Employment Background Checks in Korea: Not so Different from China

My friends over at the China Law Blog posted an article quoting the Chinese Business Leadership blog that noted that noted that:
"We were placing a GM for a Western family owned factory. They are small and troubled.  We found 15 thoroughly qualified candidates for the position. We had candidates tell us they worked at a company 5 years when they only worked 1. We had candidates tell us they were super valuable,  and the company does not want to let them go. We were able to find out that they were fired a year before  while still in probation.
As the last of the group of 15 refused to come clean and give us an accurate resume, we shook our heads in dismay. We are excellent at interviews and interview 90 minutes as our goal is to know. Despite that, we were unable to uncover these issues before the background check.

We had one guy tell us he was the overall manager for a big project, and he could describe in great detail all he had done. Our China hiring background check uncovered that he was a common worker under a manager who led that project."
We regrettably find the same true in Korea.  Also, regrettably, often executive recruiters (head hunters), in Korea, are of little help in vetting candidates.  We recommend to no just, simply, hire a recruitment agency.  We find that many of these agencies (even the international ones) are motivated, primarily, by the placement of any individual.  We know of many horror stories.  Please take a look at the

We suggest retaining a person that does not have a financial interest in the placement of the individual to vet the anticipated employee.  The vetting should not, simply, come in the form of a background check, but be by someone with significant experience managing individuals in Korea.
As noted on numerous occasions on this blog - "at will" employment is, typically, impossible in Korea.

Vetting/Hiring an Employee in Korea:
  1. Thoroughly vet the anticipated hire.  You may be stuck with the person for a long time.  This does not, simply, mean having a call and having Korean staff meet the person.

    A Korean "old hat" is necessary in flagging major issues that, often, do not seem to be issues by those not, deeply, familiar with Korean employees and Korean employment realities;
  2. Don't trust "salary tables" - the tables are, normally, too high;
  3. Don't use foreign employment, distribution, agency, and consultant agreements.  Typically, these will lead to issues in Korea.  Issues may include ending up at the prosecutor's office or in court;
  4. Don't hire a headhunter when a headhunter is not necessary.  The best way to hire is through the grape vine and foreign "old hat" consultants and lawyers are the best at finding appropriate individuals through this grapevine. 

    If they fail - seek a headhunter.  Many headhunters in Korea are interested in making the placement -not making the proper placement, because of the, often, lack of appropriate compensation for not making a placement.  Additionally, foreign headhunters, often, are just outsourcing services to affiliated agencies with little oversight.
  5. Korea is not China or Japan.  Realities in Korea, are, often, not realities in China and Japan.
  6. Hire proactive counsel to draft employment agreements - not just counsel.
Other articles that may be of interest:
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Tender Offers in Korea: Conditional Offers under Korea Capital Markets Act

The Korean Capital Market Act and related regulations dictate the basics for tender offers in Korea.  The rules in Korea are, simple:

1.  If the total number of tendered shares is less than the intended number of shares to be purchased by the tender offeror, the offeror may not purchase any of the shares; and

2.  If the total number of tendered shares is more than the number that is intended to be purchased by the tender offeror, the tender offeror shall purchase the shares pro rata.

The tender offeror is required to validate that it has the resources to purchase the shares.

Other articles on The Korean Law Blog that may be of interest to the reader:
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Minority Squeeze-outs in Companies in Korea

The amended Korea Commercial Code of 2012 allows majority shareholders with 95% of the shares of a company in Korea, to purchase the shares of the minority for "fair value."

Fair value may be determined by the court if the parties are unable to reach an agreement within 30 days of a request by the majority shareholder to purchase the shares of the minority. 

We advise that you place a mechanism within your shareholder agreement (if possible) noting the manner of determining fair market value.
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 Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Fiduciary Duties of Directors/Representative & Controlling Shareholders of Korean Companies

Directors of companies, registered in Korea, many be held criminally and civilly liable for acts as a director (in limited cases even controlling shareholder).  Many acts that would not be deemed criminal in the West are, often, deemed criminal in Korea.  Additionally, matters that are considered in the West as mere "civil" matters, often, begin and end at the prosecutor's office.

A little due diligence, complying with corporate formalities, nuanced corporate governance practices and a little street smarts coupled with liability insurance is a good start in succeeding in business in Korea. 
 
We have been on both sides of matters were directors (and even controlling shareholders) have been prohibited from departing Korea, jailed and fined.  In most cases, liability is unlimited and it is presumed that a director has complied with the decision of the Board of Directors if no dissent is noted in Board Minutes.

Article 399 of Korean Commercial Code notes:
(1) If a director has intentionally or negligently acted in violation of any Act or subordinate statute or of articles of incorporation or has neglected to perform his/her duties, he/she shall be jointly and severally liable for damage against the company.

(2) If any act under paragraph (1) has been done in accordance with a resolution of the board of directors, the directors who have assented to such resolution shall take the same liability.

(3) Directors who have participated in the resolution mentioned in paragraph (2) and whose dissenting opinion has not been entered in the minutes shall be presumed to have assented to such resolution
Ordinary Prudent/Reasonable Person Standard
The standard of care, in Korea, is similar to the West.  Article 382 of the Korea Commercial Act and Article 681 of the Civil Act of Korea notes that: "A person mandated the duty shall manage the affairs entrusted to him with the care of a good manager in accordance with the tenor of the mandate."

The Korea Supreme Court has interpreted this clause to mean that a fiduciary shall be held to an "ordinary prudent" person standard.

This standard allows the court, (and prosecutors), to delve into the actual knowledge of the individual and the knowledge that a ordinary prudent person should have. 

Not being a director of a company does not relieve one of this potential criminal and civil liability.
Controlling shareholders have, also, been held criminally and civilly liable if the party acts as a de facto director.

What do you think?

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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Statutes & Regulations Governing Business Combinations in Korea: Korean Mergers & Acquisitions Basics

Most business combinations in Korea take the form of share transfer, asset transfer or a share subscriptions. 

All the typical forms of combinations including business transfers, cash-out mergers, triangular mergers, spin-offs, and the like are available in Korea, since the recent revisions to the Korean Commercial Code. 

However, the difficulty in getting a deal done in Korea is, often, frustrated, because of bureaucratic uncertainty and the varying laws that govern transactions.

You will find, though, that most of the least political sensitive acquisitions in Korea can be accomplished cost-effectively and efficiently with proactive counsel in Korea. 

The present Park administration is, attempting, to reduce some burdens on foreign investors, however, numerous political obstacles are in place, because of the present political dynamics.  We don't expect any changes in Korean Law in the near future with regard to M & As, however, we will update the reader if changes occur. 

This is not meant as an exhaustive list, but, only a tool to make sure your attorney in Korea is checking all the major boxes. 

Statutes, Rules & Regulations Governing M & As in Korea: Only the Basics
  • Foreign Investment Promotion Law: Most foreign-capital investments should be reported to government via a foreign exchange bank.  The procedure is as simple as filing out a form. 
  • Financial Services & Capital Markets Act of Korea: Most transactions involving listed companies must be reported to Stock Market Division/KOSDAQ Division of the Korea Exchange and the Financial Services Commission.  The reporting requirement is cumbersome. 
  • Monopoly & Fair Trade Laws of Korea: Some transactions involving the acquisition of the majority of company; 20 % ownership in a company; and mergers between enterprises that exceed KRW 200 billion require reporting to varying government agencies and the Fair Trade Commission of Korea.  In some cases, a pre-transfer review is necessary by the Fair Trade Commission of Korea and other government bodies.
  • Various Tax Laws & Regulations: Some transactions will trigger taxes and stamp duties.
  • Specific Industry Regulations & Reporting Requirements:  Certain industries such as banking, defense and some service industries require approval from varying government or quasi-government bodies prior to an acquisition.  Some transactions are prohibited. 
We will be posting more articles on this an other issues facing Korean businesses over the next couple of weeks. 

Other articles that may be of interest concerning business combinations in Korea:
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. He is ranked, for Korea, as one of only two non-Korean attorneys as a Top Attorney by AsiaLaw.

Before Manufacturing in Korea: Top Ten Things to Do

Korea, in most cases, is a much better choice for the manufacturing of hi-tech, biotech, chemical, petroleum, skilled crafted (tanned leather), construction, complex metal crafted, specialty steel, automotive, semi-conductor, medical and pharmaceutical equipment and goods than China and most nations in Asia, because of Korea’s skilled work force and increasingly transparent business practices.

In many cases, manufacturing in Korea will not, in the end, be more costly than manufacturing in China, because of the increased efficiency of Korean workers and the, often, lower cost of doing business.  China is no longer cheap and China will never be easy.  Simply, if you are looking for cheap - don't look to China.  

However, before going into any manufacturing arrangement in Korea here are the Top Ten things you need to know before investing money in Korea in a manufacturing venture or like Korean venture.

The list assumes that you will have a local company as your JV partner in this venture:
  1. Register all Intellectual Property including your trademarks and patents in Korea.  No - your E.U., U.S., Indian, Japanese etc. registrations are not enough (See: Don't Just Trust US: Trademarks in Korea); 
  2. Due Diligence, Due Diligence, and More Due Diligence (See: Listen to My Mother: JVs in Korea; Listen to my Mother: Minority Shareholder Rights);
  3. Complete a decent feasibility study.  This does not mean simply running a cost estimate;
  4. Consult a technical adviser;
  5. Checkout and go through my Stock Purchase/JV Due Diligence Check List;
  6. Meet the Anticipated JV Partner and learn about the partner.  A discussion on the phone is not enough - either is a meeting over dinner.  Have a local help with feeling the person out; 
  7.  Execute a Non Disclosure Agreement (NDA) in English and Korean (Liquidated Damages in NDAs in Korea);
  8. Execute OEM, Manufacturing, JV, Supplier, Shareholder Agreements as the case may be in English and Korean.  Don’t get them drafted by hacks or those who don't have experience in Korea.  No, the lawyer you use in NY is not good enough;
  9. Research or have researched benefits to manufacturing in the Korean Free Trade Zone (FTZ); and
  10. Research or have researched benefits to manufacturing or employing people in certain areas of the country.  Example: Seoul government subsidizes new hires in certain industries.
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SeanHayes@ipglegal.com

International Parental Child Abduction: Korea Accedes to Hague Convention on Child Abduction

Korea has acceded to Hague Convention on the Civil Aspects of Child Abduction, however, it is advisable if you have a spouse that you believe may abduct your child and bring the child into Korea, China or another jurisdiction to:

Access the Children's Passport Issuance Alert Program (CPIAP) via report the fact of the possibility of an abduction to the Department's Passport Lookout System.

If a passport is being applied for, the Passport Lookout System should notify you.

You can find more information on these issues at Children Issues.

The Department of State notes that:
"We strongly discourage trying to take your child and bring him or her back home because this could: Endanger your child and others; Have a negative effect on any future legal action you might wish to take in that country; Result in your arrest and imprisonment in a foreign country where you are subject to local laws. If you do succeed in leaving the foreign country with your child, you and anyone who assisted you may be the target of arrest warrants and extradition requests in the United States or any other country where you are found."
If you child has been abducted, please contact an attorney, quickly, in the jurisdiction that your child has been abducted to.  You have options.  We work on these issues in Korea, China and parts of Southeast Asia for, mainly, U.S., Canadian and European Union nationals.

Other articles that may be of interest:
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal.

He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. He is ranked, for Korea, as one of only two non-Korean attorneys as a Top Attorney by AsiaLaw.

Law of the Sea: Vessel Security

Korean admiralty law
My friend over at Norwich University has some interesting stats on Article 110 of UNCLOS.

While Somali incidents have dropped 95 percent to seven cases in 2013, piracy in Southeast Asia is exploding.

As you may have heard, eight hundred thousand gallons of diesel was recently pilfered from a large oil tanker in the Strait of Malacca. Korea has sent ships to the region.

The area is clearly the world’s new piracy hotspot.

Attacks and attempts in the waters of Indonesia, which controls much of the Malacca Strait, totaled 107 last year, meaning a 700 percent increase in just five years.

To help generate awareness of maritime trade and the law of the sea, my friends at Norwich University created this infographic that addresses the freedom of the seas, security and piracy.

Interesting.

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Sean Hayes may be contacted at: SeanHayes@ipglegal.com. Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. He is ranked, for Korea, as one of only two non-Korean attorneys as a Top Attorney by AsiaLaw.