Although overshadowed by the hotly debated antiterror bill, a raft of key bills pertaining to various aspects of Corporate Korea passed through the National Assembly on Thursday.
Among them, four bills that govern corporate restructuring, moneylending, insurance fraud and executive pay disclosure hold particular significance for their expected impact on businesses and individuals, particularly at this time of economic hardship.
Lawmakers attend a plenary session at the National Assembly in Seoul on Thursday. (Yonhap)
The debt workout law, aimed at facilitating speedy restructuring of distressed companies, went into effect Thursday immediately after its proclamation, reflecting the urgency with which the government and the parliament view the issue. Another law setting a new cap on interest rates on nonbank loans also took effect without delay, pulling the upper limit down to below 30 percent a year for the first time.
The special law on insurance fraud aims to crack down on bogus claims by policyholders to raise awareness that insurance fraud, which is rampant and still growing, is a real crime. It will take effect later this year.
A revision to the Capital Market Act, to be effective from 2008, envisions greater public disclosure of the pays of executives and directors at listed companies.
Debt workout program gets legal backing One of the most anticipated bills of all is the Corporate Restructuring Promotion Act, more frequently referred to as the debt workout law.
The act, effective for 2 1/2 years from Thursday, will reinstate a creditor-led restructuring program for marginal companies that expired at the end of last year.
“The (new) Corporate Restructuring Promotion Act aims to facilitate speedy and effective out-of-court restructuring for marginal companies,” said the Financial Services Commission, the financial regulator that had called for its passage.
“It is expected to help the economy cope with corporate sector risks that are expected to grow going forward, as industries like shipbuilding, steel and petrochemicals see increases in the number of distressed companies,” it said.
Creditors seeking to salvage a troubling, yet viable, firm can push for a debt workout plan, but it requires 100 percent consent from all creditors. The new law aims to make the process easier by lowering the threshold for workout agreements to 75 percent.
Korea has for many years relied on this program, a bridge between self-help and court receivership, to bail out ailing companies, but the law governing it expired at the end of 2015, held hostage by a parliamentary impasse.
The new law shares core aspects with the previous one, but has an expanded scope to benefit smaller companies. The criteria for creditors who can push for the measure has also been relaxed to include institutional investors such as the national pension fund.
Cap on lending rates to be lowered The revised Money Lending Business Law is a controversial piece of legislation, as it is expected to have a direct impact on the bottom lines of money lenders and their borrowers.
The law, effective from Thursday until the end of 2018, lowers the cap on interest rates that lenders are allowed to charge to 27.9 percent from the current 34.9 percent. The previous law setting the limit at 34.9 percent expired at the end of last year.
The money-lending industry association claims that slashing the limit will push the profits of the industry’s 40 main companies down by a combined 700 billion won ($576 million), while the government stresses its expected benefits for some 3.3 million borrowers. The lower cap applies not just to new loans, but also those renewed after the law’s effectuation.
Credit appraiser Korea Investors Service foresees consolidation of the sector in favor of big firms and those who can endure thinner margins.
First law to battle insurance fraud
The special law on the prevention of insurance fraud aims to combat false or fraudulent claims by imposing stricter criminal penalties -- up to 10 years in jail or 50 million won in fines.
It also seeks to punish insurance companies that unreasonably delay, deny or underpay a valid claim with a fine of up to 10 million won.
The bill’s supporters hope that the legislation, which has long been in the works, will help advance the local insurance sector, while enhancing public recognition against fraudulent claims.
According to the Financial Supervisory Service, insurers exposed 310.4 billion won worth of fraudulent claims in the first half of 2015, up 20 percent from two years earlier.
More executives to disclose salary The Capital Market Act, which will go into effect in 2018, designates that the payrolls of the five highest-paid executives of all listed companies be disclosed to the public twice a year.
Under the new law, remuneration of top business moguls, including executives of Samsung, SK, Hanwha, Doosan, Shinsegae, Mirae Asset and many more, whose salaries were previously undisclosed, will be made public.
Supporters of the bill believe this will improve transparency in business operations and impose more responsibility on the management.
The revision bill is designed to make up for gaps in the existing law, which mandates pay disclosures only for registered executives of a company, and only if they are paid more than 500 million won a year. Registered executives have the legal power to participate in the overall management of the companies while unregistered executives have less or no power in the boardroom.
In order to avoid public outrage at fat paychecks, many business magnates stepped down from their registered executive status after the current law was effectuated in 2013. The move was criticized for having led managers to steer companies from behind the scenes, despite having no legitimate voting rights.
By Lee Sun-young, Bae Ji-sook & Park Han-na
(milaya@heraldcorp.com) (baejisook@heraldcorp) (hnpark@heraldcorp.com)