South Korea's legal market will be undergoing rapid change as it opens up to the international legal market. The ratification of the Korea-EU free trade agreement (FTA) means that European law firms are now able to establish Korean on-shore offices as of July 1 2011....
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South Korea's legal market will be undergoing rapid change as it opens up to the international legal market. The ratification of the Korea-EU free trade agreement (FTA) means that European law firms are now able to establish Korean on-shore offices as of July 1 2011.
The market opening will take place in three tiers: first, European law offices will be able to open on-shore offices that only advise on foreign law matters. In July 2013, foreign firms will be able to forge alliances with local firms. By July 2016, foreign firms will be able to hire Korean lawyers and merge with domestic firms.
European law firms are jumping at the chance to expand into Asia's fourth-largest economy. Clifford Chance is reportedly planning to open a South Korean office by the end of 2011. Large domestic firms, however, are not concerned. "I don't think any international firm will be able to match Kim & Chang's domestic abilities. Firms are more concerned about holding onto their senior foreign partners," a lawyer said.
American law firms with well-regarded Korea practices, such as Paul Hastings and Cleary Gottlieb, are anxious about European firms' new competitive advantage. The ratification of the Korea-US FTA, signed in 2007, would represent America's first with an Asian country.
American reluctance to ratify the Korea-US free trade agreement could heavily impact American firms. Companies would be less inclined to pay high 'fly-in, fly-out' rates for their partners if European firms are located on the ground. A practitioner notes, "American firms with Korean practices could start losing clients to European firms if the Korea-US free trade agreement is not ratified by the end of the year."
In the meantime, domestic firms are adding value by expanding their global reach. Yulchon opened an office in China this May, while Shin & Kim was the first South Korean firm to enter the Latin American market. Likewise, Jipyong & Jisung has offices in Laos, Cambodia, and Vietnam.
South Korean law firms can also expect to be busy in the restructuring and insolvency area, with the destabilisation of the construction sector because of maturation of project finance loans extended before the 2008 financial crisis. Savings banks are pushing for loan repayments, and five construction firms have entered receivership since December 2010. With companies holding a total of W25 trillion ($22.96 billion) in maturing project finance loans, firms expect more restructuring proceedings in the construction sector.
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The slowing South Korean mergers and acquisitions landscape is a concern to the country's financial institutions. This year saw several legislative changes aiming to facilitate transactions....
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The slowing South Korean mergers and acquisitions landscape is a concern to the country's financial institutions. This year saw several legislative changes aiming to facilitate transactions. However, as a partner at one prominent firm notes, "there are many M&A deals beginning, but their success rates are much lower than before".
According to the Korean Fair Trade Commission's (KFTC) 2011 report, 499 M&A reports were filed in 2010 from an all-time high of 857 in 2007. The only good news is that the number of M&A transactions has increased from its nadir of 413 in 2009.
Though these numbers may be skewed by changes in reporting requirements, it is of great concern that the lowest M&A rates are in the construction and manufacturing industries.
Korean financial institutions have made efforts to assist M&A transactions, most notably in March's revision of the Korean Commercial Code (KCC). The new KCC includes provisions for both 'squeeze-out' and 'cash-out' acquisitions. In 'squeeze-out' transactions, a controlling shareholder that owns 95% of a company can require the remaining 5% to sell their shares at a fair price.
One lawyer notes that the 'cash-out' transaction "is a good alternative to the squeeze-out acquisition". The buying company is now able to purchase all the shares of the acquired company in cash, ensuring that its shareholders have no control over the new organisation.
The introduction of special purpose acquisition companies (Spacs) in late 2010 has also helped M&A transactions. After Daeshin Securities Spac's successful acquisition of Ssuntel, the amount of Spacs mushroomed to about 20. Their presence will hopefully prop up South Korea's M&A market.
In an effort to spur competition, the KFTC also ramped up its fight against cartels, which it regards as a "grave offence that may undermine the backbone of market economic order" .It is actively pursuing several high-profile competition cases with enormous fines attached. The KFTC issued a $600 million fine, the highest ever fine for domestic cartels, against six domestic liquid petroleum gas suppliers for alleged price collusion over six years.
A practitioner notes: "The KFTC's commitment to disbanding and punishing cartels in the last year signals an increase in competition cases. Korean firms should be increasing their regulatory and competition abilities to prepare for more work involving both domestic and international cartels."
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