Proposed Amendments to the Monopoly Regulation and Fair Trade Law: Extending Merger Notification Exemptions and Adding a Voluntary Commitment System.
The Monopoly Regulation and Fair Trade Act (MRFTA) is being revised, and the Korea Fair Trade Commission (KFTC) has released an advance notice of these proposed changes, which include, among other things,
(i) expanding merger notification exemptions; and
(ii) introducing commitment processes for merger control. (the “Proposed Revisions”).
The KFTC will solicit and compile feedback on the Proposed Revisions during a public notice period that lasts through March 27, 2023. The KFTC intends to complete and submit the Proposed Revisions to the National Assembly for final consideration during the first half of 2023 after obtaining public feedback. Following are the proposed amendments:
Expansion of the exemption for merger notifications:
The proposed revisions will broaden the list of exclusions from the merger notice requirement, which will reduce the cost of notification on businesses. Inter-affiliate mergers, the creation of PEFs, and the interlocking directorships of less than one-third of the board members (excluding the representative director) will be the newly exempted transactions. These types of transactions are currently eligible for simplified notification because they are highly unlikely to raise anti-competitive concerns.
- Inter-affiliate mergers: According to the proposed changes, statutory mergers/consolidations and business transfers involving two firms where one already has sole control over the other through a direct shareholding of more than 50% will no longer be subject to the merger notification requirement. Furthermore, the FTL now requires a notification if the company group has total assets or worldwide revenue of at least KRW 300 billion when calculating the relevant turnovers to assess the reportability of inter-affiliate mergers generally. The proposed amendments will exempt from the merger notification requirement inter-affiliate mergers involving a target affiliate that has total assets or worldwide revenue of less than KRW 30 billion, even though the business group has total assets or worldwide revenue of at least KRW 300 billion. This will prevent the turnover of the target affiliate from being counted twice.
- Establishment of PEFs: The proposed revisions will remove PEFs, which have legal personality but are still essentially pools of capital to be invested in other firms, from the merger notification requirement because, it is argued, that their formation itself would not have a material impact on competition. If the necessary levels are met, a PEF’s acquisition of target companies will still require notification. Please take note that the language in the proposed amendments specifically refers to the creation of PEFs under the Capital Markets and Financial Investment Business Act, so businesses must keep an eye on how the KFTC will handle the creation of PEFs under other national laws.
- Interlocking directorships of less than one-third: Interlocking directorships that involve less than one-third of the board members (excluding the representative director) will now be exempt from the merger notification requirement because they would prevent the appointing company from having a significant impact on the receiving company’s major decisions.
Offer companies the chance to submit voluntary commitments as remedies and receive conditional approval for anti-competitive mergers and acquisitions:
The proposed amendments will establish a new system that will enable businesses to (a) formally submit voluntary commitments as proposed remedies to address anti-competitive concerns during the review process; and (b) obtain conditional clearance if the KFTC determines that the proposed remedies are appropriate and sufficiently address the anti-competitive concerns. This will enable quick and efficient resolution of anti-competitive merger cases.
If the amendment bill is ultimately approved by the National Assembly, the KFTC intends to release or modify subsidiary regulations and guidelines to implement streamlined and expedited procedures for the voluntary commitment process. We shall update the reader when more is known.
The proposed amendments will allow the KFTC to withdraw its conditional clearance decision if it discovers that the companies used unethical means to obtain the conditional clearance or fail to put the remedies into effect, and will instead impose formal sanctions in the form of corrective orders to ensure that the remedies are properly implemented. The proposed modifications will also enable the KFTC to impose enforcement fines for non-implementation of the KFTC-approved voluntary solutions, just like it does for businesses that disregard the KFTC’s corrective orders.
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