Kim, KonSik, Financial Assistance under the U.K. Company Act, HUFS Law Review, Vol. 42, No.4 (2018), pp. 107-132.
<Abstract>
The purpose of this paper is to examine the financial assistance regulation under the UK company law. Since its formal adoption in the late 1920s, the financial assistance regulation had been subject to heavy criticism until private companies were eventually made exempt from it in 2006. Now, there is not much discussion on financial assistance in the UK. The Korean corporate statues do not have any special provision directly on financial assistance per se. In Korea, the practice of financial assistance is often found when a corporation attempts to have a third party acquire its own shares in an effort to avoid the share buyback regulation. It may, however, be of more relevance from the perspective Article 467-2 of the Korean Commercial Code, which prohibits the firm from extending financial benefits in connection with the exercise of shareholder power. Both the financial assistance regulation and Article 467-2 have something to do with management’s intervention in the composition of the body of shareholders, a corporate governance issue of high theoretical significance that has so far attracted little academic attention in Korea. The paper will proceed as follows. Part II will survey the historical development of the financial assistance regulation in the UK. Parts III through V will discuss the basic elements of the regulation – statutory requirements (Part III), exceptions (Part IV), and effects of violation (Part V). Part VI will compare the financial assistance regulation with that of Article 467-2 from the perspective of the composition of the shareholder body. It will pay special attention to some recent court decisions in Japan regarding the corresponding company law provision. Part VII is a conclusion.
<Keywords>
financial assistance, private benefits to shareholders, share buybacks, LBO, UK company law
Kim, KonSik, Financial Assistance under the U.K. Company Act, HUFS Law Review, Vol. 42, No.4 (2018), pp. 107-132.
<Abstract>
The purpose of this paper is to examine the financial assistance regulation under the UK company law. Since its formal adoption in the late 1920s, the financial assistance regulation had been subject to heavy criticism until private companies were eventually made exempt from it in 2006. Now, there is not much discussion on financial assistance in the UK. The Korean corporate statues do not have any special provision directly on financial assistance per se. In Korea, the practice of financial assistance is often found when a corporation attempts to have a third party acquire its own shares in an effort to avoid the share buyback regulation. It may, however, be of more relevance from the perspective Article 467-2 of the Korean Commercial Code, which prohibits the firm from extending financial benefits in connection with the exercise of shareholder power. Both the financial assistance regulation and Article 467-2 have something to do with management’s intervention in the composition of the body of shareholders, a corporate governance issue of high theoretical significance that has so far attracted little academic attention in Korea. The paper will proceed as follows. Part II will survey the historical development of the financial assistance regulation in the UK. Parts III through V will discuss the basic elements of the regulation – statutory requirements (Part III), exceptions (Part IV), and effects of violation (Part V). Part VI will compare the financial assistance regulation with that of Article 467-2 from the perspective of the composition of the shareholder body. It will pay special attention to some recent court decisions in Japan regarding the corresponding company law provision. Part VII is a conclusion.
<Keywords>
financial assistance, private benefits to shareholders, share buybacks, LBO, UK company law