Limiting Director Liability under Korean Law: Don’t Drop the Insurance Policy Yet

Prior to recent amendments to the Korean Commercial Code (“KCC”) it was impossible to limit the liability of directors of Korean companies without the agreement of all shareholders. However, please, still, obtain a Director Liability Insurance Policy.

In order to relieve the burden on directors of Korean companies (and their insurance companies) and also to encourage qualified individuals to be willing to become directors (facial purpose), the KCC was amended to exempt directors from some liability in certain cases of breach of fiduciary duties and other duties to the company. 
Article 400(2) of the newly amended KCC allows the exemption of a director for liability of sums in excess of six times remuneration for inside directors and three times remuneration for outside directors.
The specific details of what is considered “remuneration” are not yet clear. I assume this may be made clear by the not, yet, implemented enforcement decree. It will be interesting to see if bonuses and stock options will be considered part of the remuneration of a director.
Article 400(2) of the KCC may only be availed of by a director if the Articles of Incorporation (not clear if a board vote is also needed) so stipulate and the director has not:
  1. Engaged in actions or inactions that are intentionally or grossly negligent;
  2. Violated the competitive business prohibition (KCC art. 397);
  3. Violated the interested transaction prohibition (KCC art. 398);
  4. Violated the misappropriation of business opportunities prohibition (KCC art. 397-2).

Other articles that may be of interest related to the amended KCC:

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Sean Hayes 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, and IPG Legal is consistently ranked Top Dispute Resolution Law for our litigation services.

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