Archives for October 2007
Korea Telecom Brings the Information Superhighway to the Silk Road
by Brendon Carr
Strong won and a mature domestic market are pushing Korean conglomerates out into the world markets in order to continue to prosper. Earlier this year I noted Doosan’s blockbuster acquisition of the Bobcat construction-equipment manufacturer as a harbinger of the coming wave of outbound M&A transactions.
Around the same time, our firm’s partner Mr. Sang-Il Park was mysteriously taken to Uzbekistan for some kind of project for Korea Telecom. I didn’t quite understand what was up, but it sounded exotic—Uzbekistan! And it seemed that Mr. Park’s trips could be related to this second “Korean Wave” I’d been forecasting. That has proved to be correct.
Yesterday Korea Telecom announced that in consortium with Sumitomo Corporation of Japan, the Korean phone company has acquired 51% of East Telecom, an Uzbek wireline service provider, and 60% of Super-iMax, a wireless service provider. Total transaction value has been reported at US$70 million.
KT’s legal adviser was none other Hwang Mok Park P.C.’s own Mr. Sang-Il Park. Mr. Park was assisted by HMP partner Mr. Kyung-Ho Park for specialist telecoms advice (I’ve worked with Kyung-Ho Park on telecoms regulation matters too). The Uzbek side did not use its own legal adviser. This is strange, given the amount of money involved, but certainly not unusual—we see this kind of thing with the less-internationalized Korean companies and rich individuals too.
The consortium’s plan for these companies is to upgrade their networks for improved high-speed Internet service in 12 urban areas including Tashkent and Samarkand. Uzbekistan is a growth play for KT: The country only has 10,000 high-speed Internet service susbcribers today (with 250,000 on dial-up no doubt clamoring for faster service), but a population of over 26 million and an economy growing at 7% per annum.
The Uzbek play will also leverage the momentum of the Korea-developed WiMax wireless broadband standard, which has just received approval by the International Telecommunications Union (ITU) as a global standard for 3G/4G networks. The bad news of that is we may never see the back of WIPI (Wireless Internet Protocol for Interoperability), the only-in-Korea “global standard” for handset-based Internet services, because the conquering advance of WiMax blinds the Ministry of Information and Communications to how the market has passed WIPI by.
Share Swap Transactions for Korean Acquisitions
by Brendon Carr
Thanks to a 2001 amendment of the Korean Commercial Code, a Korean corporation (the “Acquiror") can acquire the stock of another company (the “Target") by issuing new shares or transferring treasury shares to the shareholders of Target. As a result of the transaction, Target becomes a wholly-owned subsidiary of Acquiror while the former shareholders of Target end up as shareholders of Acquiror.
For the protection of minority shareholders, share swap transactions are subject to an “Art. 434 special resolution” (ordinarily a 2/3 approval majority except as a higher threshold has been adopted by prior amendment of the company’s Articles of Incorporation) at a General Meeting of the Shareholders of the Acquiror and the Target. But the first step in a share swap is the execution of a Share Swap Agreement between Acquiror and Target which must be approved by the special resolution. Such an agreement must provide for:
- Amendment of the Acquiror’s Articles of Incorporation;
- the number and kind of newly-issued or treasury shares of Acquiror;
- increased capital and capital reserve of Acquiror; and
- any cash payment to the shareholders of Target
The amount of Acquiror’s capital cannot increase beyond the amount of Target’s net assets, less the cash payment to shareholders of Target and the book value of treasury shares to be transferred to shareholders of Target. As in the case of a merger, shareholders of Target are entitled to receive at least one share of Acquiror and cash stock for stock exchange would not be allowed under the Commercial Code.
In the case of “short-form” share swap and “small-scale” share swap (definitions which would depend on the value of the proposed transaction in relation to the value of each company), a board approval instead of resolutions at a Shareholders Meeting would be sufficient.
Even after the approval by a Board or Shareholders Meeting, directors of Acquiror and Target are also required to preserve a copy of the Share Swap Agreement, a statement on the reason for distributing shares of Acquiror to the shareholders of Target and the most recent balance sheet and profit and loss statements of Acquiror and Target for the six (6) months following the share swap.
Under the Commercial Code, after a share swap transaction, any shareholder of Acquiror and Target shall have a “right of appraisal” to demand the company buy-out the disaffected shareholder’s shares. Within 20 days of the shareholders’ meeting at which the transaction is approved, such shareholders may exercise the appraisal right upon written notice to the company. Even after the share swap is completed, for up to six (6) months after the transaction an unhappy shareholder shall also have the right to file suit seeking to invalidate the exchange.
Compensation to Directors Upon Removal
by Brendon Carr
Under Korea’s Labor Standards Act, it’s very difficult to dismiss an employee without “just cause”, a concept that ties the hands of employers and only permits termination in cases of well-documented misconduct. Simple loss of confidence, or a realization that the employee is incompetent or just plain stupid, is the employer’s problem.
But the definitions of “employer” and “employee” under the Labor Standards Act exclude—in all but a few exceptional cases—the directors of the company from protection as employees. Directors are ownership, not labor.
The Korean Commercial Code, Art. 385, para. (1) provides that a director may be removed from office at any time by an Art. 434 supermajority resolution at a general meeting of the shareholders (such resolutions require 2/3 of the votes in attendance at the meeting, provided that such majority must constitute at least 1/3 of the total issued and outstanding voting rights). Simple, right? The director serves at the pleasure of the shareholders and can be disposed of without consequence.
Not exactly. In cases where the director is removed without good cause, the director shall be entitled to compensation—defined by case precedents as generally meaning all cash-based salary compensation he would ordinarily have earned—for the balance of his appointed term (see Commercial Code, Art. 385, para. (1) in its entirety). Note that this compensation is a statutory entitlement, and not the same as any “golden parachute” which might be agreed.
(For a discussion of a recent case concerning a company’s severance agreement with a dismissed director, see this blurb at Sigong Law’s KoreaLaw.com site.)
Most foreign-invested companies’ Articles of Incorporation provide that directors’ terms shall be three years, because that’s the longest possible term of appointment allowed under the Commercial Code (Art. 383, para. (2)). A three-year term seems very convenient for the company, since it reduces the overhead of the annual shareholders’ meeting.
However, it’s a mistake and possibly a trap. Imagine the situation where a company loses confidence in its Representative Director—let’s say they discover he’s a compulsive gambler and sex addict—and wants to remove the guy before he causes damage to the reputation or finances of the company. And his contract doesn’t specifically address the off-duty aspects of his life, because nobody thought this could happen. And they discover this six months after renewing the Representative Director’s appointment to a second three-year term.
Basically, the Representative Director has to go because of a loss of confidence in him, rather than any specific misconduct. A common enough situtation, for sure.
In that case, based on the no-cause removal provision of Art. 385, the Representative Director has a claim against the company for 30 months of compensation. That claim could be reduced or avoided altogether by the company simply understanding the Art. 385 entitlement, and responding by amendment of the Articles of Incorporation to appoint directors and statutory auditors to a standard one-year term.
How does your company treat this issue? Are you stuck with a three-year term of appointment for directors and auditors, without having thought about the business consequences? Think it over again, and tune up your Articles of Incorporation to avoid unnecessary liabilities.
Best American Law Firms in Korea
by Brendon Carr
Okay, this one is really not fair: There are no American law firms in Korea. But apparently a lot of people wish there were—“american law firm korea” is one of the top search terms that brings visitors to Korea Law Blog.
Korea’s legal market is one of the most-closed legal markets in the world, in that only law firms owned and managed by Korean-licensed attorneys are legally permitted to exist. There are no international firms, or multi-jurisdictional partnerships, allowed to enter Korea and establish representative offices, regardless of whether or not they limit their practice to legal services based on the laws of a jurisdiction other than Korea. In that case, the foreign firms would by definition not be competing with Korean lawyers—but still, this limited activity is unlawful. Sorry.
Admissibility of Hearsay Evidence in Korean Litigation
by Brendon Carr
Hoon Lee of Sigong Law P.C. (a firm comprised of several alumni from our firm Hwang Mok Park P.C., so you know they’re talented) has an informative post up on his KoreaLaw.com site concerning hearsay evidence under Korean law.
Korea has different rules of evidence—or, perhaps, no rules of evidence as we would understand them in the American civil procedure system. As Hoon notes, it’s considered to be improper for there to be rules governing what evidence is or is not admissible:
Article 202 of the Civil Procedure Act provides that “The court shall determine the truth of the matters asserted pursuant to its free convictions, consistent with social justice and equity and keeping in line with principles of logic and experience and taking the whole purport of pleadings and the results of the evidence investigation into consideration.” This is so called “the principle of free conviction.” That is, court judges are given total, free discretion to choose or throw out any evidence which come before them, or how much admissibility or value should be given to each evidence accepted.
Eye-opening stuff—anyone contemplating the possibility of litigation in Korea ought to check this one out, and take a look at my partner Doil Son’s Korea Herald piece on the difficulty of gathering evidence under Korean law.
Thinking of agreeing to Korean law as the governing law for your contract? Even if you choose an arbitration clause, you’d better understand what that means to your eventual ability to gather evidence for the resolution of any dispute which arises. The Korean Commercial Arbitration Board, for example, will use the Korean Code of Civil Procedure—with all its attendant weaknesses.
Definition of a Franchise in Korea
by Brendon Carr
Yesterday, someone found Korea Law Blog by searching for the phrase “definition of a franchise in Korea”—several searches, and iterations of that phrasing (like “franchise definition korea” and “korea franchise act definition"). Although my recent other posts on franchise-related topics cover what is new about the Franchise Act, I now see that I’ve not posted anything setting forth the current state of things. Better fix that.
The definition of a franchise in Korea is found in the Franchise Act of 2002 (the “Act"), Art. 2 item 1:
“Franchise" means a continuous business relationship in which Franchisor allows Franchisee to sell goods (hereinafter to include raw and auxiliary materials) or services under certain quality standards using the Franchisor’s trademarks, service marks, trade name, signs and other business marks ("Business Marks") and supports, educates and controls Franchisee as regards relevant management and operating activities, and in which Franchisee pays Franchise Fees to Franchisor in return for the use of Business Marks and the support and education concerning the management and operating activities.
The Act was amended in August 2007, and although many parts of the Act were changed in substantial detail, the definition of a Franchise was amended only very slightly. Here’s the new definition which will be applicable from February 4, 2008 (the “Effective Date") (new text in bold):
“Franchise" means a continuous business relationship in which Franchisor allows Franchisee to sell goods (hereinafter to include raw and auxiliary materials) or services under certain quality standards or business methods using the Franchisor’s trademarks, service marks, trade name, signs and other business marks ("Business Marks") and supports, educates and controls Franchisee as regards relevant management and operating activities, and in which Franchisee pays Franchise Fees to Franchisor in return for the use of Business Marks and the support and education concerning the management and operating activities.
Not much difference, right? So basically, what is a franchise now is what a franchise will be when the new amendments to the Act become effective later in the winter.
Boiled down to its essentials, the Korean law requires three elements in order for a franchise to exist: (i) business marks, which include trademarks but probably also broadly sweeps up elements of identity which we would know as trade dress in America; (ii) a uniform and reproducible system for the use of franchisee; and (iii) a franchise fee, which may include a one-time fee or running royalties.
As I’ve mentioned before, I like international franchise work because it increases the possibility of me finding a hamburger, sandwich, pizza, or bowl of chili that is like the food I enjoyed growing up in the Midwest. But although chain restaurants are obvious franchises, the definition above sweeps up many kinds of retail and service establishments, including hotels, educational businesses, haircut parlors, gas stations, convenience stores, branded-goods stores that focus on a certain brand (for example, a Samsung Electronics store), and the like.
Anytime there is a combination of business marks, a system, and a fee for the use of the marks and the system, that constitutes a franchise in Korea. In the past this was not such a big deal, as the Act was relatively loose and imposed few duties on the franchisor (even disclosure could be avoided). But now with the August Amendment of the Act, the burden on franchisors will increase from the Effective Date in respect of new relationships, and renewals of existing franchise relationships formed before the Effective Date. Does this apply to your business?
Required Elements of Korean Franchise Disclosure Statement
by Brendon Carr
The Franchise Act was amended August 4, 2007, to be effective from February 4, 2008. Under the amendments to the Franchise Act, disclosure will be mandatory and must be registered with the Korea Fair Trade Commission in a form yet to be promulgated. Schedule 1 to the Enforcement Decree of the Franchise Act from 2002 may be expected to be the base for the form required by KFTC, but some details may change. I prepared the translation to Schedule 1 which turned up in the CCH Business Franchise Guide in 2003 (with my permission, of course), and gladly distribute it to anyone who wants it.
This information may be subject to change once the detailed rules are amended; right now we have a copy of the Act but the Enforcement Decree and the Schedule have not yet been amended. But for now, this is what a franchisor must disclose to a franchisee in Korea, and probably will comprise most of what will be required in the future. Watch this space for developments.
UPDATE 4/23/2008—English translation of the revised list of required disclosure elements is now available for download (69Kb Adobe Acrobat PDF). This is something we’ve put together in the last three days; hopefully the language is clear and artful, but we may need to revise later. If you have any suggestions or comments please let us have them.
On Being A Woman Lawyer in Korea
by Brendon Carr
Don’t worry Dad, I haven’t started cross-dressing yet! Instead, from the Korea Law Blog mailbag (okay, really the comments section) comes this inquiry, from Liz, a lawyer whom I presume to be a Korean-American, early in her career (she uses the Internet), very smart and switched-on (of course—she really enjoys reading Korea Law Blog!):
Dear Brendon
I really enjoy reading your blog!
So are female lawyers still a rare sight in Korean society? Probably…
As much as I fancy working in Korea one day, I have a feeling that the work life aint as glamourous as Korean dramas make it to be!
So how are female lawyers considered/treated in Korea?
Liz
To this I replied as follows:
Liz,
Thanks for the kind words.
Korea is, as you know, a male-dominated society. In many respects it’s a “man’s playground”. However, the law firms are in most cases more open to equal opportunity than most other domestic institutions; female attorneys are not at all rare.
Women are flocking to the legal profession in numbers which I understand now approaches 50% of the crop of new lawyers. Few law firms can resist the tides—when women comprise most of the talent base at the accessions level, we can predict 10 years later they will make up most of the new partners. Sometimes I thumb through the “Class of XX” Judicial Research and Training Institute directory to look for good-looking young female attorneys. There are more and more every year.
I think our firm has a particularly good record in the gender-diversity area: My department at Hwang Mok Park is mostly staffed by female associates. My partner Doil Son and I work with a core team of two female associates—Ms. In-Kyu Hwang and Ms. Sun-Hee Kim—and one male associate, Mr. Si-Mok Kim. There are a couple of younger partner attorneys whom we like and they are female as well. The top leaders of our firm are, of course, male, as they’ve been at it for decades and the profession was almost all male when they joined. But as for me and Doil, we’re happy to recruit women and our observation on the recruiting patterns at our firm is that Hwang Mok Park is glad to hire women as well.
In my opinion, we—at least Doil and I—treat male associates and female associates equally; which is to say, horribly. We’re brutal to all of them! You’ve come a long way, baby.
As for whether law practice is as glamorous as seen on teevee—the answer is boy howdy! It’s all that and more.
If you’re a foreign lawyer thinking about trying to find a job in a Korean law firm, you might also want to check out my earlier post How to Get a Job at a Korean Law Firm.
I’ve asked Sun-Hee, In-Kyu, and Hailey Kim—a young woman foreign lawyer in our department—to post their comments if they have time. They know more about being female attorneys in Korea than I do. I hope that if there are any other ladies reading Korea Law Blog (come on now, have you seen my handsome visage above?) they might leave their thoughts as well.
Things You Learn from the Referrer Logs
by Brendon Carr
I read Korea Law Blog’s referrer logs every day for clues as to how people found me. I want more people to find me.
Last week while in Singapore, I threw up a page on Saturday about the recent amendment of the Korea Franchise Act, and by the following Tuesday discovered that entry top-ranked for the Google search terms “korea franchise law”—which surprised me. But it means that anyone who is looking for information about that topic will definitely find something relevant. However, today I found that my entry “Read Korea Law Blog and Have More Sex!” is the fourth highest-ranked item in a Google search for the terms “korea sex”, which a Chinese user of the google.cn search engine ran this morning. Fourth! This despite little, if any, sex-related content.
Thoughts on 2007 IBA Annual Meeting in Singapore
by Brendon Carr
Some thoughts on my attendance at the International Bar Association (IBA) annual meeting in Singapore last week (October 14-19, 2007):
This organization meets in places that are too good. This should be stopped. Each time I travel to an IBA annual meeting I feel like junking my life in Seoul and moving off to whichever place I just returned from. Next year it’s in Buenos Aires, which looks so fabulous in the pictures that I’m seriously thinking about skipping it lest I hang myself when I get back here to humdrum Seoul. When is the meeting in Terre Haute? That’s one which I could attend and feel good about going back to Seoul.
Hotels should not be charging guests for Internet access in 2007. It’s like having water or electricity in the room—a basic service. Getting ripped US$20 a day, while it won’t break the bank, is annoying as hell. As annoying as the $7.50 Pepsis in the in-room fridge. As annoying as $3.50 a page photocopying in the business center. Similarly, the IBA should have FREE wireless access for attendees in any conference center. If free wireless is not available, go somewhere it is. But I somehow doubt that Buenos Aires will have free wireless all over the place.
The IBA is a sausage festival: More than 80% of the attendees seem to be male. Some bring their wives, but most of us are flying solo. Needless to say, the hotel lobbies had a suspicious number of porn-star hot young women milling about, yet curiously, none of these women could be found in the conference venue itself. That’s not to say there weren’t a bunch of attractive women around at the lawyers’ conference, but comparatively fewer of them wore neon-pink fishnet stockings.
This conference may not be the best place for software vendors like Lexis/Nexis to exhibit. The demographics are all wrong—the average IBA attendee appears to be at least 50 years old, with a lot of them being quite a bit older. Very few lawyers of that age use much in the way of software. A defibrillator vendor could do a good business at the IBA, though (see above re: all the young women).
If you don’t know how to (i) shut off the Windows screen saver or power-saving functions; (ii) switch between the laptop’s built-in screen and external video output; or (iii) step back one slide—DON’T use Powerpoint! Seeing these guys fumble around with the computer like it’s the first time they’ve seen one is just sad. And seeing as how the balky laptops are always Dells using Windows, the fumble factor always gives me pleasure that I have chosen to use a Macintosh.
Speakers: PLEASE stop reading me your paper! Especially if you’ve handed the paper out. I can read silently faster than your lips can move—this makes me impatient and antsy. Most of you are charming and intelligent when answering questions extemporaneously. Spend more time doing that, and less on looking down at your paper on the podium.
The conference dinners/lunches used to be a lot of fun, but these days the number of attendees is so large (over 4000 this year, a new record) that many committees lack the intimacy of just a few years ago. In the future I think I’ll be dropping some of these functions to concentrate on the committees in which I’ve been most active. There are always enough free receptions to attend anyway.
In fact, I think our firm Hwang Mok Park ought to sponsor one of these receptions in Buenos Aires next year. We sponsor a monthly reception for the most colorful group of drunks here in Seoul, so why not for a select group of the world’s best commercial lawyers?
Bring enough business cards! There were a lot of interesting people I met later in the week who ran out of cards, leaving us unable to exchange. For a week of this conference you’ll need at least 300 cards if you’re diligent about being out and about. Anyway, if 300 is too many you can always take them back home.
If your firm will let you, make a special design of your card for attendance at the IBA. I noticed people hand-writing some of the additional details, such as “IBA 2007” and practice areas on my card. Next year my card will have this information pre-printed. In this regard I am inspired by Ronnie Fox of Fox Lawyers in London, whose card was a fold-out affair with a color photo of his handsome visage and a narrative description of his firm and practice specialties.
The keynote speaker and the closing ceremony are always unspeakably boring to me. This year we had Lee Kuan Yew kick off the conference. Guess what? He’s a genius. I know, because he told us again and again. Similarly, the closing ceremony is always too self-congratulatory for my taste. I already know I’m awesome, and it’s not because I came to the IBA.
A week-long annual meeting is simply too long. While my laptop kept me in touch with work during the week (alas), by Wednesday night (the fourth night, after the Sunday-night welcoming party) my feet hurt and I was tired of explaining again and again how I’m not a Korean, but I live in Korea.
For some reason, the Korean lawyers who travel to the annual meeting use it as an opportunity to get together for drinks, have dinner together, play golf together, and otherwise generally do all the same things they could have done in Seoul. They don’t go to meet the rest of the world. My partner Doil was torn between going to an international law firm’s reception and one he was invited to by the Korean Bar Association. I asked him, “Who’s going to be there?” When he replied that the invitation list for the KBA’s reception was Korean lawyers only (I’m not invited), no foreign lawyers, no corporate counsel, nobody from another country, my response was ”Exactly!”. Doil’s no dummy: We ended up going to the other function.
Finally, for the myriad young lawyers I met at this conference who are wondering whether anyone is interested to hear them speak about conditions in Ghana or Kazakstan or Vietnam or Guyana: We are! Please step forward and agree to speak on the panels. This conference always has a surplus of English lawyers telling us about the position in the UK on one topic or another—but we were in Asia, and there were damn few Asian lawyers who deigned to come.
Don’t be afraid that you’re not experienced enough, or senior enough, or whatever enough. In most cases, you’re not (yet)—we all know and accept that. None of us were all that expert early on in our careers either. But you have one thing over the rest of us: You live in your country, practice its laws, and you know a hell of a lot more about the law and legal practice in Lower Crapistan than anyone else who will be in the room. Anyone who does know more than you, and uses that to make you look foolish in front of the crowd—that guy will be viewed as the jerk, not you. And anyway, even if you’re terrible—as I mention above—there are enough sucky speakers on the panels anyway that one more probably won’t hurt. So take a chance!
Want to know the definition of an “expert”? Someone who knows more than you. Be this group’s expert on the laws of your country, and reap the benefits.
Speakers do not have to pay for the conference fee, and can attend all functions on the day of their panel. To be truthful with you, if I saw a young lawyer with a “Monday” badge sitting in on a Tuesday session she didn’t pay for, I wouldn’t be interested to rat her out. As I mentioned above, a week is too long anyway—come and speak on a panel then skedaddle on home. Your cost will be much more manageable that way—a plane ticket, $20 a day in spending money, and a night or two in the hotel. You don’t have to stay in a fancy hotel, either, although it sure is nice (but remember the $7.50 Pepsis).
This conference is always sold out. This year, I registered at the last minute and couldn’t get the social function tickets I wanted, and finding a hotel was hairy. As Dan Hull’s What About Clients? blog puts it, “If you are a business lawyer who works internationally, and you like different kinds of humans, it’s a must to go to an annual IBA meeting once every two or three years.” Except I would say go every year. Book early to avoid disappointment, or sleep on a bench at the bus terminal!
Read Korea Law Blog and Have More Sex!
by Brendon Carr
An expert says it, so it must be true: Readers of blogs—including Korea Law Blog, which is indeed a blog (why, “blog” is in its very name!)—gain valuable cultural knowledge that identifies them as hip, with-it, and definitely sexworthy:
Nestled among the media’s meditations on the popularity of blogs is a theory that lends new meaning to “cyber sex.” According to Simon Dumenco, a prominent U.S. media analyst, people read blogs at least in part because they “want to get laid.”
In this week’s Media Guy column for Advertising Age magazine, Dumenco contends that knowledge of the hippest, hottest blogs can increase hook-up opportunities and boost sexual attractiveness.
So there you have it. See you back here tomorrow! Alas, this “blog-goggles” effect does not appear to be extended to the authors of blogs. The Tom Jones-style panty bonanza has not yet materialized for me, despite all my efforts at Korea Law Blog. But this is a relatively new blog.
Buy Our Book: Hiring the Best Qualified Employees
by Brendon Carr
Kluwer Law International publishing company is now taking orders for the IBA Human Resources Committee’s new book “Hiring the Best Qualified and Most Talented Employees: Handbook on Global Recruiting, Screening, Testing and Interviewing Criteria”. My firm Hwang Mok Park contributes the Korea chapter. This book is a US$264 volume, but with this downloadable offer (Adobe Acrobat PDF, 100Kb), you can save US$100 off that price—if you’re a member of the International Bar Association. (If you’re not yet a member of the IBA, think of it as Kluwer kindly giving you £50 toward your £170 dues for the first year’s IBA membership.)
Hwang Mok Park associate Ms. Sun-Hee Kim provided invaluable assistance in preparing our chapter. Thanks to Sun-Hee’s efforts, we were able to bird-dog all the issues where Korean law is oddly silent.
I don’t get a nickel from the book—just the warm feeling of knowing we helped some readers.
Up-and-Coming Asian Employment Lawyers at the IBA (Plus Me)
by Brendon Carr
This morning at the IBA Conference in Singapore the Human Resources Committee (formerly Employment Law Committee, formerly Committee P; I can’t keep track of all the name changes) had its first panel discussion of the season.
Committee officers Mr. Salvador del Rey of Cuatrecasas law firm in Barcelona, and Mr. Bob Mignin of Seyfarth Shaw in Chicago found five truly first-rate, dynamic young partners from law firms in China and India. Plus me. Four of them were speaking for the first time to our committee.
Our morning session, which ran from 0930 to past 12:40 when I had to run out (Salvador, being Spanish, is not altogether perfect at enforcing a timetable even with the rest of us squirming at the time), focused on the general legal framework for employers’ obligations in China and India, as well as trade unionism in these countries.
Our speakers’ preparatory meeting on Sunday was a rollicking, four-and-a-half hour conversation about comparative employment-law and cross-cultural issues—the kind I really enjoy. It helps that those of us in Asia were all coming from a broad-based foreign direct-investment (FDI) background, rather than just employment law; we all were used to being primary counselors to multinationals at all stages of their investment experience in our respective jurisdictions. In my opinion, the Sunday preparatory meeting probably was better than the panel—too bad for our Monday audience, who missed out.
These new young partners will undoubtedly emerge as leaders in the international employment law community. But smart clients will want to get to know these people now:
Ms. Lucy Lu of the King & Wood law firm in Shanghai. King & Wood was until recently China’s largest law firm, and still ranks as one of the largest and most sophisticated domestic firms. Lucy presented us a very clear and cogent overview of China’s new Labor Contracts Act, which will take effect from January 1, 2008. I think she would be an excellent advisory lawyer, based on our Sunday preparatory-meeting discussions. And she’s easy on the eyes.
Mr. Kent Woo of Kingson Law Firm in Guangzhou (Canton). A mid-sized firm, Kingson’s strength is South China-based service to multinationals. Of special interest to would-be clients is Kent’s rich experience as in-house counsel in South China for a European multinational and a US multinational. He presented us a good background on China’s general labor-law environment prior to the enactment of, and still effective around, the Labor Contracts Act. I really liked Kent, found him equally strong as Lucy, and have already recommended him to a contact in the United States who’s specifically looking for counsel for Guangdong Province.
Mr. Dominic Hui of Vivien Chan & Co., a Hong Kong law firm which also has Beijing and Shanghai offices. Dominic is splitting his time between Hong Kong and Shanghai, which is giving him a greater appreciation for Chinese regional differences. (Although he didn’t say it, I’m sure this experience is giving Dominic a greater appreciation for the common-law system of his native Hong Kong.) His presentation on trade-unionism in Mainland China was a real eye opener for me—now I know why all the Korean companies are fleeing to China. It’s not just cost: According to Dominic’s explanation, the unions there are much easier to deal with. Dominic’s partners Vivien Chan and George Ribeiro are both frequent, confident speakers on the conference circuit, but this was Dominic’s first time—although you couldn’t tell.
Mr. Amit Bhasin is a fourth-generation attorney in his family firm Law Offices of Bhasin & Bhasin Associates, an employment-law boutique. Amit spoke to us cogently and forcefully (from the diaphragm, for sure) about trade-unionism in India. Definitely we could all recognize his experience as a litigator, from the persuasive way Amit communicates.
Mr. Manishi Pathak of the New Delhi office of Kochhar & Co., a very large and dominant full-service Indian law firm with offices nationwide (also in Bangalore, Chennai, and Mumbai), had a very detailed presentation on the general legal framework for employment laws in India. Surprisingly, for a lawyer armed with dense PowerPoint slides, Manishi doesn’t bore with the details—yet somehow, he got the details across. I was really impressed with his speaking style. Manishi seems to be pretty well-known already, and is definitely a pro speaker. [A firm like Kochhar doesn’t need me flogging for them, but apparently their local law society rules also don’t allow operation of a website as they don’t seem to have one I can find.]
UPDATE 10/23: It doesn’t take long for these people to emerge as leaders, does it? Belated congratulations to Mr. Manishi Pathak who was elected as an officer of the IBA Human Resources Committee in the committee business meeting last Wednesday, October 17 (I was there, so I don’t know why I didn’t update sooner). The officers are responsible for arranging the panel discussions and events—Manishi, it turns out, was the key man in locating these four fine young partners, who gave us such a rich and enlightening panel discussion. For that, he really does deserve a vote of thanks. I attended many sucky panels later on throughout the conference but was sustained by the warm memories of discovering talents such as these folks.
REIT Act Amended Too
by Brendon Carr
Sean Hayes’ Korean Law Blog reports something I noticed this summer but got too busy to post about: The Real Estate Investment Companies Act has been amended to activate the Korean real estate investment trust ("K-REIT") market. The amendment was passed in June and will be effective this month, October 2007.
The key reform? K-REITs now allow for a very respectable (some might even say reckless) amount of “gearing”—the maximum allowable debt limit has been raised from twice the invested capital to 10 times the invested capital. I’m not sure why this reform was deemed necessary, as REITs in other industrialized nations tend to have much lower gearing ratios between 20% and 40% of the invested capital. Allowing K-REITs to borrow 10 times their share capital could very quickly lead to out-of-control asset-price inflation as these huge funds start chasing the limited number of first-class properties available here.
Other reforms are aimed at easing the barrier to entry: Minimum capital has been reduced, and several changes have been made to allow organizers to form the K-REIT with a small capital investment initially, provided that additional capital and public participation are sought within a specified time limit.
Sean reports one thing that I believe might be misunderstood by readers: While the requirement for Ministry of Construction and Transportation (MOCT) approval has ostensibly been deprecated in favor of a “report”, make no mistake—MOCT will still exercise control. Korean government ministries are loath to give up any power, and MOCT is one of the most powerful.
When an approval requirement is downgraded to report or “notice”, but the report is still made to the Ministry rather than delegated to some agent (as in the case of foreign-investment reports, which are made to commercial banks rather than Ministry of Finance and Economy), the Ministry exercises its power by refusing to accept the submission of the report. A report which is never submitted need not be rejected. Oblique warnings are communicated to the applicant: If you put us on the spot by submitting that report we don’t want you to submit, we will make your life hell later.
It’s regrettable that this is the way they do business, but it’s the way they do business. Prospective K-REIT organizers will still need to curry favor with MOCT.
New Korean Franchise Act Amendment
by Brendon Carr
This week I will be out of the office to attend the 2007 annual conference of the International Bar Association being held in Singapore. I am speaking on two panels: the Employment Law Committee and the Franchising & Distribution Law Committee. My paper for the Franchising Committee is available as a FREE download to anyone who wants it. Click here to download (Adobe Acrobat PDF, 291Kb).
We’ve also got a high-quality English translation of the new Franchise Act amendments, prepared by Hwang Mok Park attorneys Ms. In-Kyu Hwang, Mr. Si-Mok Kim, and Ms. Sun-Hee Kim. These excellent associates are doing first-rate work and I am very proud to be able to work with people of their caliber. To get the English translation, though, please e-mail me (see the contact link in the right-hand column of this page, below my picture).
The changes to the Franchise Act are not insubstantial. In brief, the amendment requires franchisors (i) to register their disclosure statements with the KFTC; (ii) to deliver a written disclosure statement to all prospective franchisees in all cases, not just the cases where disclosure is requested; (iii) to observe a “cooling off” period after disclosure is given to the prospective franchisee; (iv) to escrow franchise fees at the commencement of the relationship and to establish some means to protect the franchisee’s right to refund in certain cases; (v) to refrain from direct competition with the franchisee; and (vi) to be much more meticulous in respect of the renewal, non-renewal, and termination of the franchise relationship.
The amended provisions of the Franchise Act will be effective from February 4, 2008.
One of the reasons I enjoy franchise work is that each new franchised business, especially restaurants, brings Korea closer to the world that I find familiar. While this place will always be its own little universe, being able to pop on over to a Wendy’s (oh, how I wish Wendy’s would come back to Korea!) is a little taste of home. It’s good to be able to personally benefit from one’s own legal work, and to have the opportunity to help others. For example, if I could help franchise Tim Horton’s in Korea it might relieve some of the homesickness that compels Canadian English teachers to go to such lengths to smuggle weed to themselves in Korea.
Want to know more (about the franchise law—I can’t help you with the dope smuggling)? Better yet, want to hire attorneys from my offices to assist with your franchise-related legal issues? Click here to download (Adobe Acrobat PDF, 291Kb) the FREE paper and get familiar with the changes in the Franchise Act.
Yikes! Unsold/Unsaleable Housing Problem Spreading to Seoul
by Brendon Carr
My August post on Korea’s dire housing-affordability problem has proven to be one of the most popular on Korea Law Blog, ranking second behind Attention Drug Fools where I warn English teachers and others against thinking their smuggling scam is not already known to the authorities (and ahead of How to Get a Job at a Korean Law Firm—this despite the well-known job-grubbing nature of law students).
Now the Dong-A Ilbo reports that unsold apartments aren’t just a problem in the provinces, but also here in Seoul—even the hot, luxury Kangnam area where everyone wants to live:
[O]nly two people bought apartments out of 50 units of Lotte Castle Medici put up for sale in Seocho-dong, Seocho-gu, leaving 48 units of apartments unsold… [The buyers of the two units later backed out of their purchase contracts.]
The sale price of the apartments was around 26.5 million won per 3.3 [sq. m.] (1 pyeong), and the builder offered zero interest rate financing, and a balcony expansion for free, which led Lotte Construction to believe that many apartments would be sold, even though the apartments were pricey.
One official of a construction company said, “Usually, 30% of apartment units are sold even though their location is not great as long as they are in the Gangnam area. What happened to the Lotte apartments is shocking.”
In fact, many in the construction industry said that this is the first time zero sales have taken place since the financial crisis. Outside of Seoul, where things are even worse, other apartment complexes have been built with a zero occupancy rate.
KCC Switzen (367 units), which was put on the market recently, has a zero occupancy rate, while Shincheon Cheongaram (43 units) has had only one buyer.
Those unsold Lotte apartments, by the way, at 26.5 million won per pyong, work out to 1.14 billion won (almost US$1.25 million!) for a spacious 1175 square-foot apartment similar to the grand palace in which I live.
As the Dong-A Ilbo notes later in the story, Korea’s screwy government-dictated housing policies have produced the frozen, distorted market where apartments can’t be sold while there is a profound shortage of housing. They’re going to kill the construction companies first, and may lead the country into a Japanese-style “Lost Decade”. Note the strength of the won and recall the advent of the word endaka into the financial vernacular.
So, the bubble is popped. What now? If you’re an investor wanting to pick up a Korean construction company, watch this space. There will be more bankruptcies coming, and some of them will be the so-called “major” construction companies like Lotte. If you’re a shareholder in a Korean construction company, now (okay, yesterday) is the time to get out of your position. As for me and my partner Doil, well, we’re brushing up on bankruptcy. Years ago, we were associates laboring for two years on an IMF/World Bank structural reform consultancy project on bankruptcy law, which resulted in an overhaul and consolidation of the bankruptcy code. That practice area looks to be coming back into vogue.
And if you’ve got cash and dreams of getting into Kangnam, sit tight. You may be on the cusp of a buying opportunity. See this TV report about what’s happening with unsold tower-apartment units in Miami. One possible difference between Miami and Seoul, though: In Miami there is a true oversupply of units. Here in Korea, the market is frozen because of the dizzying height to which prices have risen, coupled with stupid government intervention.
See also my earlier, related posts on this topic: Housing Policy and the Korean Dream, Is There Really a “Glut” of Housing in Korea?, and Watch the Construction Companies: Korea’s Canary in the Mine.
Popular Korean Concept of Corporate Governance Rules
by Brendon Carr
This post got its start from a comment I left over at the Marmot’s Hole. Over there, a guest poster made his observations about chaebol companies being like the Mafia—a point I’m unwilling to make, lest I get whacked—and the popular conception about corporate-governance practices.
Commenter “captbbq” (how I wish there were real names to go with the handles!) noted:
I work in an ex-chaebol corporation but every once in a while something funny goes on…
The day before we had a share-holder meeting, they announced ever-so-innocuously that everyone should go up to the big conference room for the rehearsal. Then we sat through a ten minute coaching of when we were to yell (I forgot the exact Korean phrases but I’ll approximate in English) “we have no objection” and “no that is not needed” and then the pursuant speech by the chairman and our appropriate responses to it.. It was only after that that the realization finally made it through my thick skull that something wasn’t quite right when the chairman said “all right guys, that was perfect, just remember, don’t wear your company pins tomorrow when we do this”.
It was then it all added up:
1. Why do we need to rehearse a shareholders meeting? The vast majority of us aren’t even shareholders (well in our competitors maybe)
2. In light of number one, what are we doing telling the chairmen if his policies are ok with us or not?
3.Why are we not supposed to look like employees and lastly: why do my co-workers keep making jokes about me representing the “foreign investors”?
Most Koreans know nothing of the law. Nothing at all. It’s not relevant to their lives — the law is an alien construct overlaid on their 5000 year-old society, by force, only in this century. The law and government has been the tool of fascist oppression, in varying degrees, from 1910 to 1992 (some would say 1997).
The function of the law in Korea has generally been to establish means by which the ruling class (whether they are Japanese or Korean) exercises control over the general populace. As a result, everyone here is trying to make themselves as inconspicuous as possible, or to bribe the petty functionaries of the ruling class to look elsewhere and harass someone else.
It’s correct to describe the prevailing legal culture as an “avoidance” model rather than a “compliance” model. It’s probably not possible for anyone to be in compliance with all the relevant Korean laws, all the time, for they seem to be written and promulgated in a way to ensnare rather than to regulate. By keeping everyone out of compliance at all times, the state then has a handy bludgeon to wield when someone gets out of line—This is because you’re a lawbreaker, see? You don’t deny you were breaking the law, do you?
Now, a “critical legal studies” theorist — or Korean misdirectionalist — would say the same is true of the United States, but at least in the United States we have a separation of powers and the limited-sovereign conception traceable back to the Magna Carta.
In the American system, in theory at least, all powers stem from the people and are granted to the government. Korea’s legal system reserves all powers to the government ab initio and the people are permitted to do what the government allows them to do. If not expressly permitted, an activity is forbidden — this is the nature of the so-called “positive list” system.
The system whereby judges are recruited directly from the Judicial Research and Training Institute (i.e., just as they are starting their careers) and appointed as civil servants without tenure ensures a pliant judiciary not eager to oppose the government.
This is also why Korean democracy is a winner-take-all system. Whosoever takes control of the government, controls all.
Over at the Marmot’s Hole, the question was asked:
Just curious… is the regular Korean (someone who doesn’t work in corporate or that kind of field) aware of the practices you talk about, like [choreographed ‘shareholder’ meetings stuffed with company employees], etc… If people are aware of it, then does it mean that it continues because people feel helpless to do anything about it since the practices are so entrenched?
The answer is no — the general public, and the more ignorant members of the government too, for that matter — have no idea about corporate governance nor about shareholders rights. They think in terms of an individual “owner” of a corporation and that owner having utter and complete control and knowledge of all aspects of the corporation’s business.
Imagine a case where a multinational company — for the purpose of argument, Apple, because its CEO is well-known and closely identified with the company — suffers a loss in Korea due to fraud. Could you believe the police and prosecutors persistently requesting Steve Jobs to appear at the police station to swear out a complaint? I can, because I’ve experienced it in a similar case. After all, he’s the “owner” of that company. In our fraud case we had to prepare and submit a detailed brief explaining the concept of a limited-liability company and its separate legal personality, because the (very mature) fraud investigator couldn’t wrap his head around the idea of a corporation being its own entity. Yet limited-liability corporations have been in existence in Korea for over 100 years.
In such a culture, the “owner” of a company gets to do whatever he wants with the assets of that company, including its people. It’s very much a “family business”, sole-proprietorship conception that is applied in the popular imagination to Samsung, Hyundai, and Posco. In the case of state-owned companies, the owner is the President.
But we live in a democracy now. My daughter, born in Seoul in 1997, was born free (plus she’s an American citizen, which means she was free no matter how things turn out here). Korea’s insitutional and legal framework is better suited to a fascist dictatorship than to a democratic state. The challenge, as I see it, for modern Korea and its fledgling (but seemingly well-rooted) democratic order, is to nurture independent, institutional-based (as opposed to personal-based) power centers. Getting corporate governance right is an important part of that transition.
The good news is, although there is a lot of work to do, it seems to be in steady progress. In my professional career I have witnessed profound legal change, and expect to witness much more. That’s what makes working in Korea very exciting and gratifying.
Downloadable FAQ on Korean Employment Law for Employers
by Brendon Carr
My associate Sun-Hee Kim and I prepared, and the Practical Law Company has recently published, the Korea chapter to Employment Law 2007/08 in their PLC Global Counsel Handbooks series. We provide short, to-the-point answers to more than 30 (31, really) of the most commonly-asked questions on Korean employment law from the perspective of employers.
The Handbook will be distributed in print form at the 2007 Annual Conference of the International Bar Association in Singapore next week (14-19 October 2007), where my partner Doil Son and I will be in attendance. I’m going to be speaking on some panels including the employment law committee’s panel on Monday.
It’s a FREE download, and probably will answer something you haven’t had answered yet, so why not take a look?
Click here to download the chapter (Adobe Acrobat PDF, 119Kb).
Seoul to Ban Street Merchants
by Brendon Carr
Noticed a short blurb in Editor & Publisher a few days ago (hey, I am closely following Pinch Sulzberger’s destruction of the Old Grey Lady) noting a Korea Times report about some supposed plan of the Seoul City Hall to abolish street kiosks—you know, the little metal boxes where you can buy a newspaper, gum, or in some cases a cool drink of milk, juice, or soda, or get your shoes shined or repaired.
The reports say the government is concerned that the kiosk owners are “too wealthy” (thanks to the real-estate boom, almost 9/10 of one percent of them have apartments worth more than mine, and more than 3/4 are not living in poverty!) to be allowed to provide these needed public accommodations. In America, the shoeshine man who puts his kids through college is a heartwarming human-interest story; here in Korea, apparently, he’s a cause for concern, breaking his end of the bargain to stay poor. I can’t imagine another “global hub” without street merchants—not even Pyongyang (it’s toward the end of that story).
This is a mistake, and will make life in Seoul worse. Obviously, it won’t be the end of the world or anything, but isn’t it nice to able to get a shine as an impulse buy? Street merchants and sidewalk kiosks add life to a city. We need more vibrant city life on the streets of Seoul, not less. At this rate, I’ll never get a frietkot here in Seoul!.
-
About Korea Law Blog
Korea Law Blog is brought to you by Brendon Carr, an American lawyer working as a foreign legal consultant for more than 10 years in Seoul. (Brendon is not admitted as an attorney in Korea. But you knew that.) -
Contact Details
-
Tel. +82 (0)2 772 2734
Fax +82 (0)2 772 2800
Mobile +82 (0)10 8788 0750 -
Download My FREE Korea Employment Law FAQ
-
Korean Media
-
Blogroll
-