Opposition GNP Accepts Class Action Lawsuit System

The majority opposition Grand National Party (GNP) agreed on the introduction of a securities-related class action lawsuit system on the condition that the government comes up with measures to deter abuses of the system.

“A deliberation process on the securities-related class action lawsuit will begin at an earlier date and present a revision to the proposed bill at the National Assembly next week,” Chairman of the GNP 2nd Policy Coordination Committee said on April 18 after a meeting with GNP lawmakers on the parliamentary judiciary committee. “It is appropriate that measures to crack down on stock price manipulation and false disclosure should be implemented right away. However, with regard to the measure of eliminating window-dressing practices by companies, we are considering a one or two year grace period before its implementation.”

As a result of the GNP’s sudden turnaround, the pace of deliberations on the bill seems to be gaining new momentum. The GNP initially expressed its opposition to the introduction of the class action suit system by citing that it is premature to adopt such a system.

The GNP is now working on its revision bill in which all listed firms in Korea be subject to a class action lawsuit filed by investors to ensure the fairness of the system.

In the government-proposed bill, in case of window-dressing and false disclosure, only companies with 2 trillion won in total assets are subject to class action lawsuits.

To deter reckless abuse of the system, the GNP is planning to propose that before filing a class action suit with the courts, violators should go through a dispute arbitration committee with the finance supervisory authority’s participation. In addition, as tools to prevent class action lawsuits filed with malicious intents, a security deposit system should be adopted to compensate damages for wrongly accused companies.

GNP lawmakers added on requirements to file a class action suit that in the government version of the bill, the plaintiff should be composed of more than 50 shareholders. However, a requirement that shareholders should have a certain amount of stocks will be added to a revision bill. Requirements for false disclosure are somewhat vague in the government version bill, so the GNP is planning to come up with clear guidelines to deal with the issue.

Yeon-Wook Jung jyw11@donga.com