In an effort to clarify the ambiguous provisions regarding the duty to file a business combination report with the Korea Fair Trade Commission (“KFTC”), the Guidelines for Notification on Combination of Enterprises (the “Guidelines”) have been revised to reduce confusion, simplify the format, and to reduce the burden on companies. The major revisions can be summarized as follows:
- Simplification of reporting requirements for mergers involving foreign companies
In reporting the figures of foreign undertaking’s affiliates with no domestic sales turnover, only the said affiliate’s name, address, and type of business must be included in the report. Moreover, any intercompany sales between two affiliates shall be excluded from the calculation of domestic sales turnover.
- Multiple largest investors to a joint venture company required to file only one report
In principle, the largest investor in a joint venture company is required to file a business combination report, and in cases involving two or more largest investors (e.g. two shareholders with equal 50% shareholding ratios or four shareholders with equal 25% shareholding ratios) each largest investor must make a separate report filing. However, since the content of the report would in practice be identical, the revised Guidelines allow for only one report to be filed.
- Only required to report a major merger when a single contract involves two or more simultaneous mergers
The revised Guidelines only require a major merger to be reported for a single contract involving two or more simultaneous mergers. For example, if B makes an investment in kind for A’s shares, such transaction involves B’s purchase of A’s shares in exchange for A’s acquisition of B’s business. In such case, the revised Guidelines require only the major transaction, B’s purchase of A’s shares, to be reported, but such report must include the details of the entire set of interrelated transactions so that the KFTC can review the transactions and their results as a whole.
- Only the final acquirer of successive mergers required to report
In a transaction involving successive mergers (e.g., the intermediate acquirer resells the shares to the final acquirer on the date of purchase or within the reporting period), the KFTC assigns the duty to report only to the final acquirer and not to the intermediate acquirer, who is not involved in the merger in substance.
- Exceptions to the requirement for large-scale enterprises to file pre-merger report
A pre-merger report must in principle be filed for the acquisition of shares by a large-scale enterprise. An exception to this requirement is available, however, in situations where pre-merger filing is difficult due to special legal/contractual circumstances, such as in (i) tender offers, (ii) bequests, (iii) centralization/consolidation of reporting by law to another administrative office which requires post-merger filing, (iv) exercise of rights granted by way of security, or (v) recovery of voting rights for shares without voting rights, etc.
- No duty to report in specified cases of interlocking directorship
Prior to the revision, there was only a comprehensive provision stating that “a business combination report must be filed with the KFTC in the event that a director of a large-scale enterprise simultaneously serves as a director of another enterprise.” However, the revision clarifies that no report is required (i) when a director of small-scale enterprise also serves as a director of a large-scale enterprise, and (ii) when an outside director of a large-scale enterprise simultaneously serves only as an outside director of another enterprise.