Advising on affiliate inclusion risk under Korean fair trade law and restructuring governance in an acquisition

In an acquisition, officers of the target company held shares in a separate related company and were also involved in its management, raising the possibility that the related company would be included in the acquirer's business group.

We therefore reviewed whether the related company would be an affiliate under the Monopoly Regulation and Fair Trade Act and how the shareholding and officer structure could be adjusted to remove the risk of inclusion in the business group.

The key issue was whether de facto control under the Monopoly Regulation and Fair Trade Act would be found based on shareholdings and overlapping officer positions held by persons related to the controlling person, even without any direct equity relationship between the companies.

Another issue was whether the risk of affiliate inclusion could be removed through restructuring such as the resignation of registered officers, conversion to non-registered officers, or transfers of shares.

We analyzed the scope of a business group under the Monopoly Regulation and Fair Trade Act and the criteria for persons related to the controlling person and for de facto control, and reviewed the likelihood of affiliate status under the existing shareholding and officer structure.

In particular, we compared several alternatives, such as ending the overlapping officer positions and changing the shareholding structure, and analyzed how not only the formal severing of personal ties but also actual management independence and transactions between the companies would affect the business group determination.

We advised that, under the existing structure, the related company could be treated as an affiliate because of the shareholdings and overlapping officer positions.

We also proposed a restructuring plan to end the overlapping officer positions, and advised that independent management decision-making and arm's-length transactions would need to be maintained afterward to manage the risk of inclusion based on de facto control.