The amendment to the Monopoly Regulation and Fair Trade Act (the “MRFTA”) was promulgated on February 6, 2024, to improve the merger review system, the hearing process of the Korea Fair Trade Commission (the “KFTC”) and the corporate disclosure system. Some provisions of the amended MRFTA became effective on February 6, 2024 and February 9, 2024. The remaining provisions are scheduled to take effect on August 7, 2024 and February 7, 2027, respectively.
Under the amended MRFTA, business combinations that are unlikely to raise any anti-competitive concerns (such as establishment of private equity funds (“PEFs”) or mergers between a parent company and its subsidiary) will be exempt from the merger filing obligation. Nevertheless, for business combinations that are likely to raise anti-competitive concerns, the parties involved will be allowed to formally submit remedy proposals, which will be considered by the KFTC when preparing the final corrective orders. The amendment will introduce an electronic system for submitting and delivering documents during the KFTC’s hearing process. In addition, the amendment will (i) ease the burden of overlapping disclosure requirements for companies subject to corporate disclosure requirements, and (ii) raise the minimum annual sales threshold, which is applied when determining a market dominant entity, from KRW 4 billion to KRW 8 billion.
The details of the amendment are as follows:
1.
Expansion of Merger Notification Exemptions and Introduction of Remedy Proposal Submission System (Effective Date: August 7, 2024)
The amendment newly exempts the following four types of transactions from the merger notification requirement: (i) the establishment of PEFs, (ii) mergers and asset/business transfers between a parent and its subsidiary as defined under the Korean Commercial Code, (iii) interlocking directorships involving less than 1/3 of the board members (excluding the interlocking directorships involving the representative director), and (iv) mergers between affiliates where the size of the merged entity itself is less than KRW 30 billion on a standalone basis.
In addition, when the KFTC plans to impose remedies on anti-competitive business combinations, the filing party will have the opportunity to submit and discuss remedy proposals with the KFTC. These proposals aim to address anti-competitive concerns, and the KFTC can take these proposals into account when drafting its corrective order. Currently, in principle, the KFTC directly designs corrective orders while only informally reviewing opinions and suggestions from companies as references. However, the KFTC announced that it has prepared a “remedy proposal submission system” for business combinations as the industrial structure is becoming more complex and the number of global merger notifications is increasing.
2.
Preparation of Legal Grounds for Electronic Submission and Delivery of Documents (Effective Date: February 7, 2027)
The amendment will enable the electronic submission and delivery of documents during the KFTC’s hearing process.
Accordingly, companies will be able to electronically submit documents necessary for the KFTC’s hearing through an electronic system operated by the KFTC. The KFTC will be able to electronically deliver documents and notifications regarding the hearing (e.g., its final decisions), and companies will be able to access those documents and notifications through the electronic system.
For this purpose, the KFTC plans to establish an electronic data processing system (the official name will be determined at a later point) and aims to commence its operations in the first half of 2027.
3.
Improvement of Disclosure System (Effective Date: August 7, 2024)
The amendment provides a statutory basis for (i) removing the “changes in executives” item from the “list of important disclosure items of unlisted companies,” and (ii) exempting companies from administrative fines for minor violations of the disclosure obligation. The exemption takes into account factors such as whether the violation has been corrected, as well as the degree and result of the violation.
The KFTC explained that the amendment is intended to ease the burden of overlapping disclosure requirements on unlisted companies and also address allegations that sanctions imposed for violating the disclosure requirement are too excessive.
4.
Increased Threshold for Presumption of Market Dominant Player (Effective Date: February 6, 2024)
The amendment to the MRFTA has raised the minimum annual sales threshold for identifying a dominant market entity.
Before the amendment, a business entity satisfying specific criteria, such as a market share-based threshold, was presumed to be a market-dominant entity, while a business entity with annual sales or purchases of less than KRW 4 billion in the relevant market was exempted from this presumption. However, with the recent amendment, the annual sales threshold has been increased to KRW 8 billion.
The KFTC explained that the amendment reflects changes in economic conditions, such as the expansion of the national economy and the increase in the number of small and medium-sized enterprises and venture companies since the KFTC first set the threshold of KRW 4 billion in 2007.
As the KFTC announced its plan to revise subordinate regulations promptly (e.g., by establishing administrative rules for the remedy proposal submission system), companies are advised to become familiarized with the specific developments concerning the enactment, amendment, and enforcement of such subordinate regulations.