Business Under Legal Management Prohibited from Selling over 50 Percent of New Stocks in One Year

A new measure was introduced to promote M&A of the business under legal management and to prohibit speculative purchase of the CRCs for short-term marginal profits.

The Bankruptcy department of the Seoul district court announced its implementation of `the revised standard concerning the M&A process of the businesses under legal management` which regulates the prohibition the new buyer from selling over 50 percent of new stock in a year.

The revision is introduced to control the influx of the short-term speculative fund of CRCs to the M&A market, which had brought about a problem of the stock price fabrication by the purchase of insolvent business.

According to the new regulation, the buyer of the new stocks that issued in the process of M&A cannot sell out over 50 percent of the new stocks in a year. In addition, the individual or business who want to purchase a business have to present their purchase plan to the court to prove their intention to manage the business.

A related official said, ``the prohibition of the stock sales in a certain period might bring about a controversy about a market principle. However, the measure is to protect the creditors and stockholders from the speculative M&A. If the CRCs guarantee its purpose to revive the insolvent business rather than a speculative investment, they will be encouraged to participate in M&A.``

In addition, the new regulation includes such measures as clarification of the criteria for the buyer and the manager of M&A, setting up a standard fee for the manager, increasing the maximum fee of the manager of M&A up to 300 million won.

10 corporations including Sammi Corporation, Shinhan Steel, and Shinho Steel have got rid of legal management by the M&A and 30 businesses are currently in the process of M&A.

Lee Jung-Eun lightee@donga.com