly's National Policy Committee on the 8th, the Financial Services Commission and lawmakers from both the ruling and opposition parties agreed to limit share disposal orders issued for mandatory tender offer violations to "shares acquired in excess of 25%." A 25% stake is considered the minimum level at which management control is recognized.
The original bill to amend the Financial Investment Services and Capital Markets Act, as submitted to the National Assembly, would have allowed the government to issue a mandatory disposal order covering an acquirer's entire purchased stake if listed company shares were acquired in violation of procedures. Kwon Dae-young, vice chairman of the Financial Services Commission, appeared before the committee's legislative subcommittee and called for a revision. "Administrative sanctions for rule violations must conform to the principles of prohibition of excessiveness and proportionality," he said. "It is appropriate to strictly limit disposal orders to stakes acquired in excess of 25%."
As a result, acquirers will be able to keep a 25% stake — the minimum benchmark for retaining management control — even if they breach mandatory tender offer procedures or disclosure obligations. Voting rights on the entire acquired stake will still be restricted as an administrative sanction for the violation.
A provision that would have imposed criminal penalties for exercising restricted voting rights was also removed. The step is intended to prevent excessive use of criminal sanctions from dampening corporate acquisition deals overall.
Exemption standards will also be eased so that an acquirer is deemed to have fulfilled its legal obligation even if a mandatory tender offer falls short of the target volume of "50% plus one share" due to insufficient subscriptions.
An official at the National Policy Committee said the measure was refined at a practical level to establish the system's original purpose of protecting minority shareholder rights while ensuring that excessive legal punishment does not discourage normal corporate M&A activity.
