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.
Obviously, this was difficult, if not impossible, for most listed-companies.
In order to relieve the burden on directors (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. The details are found below.
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” is 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 board vote is also needed) so stipulate and the director has not:
- Engaged in action or inaction that are intentionally or grossly negligent;
- Violated the competitive business prohibition (KCC art. 397);
- Violated the interested transaction prohibition (KCC art. 398);
- Violated the misappropriation of business opportunities prohibition (KCC art. 397-2).
Other articles that may be of interest related to the amended KCC:
- Korean Commercial Code Revisions Make Capital Reductions in Korea Simpler
- Squeezing-Out Minority Shareholders Under the Korean Corporate Law
- Korean Corporate Forms under Korean Law
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