- Amendmentsto the Scope of Merger Notification Exemptions and the Remedy
Discussion Proceduresto Take Effect in August 7, 2024 -
On January 25, 2024, the Korea Fair TradeCommission (the “KFTC”) announced that the amendments to the MonopolyRegulation and Fair Trade Act (the “MRFTA”) have passed the National Assembly’s plenarysession that day.
The amendments include two major changes to theKorean merger control regime: (i) expansion of the scope of exemptions from themerger notification requirement and (ii) allowing companies to formally designand propose their own remedy packages to the KFTC and obtain conditionalclearance. The amendments were officially promulgated on February 6, 2024 and thetwo amendments will take effect 6 months from that date on August 7, 2024.
1. Expansion of the Scope of Exemptionsfrom the Merger Notification Requirement
Pursuant to the first of the two major amendments,the following four types of transactions—which, according to the KFTC, arehighly unlikely to raise anticompetitive concerns—will enjoy exemptions from themerger notification requirement: (i) statutory merger or business transfer betweena parent and its subsidiary (limited to those cases where the former directly holdsmore than 50% of the latter’s total issued and outstanding shares), (ii) interlockingdirectorate of less than one-third of the total number of directors of anothercompany (excluding the representative director), (iii) establishment of a privateequity fund (as defined under Article 9(19) of the Financial InvestmentServices and Capital Markets Act), and (iv) merger between affiliates where thetotal assets or revenue of the target entity itself (i.e., without taking intoaccount the corresponding figures of any other affiliates) is lower than KRW 30billion.
Fromthe KFTC’s perspective, the foregoing changes would be of great significance inhelping promote both the quality and efficiency of their merger review process.Understandably, against the backdrop of an ever-digitalizing global economy anda rapid rise in the number of multinational mergers, competition authorities aroundthe world are now facing new and difficult challenges on a scale that has notbeen experienced before. In this context, the KFTC has been compelled to modifytheir approach to the merger review process, in a way that would allow them to focustheir attention and resources on the more complex and competitively significanttransactions at the expense of those that would most likely turn out to beinnocuous. Considering that the transactions that fall under the four exemptioncategories above, at least in 2022, accounted for approximately 42% of thetotal merger notifications filed with the KFTC (431 out of 1,027 filings), theKFTC is hopeful that the amendment would help reduce their caseload to asimilar extent, thereby enabling them to “focus and prioritize”.
Regardingthe point at which the exemptions will apply, it will vary by whether atransaction to be exempt is originally subject to pre-merger notification orpost-merger notification. In the case of the former, transactions entered into onor after the effective date of the amendment (i.e., on August 7, 2024) will beexempt, whereas, in the case of the latter, transactions closed on or after theeffective date of the amendment will be exempt from the merger notificationrequirement.
2.Introduction of a New Procedure on Proposal of Self-Designed Remedy Packages
Pursuantto the second of the amendments, companies themselves will be given theopportunity to formally design and propose to the KFTC a remedy package oftheir own that would address anticompetitive concerns raised during the reviewprocess. Under the current system, it is the KFTC that comes up with a remedypackage, later imposing it on companies as a remedial order.
Shouldcompanies decide to exercise the foregoing option, they must submit theproposed remedy package, in writing, within the KFTC’s review period (which, bydefault, lasts for 30 days and may be extended up to 120 days). Following thesubmission, the KFTC—upon their determination that the proposed package doesnot sufficiently address anticompetitive concerns and/or cannot be feasiblyimplemented within a reasonable period of time—may request for revision ormodification of the proposed remedies, and the review period will be suspendeduntil the parties fully attend to such requests. Once the authority finds thatthe remedy package, in its final form, is appropriate and sufficiently addressestheir anticompetitive concerns, they will issue conditional clearance.
Thenecessity of such an amendment stems from the fact that in a competitive environmentin which industrial structures are becoming increasingly more complex and thenumber of global mergers is rising by the year, it has become both inefficientand time-consuming for the KFTC to craft adequate remedial measures alone. Inthis context, the KFTC is optimistic that the amendment will help pave the wayfor effective and actionable remedy packages that are designed by the companiesthemselves and based on their own robust information and data at the market,industry, and company levels.
Furthermore,given that a similar approach to the remedy procedures has already been adoptedby many of the major competition authorities around the world, the KFTC hascome to view the amendment as an opportunity to further align the Koreancompetition legal framework with the global standards.
Thatsaid, amendments or enactments of other relevant laws and regulations areexpected to follow in connection with the implementation of the two major amendments,and the overall impact of these changes on Korea’s merger control regimeremains to be seen.
The information aboveis provided by Shin & Kim LLC via cooperation with Invest Seoul.
