Mergers & Acquisitions (M&As) lead to disputes around the world, many of which are complex and involve money that may change substantially the future of a company, shareholders, employees and other stakeholders. Korea is no different in this respect. Korea witnessed the number of its cross-border transaction disputes explode during the 1997 IMF crisis and continue to steadily increase ever since. Many of these issues ended in arbitration and many others lead to criminal charges and into the Korean courts.
While there are no readily available published statistics on the number of M&A transactions relating to Korea that led to arbitration , market trends show that the number of disputes have grown in relation to the overall growth of the M&A market.
This article shall discuss the frequency of M&A disputes in Korea, the most common M&A issues arbitrated in Korea, as well as the procedural norms for damages and related remedies in such cases. For other articles on arbitration in Korea please see: Arbitration Against Korean Government Agencies; English-Speaking Arbitration Attorneys in Korea; and Arbitration in Korea under the Korean Commercial Arbitration Act.
Frequency of M&A Disputes in Korea
As mentioned above, the Asian Financial Crisis (or the IMF Crisis as they say here in Korea) was the watershed moment for M&A in the land of the morning calm, particularly in the Korean banking sector. There were many Korean bank to Korean bank consolidations with some of the notable ones including Hanil and the Commercial Bank of Korea; Kookmin Bank and Korea Long Term Credit Bank (KLTCB); and Hana and Boram Bank. However, it wasn’t just the Korean Banks that contributed to the recapitalization of the banking system in Korea. The International Finance Corporation (IFC) invested millions into both Hana Bank and KLTCB; Germany’s Commerzbank acquired a stake in the Korea Exchange Bank; and HSBC Holdings agreed to purchase a 70 percent stake in Seoul Bank.
A lot has changed, however, since the Asian Financial Crisis. Deal structures and contractual arrangements have become far more complex, fine tuned and nuanced in order to fit the needs of the specific parties. The additional variation in these mergers, in turn, translated to both local courts and arbitration tribunals being called upon to resolve the increasing amount of disputes arising therein.
Though M&A disputes involving two or more Korean parties are for the most part resolved through the Korean courts, disputes stemming from cross-border transactions in Korea are predominantly resolved through arbitration.
Though, as mentioned above, there are no published statistics on the number of Korean-based M&As transactions that end up in arbitration, the Korea Fair Trade Commission reports that roughly 22 percent of M&A deals involve a minimum of one foreign entity and the vast majority of the contracts within those deals opt for arbitration clauses over Korean court litigation should a dispute arise.
Common Issues in M&A Arbitration Cases in Korea
The most commonly arbitrated issues in M&A matters involve misrepresentations and breach of warranties. Seeing as most of the representations and warranties in M&A deals are provided by the seller, the majority of cases that make it to arbitration are brought by the buyers. Misrepresentation and breach of warranty are two of the most frequently seen issues in M&A arbitration, claims for breach of covenant are also commonplace especially in scenarios whereby the buyer is in the same industry as the seller.
Remedies and Damages in M&A Arbitration Cases in Korea
When it comes to remedies for a breach of contract in M&A disputes, claimants in Korea are allowed to seek specific performance of an action, for example transferring of shares or assets as was required by the contract. However, in most cases the claimant decides to instead seek monetary damages over specific performance.
We at IPG sense that the impacts of COVID-19, or more commonly referred to as the Coronavirus, will be felt by the Korean economy in the near future. A recession, similar to the Asia Financial Crisis, could create a large M&A market in Korea.
If your are interested in a consultation with an attorney in Korea, please Schedule a Call with one of our lawyers in our Korean Office.
- Mergers & Acquisition Arbitration Matters under Korean Law at the KCAB
- Korean M & A Due Diligence Checklist: Mergers & Acquisitions Due Diligence in Korea
- Korea emerges as an Arbitration Hub in East Asia
- English-Speaking Arbitration Attorneys in Korea
- Arbitration against Korean Government Agencies in Korea: Korean Arbitration Law Basics.
- Statutes & Regulations Governing Business Combinations in Korea: Korean Mergers & Acquisitions Basics
- Korean Arbitration: An Introduction
- International Arbitrations in Korea under the IBA Rules
- Korean Arbitration Basics: Links to Relevant Resources in Korea.
- Investor-State Disputes/Arbitration in Korea: ABA Dispute Resolution Magazine