Class Action Suit System to be Introduced in July 2004

All of the listed companies with more than 2 trillion won in their assets will be subject to class action suit by minority shareholders starting from July 2004 if unlawful activities such as fraudulent accounting or manipulating stock prices are discovered. In addition, the system will apply to the companies whose assets are less than 2 trillion won from July 2005.

The Judiciary Committee of the National Assembly held a meeting on July 23 and passed the bill on class-action lawsuit against securities-related cases by bipartisan consent. The ruling Millennium Democratic Party (MDP) and the opposition Grand National Party (GNP) are expected to review and pass the bill during the special session in August. Therefore, the class action suit submitted by the previous government in December 2001 will be finally passed after 20 months.

The bill covers unlawful activities including falsified disclosure, window-dressing, manipulated stock prices, and fraudulent auditing.

According to the bill, however, the lawsuit filing will be allowed only to a group of at least 50 people with their shares accounting for 0.0001 percent of the defendant company`s total stocks or stocks worth 100 million won in market capitalization, in an attempt to prevent reckless class action suits,

Along with this, those who worked as representatives or agents of more than three class action suits for the recent three years are excluded from the representatives chosen by the court. They could be sentenced to life imprisonment if found guilty of having being involved in scandals and bribery

Moreover, when the court permits a lawsuit, representatives can start an investigation and ask a financial supervisory institution for information. If the court does not permit, they can lodge an immediate appeal.

Nevertheless, the plans by the GNP, which includes an investigation of a watchdog before the court permission and the collateral of plaintiffs before the lawsuits, were not adopted due to possible controversies over double regulation and restriction on rights to file a lawsuit.

“The bill was passed by mutual consent between the two parties. So it will be finally decided through meetings of the Judiciary Committee in August,” said Kim Sung-sik, a GNP official.

Both parties had pledged to introduce securities-related class action suit during the presidential election campaign last year. The ruling MDP insisted on immediate implementation whereas the GNP argued that it should be introduced after 1-2 years because a plan to curb reckless lawsuits should come first.

Min-Hyuk Park mhpark@donga.com