Derivative/Shareholder Suits in Korea: Corporate Governance in Korea

Much like the United States, Korean law permits shareholders of a company to file a lawsuit against the company’s directors/third parties, on behalf of the company, when directors’/third parties’ wrongful acts result in losses or may later result in losses. In this type of legal action in Korea, known, often, as a derivative suit, the plaintiff-shareholders do not bring a claim as themselves as individuals, but as representatives of the corporation, the entity suffering the harm but which otherwise would be unable to raise a claim. In Korea, Article 403 of the Korean Commercial Code defines the statutory basis for derivative suits. The Code provides that a shareholder, holding at least 1/100 of the total issued and outstanding shares of a company, may sue a director on behalf of the company shareholders. With regard to listed companies, the code permits derivative suits when a shareholder has held not less than

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Garnishing Wages in Korea: Collection of Debts in Korea

I received a call from a friend asking about information concerning collecting on a large personal debt. He loaned money to a “friend” and the friend never made a payment on the loan. Word to the wise, don’t make large loans to friends—-cry poverty instead. In Korea, after a judgment or order to pay by a court, a plaintiff can collect on an unpaid debt through garnishing wages. Garnishing of wages is normally the best way to guarantee the collection of debt when a debtor doesn’t have real or personal property.  Most law firms can perform the service for a modest fee. Amount that May be Garnished in Korea Less than W1.2mil (No wages can be garnished) W1.2mil – W2.4mil (Monthly Wage – W1.2mil) W2.4mil –W6mil (1/2 Monthly Wage) Over W6mil (Half monthly Wage minus W3mil divided by two plus W3mil minus monthly wage) Examples:1. W2,000,000 Monthly Pay (Can garnish

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Ordinary Wages and the Principle of Good Faith in Korea: How long should the principle be applied to Korean CBAs?

We wrote a post on this blog a few years back entitled: Ordinary Wages Under Korean Law Clarified by Supreme Court: Regular, Uniform & Flat Defined.  Our post noted, in part, that: ” . . .the Supreme Court, in a case that I will call the Regular Interval Bonus Case, has delivered  a couple of more clear examples, than in the past, of cases that will be considered Ordinary Wages.   In the case, the employer was providing a “regular bonus” every two months. The Court in the Regular Interval Bonus Case opined, in part, that: Any collective bargaining agreement (labor-management agreement or like agreement) that deems a certain type of payment as not an Ordinary Wage is void and, thus, unenforceable.  An exception is available for certain specific companies that have implemented this practice in particular limited situations based on the vague principle of “good faith and trust.”  I will

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Attaching Assets in Korea: Security on Movable Property and Receivables in Korea

The Ministry of Justice has recently announced a draft bill concerning the securitization of movables and receivables. The Bill has been pushed for strongly by SMEs. SME’s have complained, since the 1997 Currency Crisis that they are unable to adequately capitalize at market rates. Representatives of the IMF, that I spoke with a few years back, also were very keen on this type of bill. They believed that this Bill will help foster SMEs and new entrant’s potential for innovation and growth. At present, over 92% of securitized lending is through real estate. The reason stems from the lack of a disclosure system for movables and receivables. The Bill intends to address this issue and solve the problem of SME with adequate raw materials, account receivables, intellectual property, and inventory and no real property. Basic Details of the Act on Security on Movable Property and Receivables (the “Bill”): 1. Grantors

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Medical Malpractice Arbitration System in Korea: A Good Option for Many Plaintiffs

IPG has handled numerous medical malpractice matters for plaintiffs and defendants of medical malpractice cases in Korea in Seoul courts and we were, prior, to having knowledge of the composition of the new Korean Medical Dispute Mediation and Arbitration Agency very pessimistic about its usefulness for plaintiffs. When we first heard about the enactment of the new Korean medical malpractice law we were skeptical if the system would be useful for plaintiffs, since, often, the court and prosecutors are able to assert more pressure on doctors than a mediation commission (i.e. Labor Commission) and worried that this agency would be dominated by doctors. However, after a discussion with one of the standing commissioners of the Korean Medical Dispute Mediation and Arbitration Agency, who we know well and who we worked with in the past, we have come to realize that the composition of the body lends itself to providing a

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Arbitration in Korea under the Korean Commercial Arbitration Board: International Arbitration Rules

Prior to the revision of the Korean Commercial Arbitration Board’s International Arbitration Rules, all cases submitted to the board under arbitration clauses that did not specify “International Arbitration Rules” govern the arbitration -would lead to the local arbitration rules being applied and the language of the arbitration being English. A client that was working with one of the other law firms in Korea, got caught up in this issue and, luckily, we were able to amend a joint venture agreement (amended for a variety of reasons) to take into account the disadvantage that could have been appreciated if arbitration was required. Many foreign companies, prior to this amendment, quickly realized that they hired attorneys that were not aware that the local arbitration rules would apply. We recommend, always, having multiple internationally-experienced attorneys looking at your agreements or you, also, may be stuck with an agreement that may not adequately protect

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Disputes Between Joint Representative Directors in Korea

A typical issue that we assist multinational companies solve is disputes between companies with two representatives.  One representative director is appointed to the role by a Korean shareholder and the other representative director is appointed to the role by the foreign shareholder. Usually, the Korean side representative director is deemed the Joint Representative Director (JRD)/President and the foreign representative director is the JRD/Vice-President.   JRD/President is, normally, via the Joint Venture Agreement (JVA) given power over HR, Sales and Marketing, Production and the JRD/Vice-President is given power over Finance, Quality Control and Engineering. Disputes arise, frequently, because of JRD/President delegating his powers to an agent with the JRD/President retiring to a home in Hawaii (common with Korean conglomerates who often given these positions in suppliers to retired employees of the conglomerate), stepping into the other JRDs discretionary powers, the inability of the JRD/Vice-President to receive cooperation from Korean employees of the

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Korea’s Woori Bank Lawsuit against Merrill/Bank of America Dismissed

Woori Bank, in Woori Bank v. Merrill Lynch et al., has lost a suit to Merrill Lynch.  The U.S. District Court for the Southern District of New York dismissed a complaint filed by Woori Bank, before trial, for failing to file the suit within the statute of limitations.  Bank of America acquired Merrill Lynch in 2008.   Motions to dismiss filed by Royal Bank of Scotland and Citigroup are still pending. Woori Bank claimed in the suit, inter alia, that it has been mislead by Merrill Lynch not revealing information regarding proposed investments by Woori Bank in CDOs.  A Merrill Lynch motion to dismiss claimed that a three-year statute of limitations, imposed under Korean Law, tolled- Woori didn’t file on time.  Woori, in short, countered that the statute of limitation should not toll until the publication of the U.S. Financial Crisis Inquiry Commission published a report in January 27, 2011.   The

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10 Top Cities in Asia for FDI in 2012- One Korean City on the List

The Financial Times, yearly,  posts on its Financial Intelligence site a ranking of the top 10 destinations in Asia for Foreign Direct Investment.  One Korean city appears on the list, three Chinese cities and four Australian cities along with the usual characters.   1.   Singapore2.   Melbourne3.   Hong Kong4.   Brisbane5.   Sydney6.   Busan7.   Auckland8.   Perth9.   Guangzhou10. Chengdu ________Sean Hayes may be contacted at: [email protected] Sean Hayes is co-chair of the Korea Practice Team for an international law firm. He is the only non-Korean to have worked as an attorney 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. (c) Sean Hayes – SJ IPG. All Rights reserved.  Do not duplicate any content on this blog without the express written permission of the author. [email protected]

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Finally All Criminal Cases to Be Disclosed to Public in Korea

The Korea Times has reported that all court rulings in criminal cases, starting next year, will be disclosed to the pubic in writing.  Civil cases will, all, be reported starting in 2015.  The Korea Times notes that: All courts here, including the appellate and highest courts, will be obliged to provide access for citizens to the texts of their rulings in all criminal cases via online or offline, the top court said, noting the system will be expanded to civil cases from 2015. So far, the Supreme Court makes public the verdicts of “major cases” online on a case-by-case basis, and those who want to have details of a case need to make a separate request, causing inconvenience to the public and controversy over rulings’ transparency and the public rights to know. The highest court said it will devise relevant rules within the year for the official launch of the

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Keeping Your Employees Out of the Clink in Korea: Korea Corporate Compliance

The Guardian has posted an interesting report entitled Operating Responsibly in Emerging Markets: South Korea.  The report, rightfully, notes that corruption is still a major issue for companies doing business in Korea.  The report, emphatically notes that its:  “imperative for companies operating in South Korea – particularly for those with a presence in the UK – to ensure that there are strong anti-bribery and corruption policies and procedures in place.” The report notes in part that: Corruption continues to be a key challenge for a business seeking to operate responsibly in South Korea. Ranked by Transparency International in 2011 as the 43rd most corrupt country out of 182, recent reports have questioned the effectiveness of anti-corruption law in South Korea and its enforcement. According to a report from Herbert Smith on anti-corruption in Asia, South Korea’s Act on Preventing Bribery of Foreign Officials in International Business Transaction has only led

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Korea Fair Trade Commission To Investigate European Car Makers

The Korea Times has reported that the Korea Fair Trade Commission is considering investigating BMW, Mercedes Benz, Audi, and Volkswagen for price fixing.  The Korea FTC has aggressively investigated both foreign and domestic companies for allegations of price fixing and other unfair trade practices. The Korea Times article, in part, notes that:   After monitoring the prices of BMW, Mercedes Benz, Audi and Volkswagen vehicles, the country’s most popular imported auto brands in that order, officials at the Fair Trade Commission (FTC) said Wednesday there are reasons to allege that these companies have been involved in profiteering and collusion. FTC didn’t say whether or not it will conduct a probe but on the basis of findings, it reserves the right to do so at its own discretion. The automakers have lowered the prices of their cars by an identical 1.4 percent after the Korea-EU free trade agreement (FTA) went into

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Korea Divorce Checklist for Negotiation of a Marital Separation Agreement in Korea

The following Korea divorce checklist may be useful for those negotiating a marital separation agreement in Korea. We highly recommend the utilization of a marital separation agreement, since the normal Korean judgment doesn’t consider some issues that may arise in the future including pension and social security that are addressed in a typical marital separation agreement. The average Korean lawyer that doesn’t handle many divorces for foreigners, often, is not aware of the reality overseas and, thus, often thinks the cursory Korean court judgment is adequate.  Often, the cursory court judgment in Korea is not adequate in waiving the rights to some foreign vested benefits abroad.  Thus, only hire an attorney in Korea that has significant experience with international divorces and that has drafted marital separation agreements.  I would suggest requesting a marital separation agreement in Korean and English prior to retaining the attorney. Korea Divorce Checklist(This checklist is not

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Return of Fraudulently Obtained Subsidies by Employer in Korea

The Seoul Administrative Court ruled, late in 2011, that the provision of the Enforcement Decree of the Employment Insurance Act (article 56(2)) requiring the return by an employer to the Korean government of all fraudulently obtained vocational training funds (and other like funds) collected by the Korean employer was unconstitutional (2011 gu-hap 14852).  The law required, in most cases, the return of all vocational training funds received if any funds were received fraudulently. The holding of the Administrative Court of Korea noted that the ““Article 56(2) of the Enforcement Decree of the Employment Insurance Act, before amendment, has failed to properly apply to the matter the concepts of “minimal intrusion” and “balance of legal interests,”” violating the Constitution because it unduly infringes the ‟property rights” of companies obtaining fraudulent funds. If your company has been required to return subsidies for any reasons, please contact an attorney immediately.   You may be

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Proud to Have Been a Member of Korean Court System: Korea Legal System is Changing for the Better

As many of IPG’s Blog readers know, I formerly worked for the Korean Constitutional Court for over six years.  I believe, to date, I am still the only non-Korean attorney to have been a regular employee of the Korean court system.  This opportunity led me to gain great insight into the operation of the court and build friendships with judges, prosecutors, government officials and government attorneys.  These friends are some of the best friendships I have had in my life. Some of my interactions lead me, sometimes, to have a negative impression of many aspects of the Korean legal system. As many readers know, I am quite critical when criticism is needed.   However, I believe my criticisms are, always, fair and not the rants of the typical “disgruntled foreigner in Korea.”   I love Korea and love working in Korea.  However, many aspects of the Korean Legal System are far

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Classification of Directors in Korea under the Korean Commercial Code: Inside, Outside and Other Directors in Korea

In Korea, all company directors are listed on the Korean Commercial Register.  If you are doing business with a Company, always check the Commercial Register to determine if you are doing business with a person authorized to do business with your company.   Additionally, if you have been told that you are a director of a company (I have seen this trick a few times) make sure that you are listed on the Commercial Register. The members of a Korean board of directors may be listed as either: “inside directors”; “outside directors” or “other directors not directly engaged in the regular business of the company.”  In many Korean companies, one of the insider directors is, also, classified as the representative director.   The Korean company may also be required to have a statutory auditor.  Inside DirectorThis director is a director that is responsible for the day-to-day activities of the company. The director is

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One Flew over the Cuckoo’s Nest and the Apple Saga in Korea

Over 27,000 iPhone users have filed a suit against Apple over the collection of location data of users of the iPhone in Korea. Mirae Law, a small law firm near the port city of Pusan is, according to their website, charging clients KRW 9,000 (USD 8.50) plus 20% of the recovered sum for representation in the matter. The clients are, also, required to pay a small court fee. It is great to see that more Korean law firms are becoming creative and aggressive and that lawyers in Korea are also focusing on the needs of non-business clients, however, the merits of the case are peculiar at best and the passive action by Apple is even more peculiar. The potential damage to Apple is not only c. USD 25 million, but, also, its business reputation. The law firm may earn in legal fees over USD 5,000,000 for the service of filing

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Apple Sues Samsung at the Seoul Central District Court for violation of Apple IP

In one of the biggest cases this year, Apple has sued Samsung in a Korean court. Samsung is a supplier of key components for the IPhone and IPad and has a competing smartphone, tablet, laptop, desktop and software solutions that directly compete with Apple. The companies are going at eachother around the world. As one of the most nationalist countries in the Asian region, Korea, with a propensity to disregard/minimize violations of law by the major conglomerates in the belief that protection is needed for these enterprises for the sake of the national interest, will have a unique opportunity to shack this common and naïve belief and finally discount the “Korean Discount” and stimulate foreign investment. I have no information on the merits of the case, but will update readers when I have the chance to read the complaint. The future of Korea is not Korean conglomerates, but foreign investment

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Korean Antitrust Laws’ Evolution

Korea Times (07/30/2010)by Sean C. Hayes Over the past decade, Korea has fostered the development of a Fair Trade Commission (FTC) with the power to actively fight to eliminate anticompetitive forces in the market.  This admirable evolution is welcomed by most domestic consumers. However, in many cases, anticompetitive practices may actually be a benefit to consumers in the short and long term. In these cases, a more nuanced Chicago School approach is necessary in order to incorporate a little realism and reason to the discussion and not to jeopardize economics for the sake of cookie-cutter-like rules. An FTC ruling to fine the importers of BMW cars was recently upheld by the Seoul High Court. The seven importers were fined a combined 14 billion won. Their practices were traditional horizontal price-fixing arrangements. Many in the antitrust field would have expected the outcome after the uncovering of a price-fixing relationship between the

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Seoul Bar Association Implements Assessment of Judges

Seoul Bar Association announced that it will begin assessing 700 judges in almost all Seoul courts including Seoul High Court, Seoul Administrative Court, Seoul Family Court, and all Seoul district courts. The results, according to the Seoul Bar Association, will be kept confidential. A report on the outcome of the evaluations will be given to the Supreme Court. However, the Seoul Bar Association noted, according to Law Times, that the evaluations could be made public if the evaluations are not reflected in judicial evaluations conducted by the Supreme Court next February. I was quoted by Asian Legal Business as being opposed to the plan. But there are several problems this poses for the judiciary, said Sean Hayes, a lawyer at Logos Attorneys at Law and the only foreign lawyer to be hired by the Korean Constitutional Court. Hayes said that evaluations may put pressure on the decisions of the judge,

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