Proposed Bill Amending Korean Commercial Code to Impose on Corporate Directors a Duty of Loyalty To Shareholders of a Korean Company

Under Korean Law, in most cases, corporate directors have no duty of loyalty to shareholders. The only fiduciary duty is to the company. An amendment to the Commercial Act of Korea was proposed by Rep. Hyun-jun KIM of the Democratic Party of Korea. The bill, facially, is intended to bring Korea in line with international norms and allow shareholders, for example, to sue a director when a director reveals false facts leading to an investment in the company. We shall update the reader when more information is available.

Korean Fiduciary Duties to
Korean Companies & Shareholders

Consult a Professional in Korean Corporate Law & Compliance Prior to Assuming the Role of Representative Director or Director in Korea

All employees or potential hires of companies in Korea considering appointment as a representative director, statutory auditor or director of a company in Korea should consult with an attorney prior to taking on this role. Legal obligations and potential criminal, civil, and financial liabilities vest upon taking on the role of representative director, sole director, or director of a company in Korea. Protections via contract, insurance and a little pragamtism can assist in alleviating risks.

For example, in some cases a Representative Director may be held criminally and civilly liable for the non-payment of wages or severance in Korea.

Basic Obligations of Directors of Korean Companies

1. Duty of Loyalty (Korean Commercial Code, Article 382-3)
2. Duty of Confidentiality & Maintenance of Trade Secrets (Korean Commercial Code, Article 382-4)
3. Duty Not to Compete Against Company in a Competitive Business (Korean Commercial Code, Article 397)
4. Duty of Disclosure (Korean Commercial Code, Article 396)
5. Duty to Monitor the Activities of the Board and Other Directors (Korean Commercial Code, Article 393)
6. Duty to Not Misappropriate Corporate Opportunities (Korean Commercial Code, Article 397-2)
7. Duty to Prepare & Review Accounts (Commercial Code, Article 447-447-3)
8. Prohibition on Self-Dealings (Korean Commercial Code, Article 398)

Korea Civil and Criminal Liability for Breach of Fiduciary Duties in Korea

Korean Civil Liability for Violation of Fiduciary Duties: A director that Intentionally, Recklessly or Negligently violated any Korean fiduciary duty may be held jointly and severally liable for damages to the company. The proposed amendment shall extend this liability, in many cases, to damages to shareholders.

Korean Criminal Liability for Violation of Fudiciary Duties: In many cases when a civil case is filed a criminal case shall, also, be filed against the director. The punishment for breach of a fidicuary duty are, in many cases, substantial. For example, the Criminal Act under Article 356 may punish one that violated the general Duty of Care by impriosnment up to ten years and a fine of up to KRW 30,000,000.

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