The financial authorities have finalized improvements to the dual listing system, which will take effect on August 3. The key provisions include mandatory approval from common shareholders of the parent company when listing a spin-off subsidiary, as well as the retention of the '3% rule' for shareholder consent. However, the independence of the special committee within the parent company's board has been strengthened following the feedback process.
On July 31, the Financial Services Commission (FSC) announced at its regular meeting that it approved amendments to the listing and disclosure regulations of the Korea Exchange. These amendments were developed after a public consultation on the preliminary guidelines released on July 7 and will be implemented starting August 3.
The core of the final proposal is the protection of common shareholders during the dual listing of spin-off subsidiaries. The FSC has mandated shareholder approval for spin-off subsidiaries and confirmed the existing recommendation for shareholder approval in other dual listings.
The '3% rule' for recognizing shareholder consent remains unchanged. This rule limits the voting rights of shareholders who hold more than 3% of the voting rights to just 3%. For shareholder approval to be valid, a majority of participating shares must agree, and at least one-quarter of the total issued shares must also be in favor.
Business circles have argued for exemptions from the shareholder approval requirement if a significant amount of time has passed since the spin-off, suggesting that general resolutions should apply instead of the 3% rule. Conversely, the investment community has called for expanding the shareholder approval requirement to all dual listings that significantly impact the parent company and has demanded the introduction of a Majority of Minority voting method.
The FSC and the Exchange explained that while they maintained the core system in consideration of the purpose of protecting common shareholders, they incorporated some acceptable suggestions.
First, the requirements for the independence of the special committee within the parent company's board have been strengthened. Previously, the criteria were met if either an independent director served as the chair or if independent directors and external independent members made up at least two-thirds of the committee. The final proposal raises the bar to require both conditions to be satisfied.
In the shareholder approval process, electronic voting will not be mandatory but will be recommended. The FSC stated that this measure considers consistency with commercial law, while also expressing hope that companies will voluntarily utilize electronic voting, given the requirements of the 3% rule and the need for at least one-quarter of the total issued shares to agree.
Disclosure burdens have also been somewhat eased. If a subsidiary with a low asset ratio does not undergo shareholder approval, it will only need to disclose simplified information regarding the low ratio under the 'reason for failure to confirm shareholder approval' section. Additionally, the disclosure of the board's voting results will now only require the overall outcome rather than individual opinions of each director.
Furthermore, it has been specified that real estate investment companies (REITs), classified as collective investment securities under Exchange regulations, are excluded from the dual listing system.
The FSC stated, "We have prepared the final proposal reflecting opinions that align with the purpose of improving the dual listing system to protect common shareholders, while also ensuring rationality and acceptability. We plan to continuously enhance the guidelines based on actual compliance and review cases after implementation to increase predictability for companies and investors."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.