Seoul Court Acquits Executive of Breach of Duty in Entertainment M&A Case
A recent ruling by the Seoul Southern District Court has drawn attention for acquitting an executive of an entertainment company from charges of breach of duty related to a merger and acquisition (M&A). The executive was accused of neglecting to conduct an external valuation by an accounting firm or perform due diligence when acquiring an entertainment company in which their spouse was a major shareholder. Additionally, the executive failed to follow conflict of interest avoidance procedures for transactions involving related parties. Although the prosecution charged the executive with breach of duty, the court ruled that it was a decision made out of business necessity and that there was insufficient evidence to prove objective damage, leading to a not guilty verdict.
This ruling has reignited discussions about what actions by corporate management qualify as criminal breach of duty. In the M&A process, how should a purchasing companys value be determined and documented to mitigate the risk of breach of duty? If a transaction has been approved by the CEO or board of directors, can it be considered free from criminal scrutiny?
Moreover, if a major shareholder approves a transaction, does that eliminate the legality issues surrounding the M&A? If the transaction is ultimately considered a successful M&A, can any procedural illegality be overlooked without penalty? These questions are continuously raised in corporate M&A environments and highlight the complex issues at the intersection of corporate governance and criminal law in South Korea.
Current criminal law defines breach of duty as the act of someone handling anothers affairs who, in violation of their duties, gains a financial advantage or allows a third party to gain such an advantage, causing harm to the principal. The challenges arise from the ambiguity surrounding critical concepts such as anothers affairs, violation of duty, and harm, which complicate how judges and investigative agencies interpret and apply the law.
This ruling has reignited discussions about what actions by corporate management qualify as criminal breach of duty. In the M&A process, how should a purchasing companys value be determined and documented to mitigate the risk of breach of duty? If a transaction has been approved by the CEO or board of directors, can it be considered free from criminal scrutiny?
Moreover, if a major shareholder approves a transaction, does that eliminate the legality issues surrounding the M&A? If the transaction is ultimately considered a successful M&A, can any procedural illegality be overlooked without penalty? These questions are continuously raised in corporate M&A environments and highlight the complex issues at the intersection of corporate governance and criminal law in South Korea.
Current criminal law defines breach of duty as the act of someone handling anothers affairs who, in violation of their duties, gains a financial advantage or allows a third party to gain such an advantage, causing harm to the principal. The challenges arise from the ambiguity surrounding critical concepts such as anothers affairs, violation of duty, and harm, which complicate how judges and investigative agencies interpret and apply the law.
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