Corporate Law Issues Research Articles

Impact of International Trade Agreements on Corporate Law

International Trade Agreements (ITAs) have a significant impact on corporate law. ITAs typically include provisions that affect a wide range of corporate law issues, such as reducing or eliminating tariffs and other trade barriers making it easier for corporations to export their goods and services to foreign markets, other provisions might protect foreign investment and promote investment flows between countries making it more attractive for corporations to invest in foreign markets. Some ITAs protect intellectual property rights, such as trademarks, copyrights, and patents that is important for corporations that rely on intellectual property to protect their products and services and ITAs also promote competition and prohibit anti-competitive practices which help ensuring that corporations compete fairly in the global marketplace. In addition, ITAs can also have a broader impact, for instance, ITAs can promote the adoption of common legal standards and practices, making it easier for corporations to do business in different countries. For Example, The North American Free Trade Agreement (NAFTA) includes provisions that made it easier for corporations to move goods and services between the United States, Canada, and Mexico leading to increased investment flows between these countries. The World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) has helped to strengthen the protection of intellectual property rights around the world which benefited corporations that rely on intellectual property to protect their products and services. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) includes provisions that promote competition and prohibit anti-competitive practices in the Asia-Pacific region ensuring that corporations are competing fairly in the market. Overall, this Research Paper summarises how ITAs have a significant impact on corporate law and Corporations involved in international trade should be aware of the provisions of the relevant ITAs and how these provisions may affect their business.

Management Succession in Korea: Tunneling, Semi-Tunneling, and the Reaction of Corporate Law

Recently in Korea, certain issues of corporate law became the subjects of fierce political debates unlike many other jurisdictions where corporate law issues generally remain in the exclusive realm of professionals and academics. This Article begins with the question of why corporate law issues attracted so much political attention in Korea and whether such political attention actually helped improve the corporate law. In pursuing the answers to such questions, this Article identifies a recurring pattern: (i) there are strict rules against seeking private benefits; (ii) managers and controlling shareholders often come up with various clever measures to circumvent such rules; (iii) courts often fail to regulate such circumventing measures because of their conservative and formalistic approach to corporate law; (iv) such passivity of the judiciary leads to many proposals for new statutes in the legislature; (v) because of the complicated sentiments and interests entangled with the chaebols, discussions for statutory amendments often become politicized and lead to suboptimal results; and (vi) the stricter new rules prompt another round of circumvention. This pattern of “rules — circumvention — passive judiciary — stricter statutory rules — further circumvention” is most salient when the controlling shareholders attempt to implement “management succession” (i.e., transferring ownership and managerial power to the descendants of the controlling family). This Article analyzes a few measures widely used in Korea for management succession: issuing stock at a low price, selling treasury stock at a low price, “funneling” of business, “tolling,” and conducting horizontal spin-offs. While some of these measures fall under the typical category of tunneling, some are dubious. By tracking the chain of actions (by the corporations and the controlling family members) and reactions (by the government, including the executive, judiciary, and legislative branches) along the line of the foregoing pattern, this Article shows the importance of the judiciary’s role in corporate law and the limitation of the political lawmaking process in corporate law. The stories involving management succession in Korea also show that the rules, being vulnerable to circumvention, cannot effectively address the corporate governance problems without the concurrent application of the standards.

Asset Protection-State Guarantee Schemes in Systemic European Non-Performing Loans Securitisations: Contractual Structure, State Aid and Bank Corporate Law Issues

In the prolonged battle against european non-performing loans (NPLs) and systemic risk, Authorities have ultimately devised and made available to the affected credit institutions an additional resolution tool. Securitisation schemes, backed by a limited State guarantee, only for the senior tranche part under detailed conditions, have been legislated almost identically in Italy and Greece. Those “Asset Protection Schemes” are viewed as laboratory cases for a model co-investment (private-public) strategy, with the ambition to transform the EU banking environment and correct national NPL markets failures. The Article, originating from the distinctive implications of impaired loan portfolios’ securitisations, focuses on the contractual architecture of the Schemes and the roles of major contracting parties (originating credit institution, Issuer, Noteholders, Servicer, State, Rating Agency etc.). Funding of the portfolio acquisition is discussed from both legal and financial perspectives, revealing the important differences of securities tranches (senior, mezzanine, junior notes), their economic function and appeal to investors. Designated State involvement is depicted with emphasis on the legal nature and conditions of the offered “first-demand” guarantee, including its relevant remuneration. From the EU state-aid perspective, Schemes are assessed as aid-free measures, consistent with potential private operators’ commercial activity under normal market conditions. Such a conclusion is drawn after appraisal of model securitisation’s voluntary nature, risk allocation structure, a model-based approach for the calculation of State guarantee fee (factoring appropriate risk premia with adjusted benchmarking), and additional mechanisms to control and mitigate State’s risk. Implementation of Schemes is advocated, on the condition that bank executives and board members comply with detailed organizational and procedural requirements of EU banking regulation, to ensure prudent risk management and financial stability. Competence of the Board and pursuit of corporate best interests are being challenged in cases of largest NPL securitisations, involving substantial bank assets which may provoke ample one-off accounting losses or even risk-weighted capital depletion. Sound business judgment is associated with an objective evaluation of existing NPL resolution alternative options, careful measurement of medium-to-long-term benefits of the cornerstone securitisation transaction along with its imminent consequences, risks, and inherently limited accessibility of the State guarantee regime. Due fulfillment of bank directors and executives’ obligations extends to the application of a coherent methodology in the preparation, structuring and execution of securitisations. They should apply a transparent and efficient investor-selection procedure, and employ internal resources and specialist financial and legal advisors to obtain expert advice on best calibration of securitisation particulars, fair and reasonable terms of the transaction, and to maximize total divestment proceeds. Legal agreements and related capital implications should be carefully and timely consulted with the Authorities, to ensure securitisation significant risk transfer recognition and avoid its potential adverse unwinding. Overall, transaction losses must prove proportionate to the deleverage benefits for the credit institution itself and the enhancement of financial stability. In those respects, the Article contributes to the evaluation of such newly established EU public policy measure for NPL resolution, particularly from the involved bank corporate and market participants’ perspective, along with its technical roadmap for due implementation.

A Rule-based Comparison and Analysis of Ten Case Studies

Drawing on data derived from ten hypothetical case studies, we adopt a rule-based comparative evaluation of the company laws of twelve different jurisdictions. The ten case studies examine topics relating to directors’ duties and liabilities generally and in the context of takeovers, the protection of creditors, including the relationship between creditors and a company, and the law governing shares, shareholders’ rights and protection and the flexibility of company law. Each of the corporate law issues raised by the ten case studies are addressed by national reporters appointed in respect of the US (Delaware), UK, Germany, France, the Netherlands, Italy, Spain, Poland, Finland, Latvia, South Africa and Japan. This paper compares and contrasts the formal company law rules recognised by each of these twelve countries as applicable in respect of the ten case studies, as well as the effects and consequences of the application of those rules. The value in the comparative assessment of the form and function of the relevant company law rules in each of the twelve jurisdictions under review lies in the additional light they can cast on four of the most enduring debates in comparative company law. These concern the propositions that: (i) the pressures exerted by the increased pace of globalisation, international competition, interest groups, and imitation will inevitably lead to the convergence of company law rules (in terms of form or function) across all jurisdictions in the world, and in particular, assimilation to the US model of corporate law and governance (“the convergence proposition”); (ii) the patterns and structures of shareholder ownership (dispersed/outsider v concentrated/insider) of public joint stock companies in a country's main stock exchange will influence the nature and strength of the shareholder protection rules applicable in that country (“the patterns of share ownership proposition”); (iii) countries have a preference for a shareholder primacy model of corporate governance over that of a stakeholder or director primacy framework (“shareholder primacy proposition”); and (iv) the civilian legal origin of a country will influence its company law rules to such an extent that it will be inferior to a country that has its origins in the common law with regard to the level of (a) investor protection, (b) financial development, (c) access to finance, (d) government ownership and regulation, (e) security of property rights and (f) contract enforcement (“the legal origins proposition”). The authors seek to demonstrate what a careful analysis of the form and function of each of the legal rules operative in the twelve jurisdictions can reveal about the strength of each of these propositions. The conclusions are drawn that there is a lack of evidence for the legal origins, patterns of share ownership, and convergence propositions, but some available for the shareholder primacy one. The broader economic and legal policy implications of these findings are subsequently examined and conclusions drawn.

When Competition is the Last Concern: The Battle for the Control of ENDESA

Competition law and regulation had played a prominent role in theprocess of construction and liberalization of the internal energy market in the EU. Several transactions in the last decade have shown the difficulties of the process and how Member States may occasionally make a political use of merger review rules and of regulation to benefit domestic firms. This chapter describes in all its complexity the ENDESA takeover contest (2005-2007). This case is a unique example of the mixture of legal issues that may be involved in takeovers requiring competition and regulatory approval. Several lessons can be learnt from the case, not only for the history of Spanish and European competition law (especially regarding merger review). Other relevant industrial policy, regulation and corporate law issues were also raised by this landmark case, though the case is mainly illustrative of how politics, at the end, may affect or shape the final outcome in some business transactions.

Corporate Entities and WTO Law

WTO panels have not been called upon to resolve overly complex corporate law issues to date. However, the range of legal and economic relationships among corporate entities, and the varied situations in which such relationships may be relevant to the rights and obligations of Members under the WTO Agreements, suggest that such issues may one day arise squarely for consideration in WTO dispute settlement. This paper consists of a survey of selected WTO Agreements and jurisprudence examining the extent to which WTO law (i) gives effect to the existence of a corporate entity as a legal person that is separate from its owners; and (ii) takes into account the economic links that may exist between corporate entities which are related through various forms of ownership or control. We begin with a consideration of disputes involving Members' obligations under the GATT 1994, before turning to disputes involving obligations under the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 and the Agreement on Subsidies and Countervailing Measures. Although these Agreements are generally not concerned with the legal identity of the producer of goods or the form of business organization or corporate structure of private parties involved in trade in goods, panels and the Appellate Body appear to have interpreted these Agreements in a manner that is sensitive to the economic realities of links of ownership and control among corporate entities, particularly where this is seen as necessary to prevent circumvention of Members' obligations. The final part of the paper considers the nature of Members' rights and obligations under the GATS as they apply to service suppliers that are corporate entities. In particular, we examine the rules for allocating service suppliers that are corporate entities to particular Members for purposes of the GATS.

EC Company Law Directives and Regulations: How Trivial are They?

What role does EC legislation in the corporate law area play within the EU? How much does it shape Member States' corporate laws? And how relevant is it for the corporate governance of EU companies and their management? At first sight, the EC appears to have played and to be playing a central role in shaping EC corporate law, with the high number of directives and regulations covering a wide range of corporate law issues. One might then think that EC institutions have a strong influence upon Member States' corporate laws, whether because they have intervened in the area or because they may do so. Quite to the opposite, EC company law directives and regulations appear to have had thus far very little impact on national company laws and, more to the point, on EU businesses' governance and management. First, EC corporate law does not cover core corporate law areas such as e.g. fiduciary duties and shareholder remedies. Second, EC corporate law rules are underenforced. Third, in the presence of very sporadic judiciary interpretation by the European Court of Justice, EC corporate law tends to be implemented and construed differently in each Member State, i.e. according to local legal culture and consistently with prior corporate law provisions. Fourth, when it has introduced new rules, it has done so with respect to issues on which Member States would have most probably legislated even in the absence of an EC mandate. Last but not least, most EC corporate law rules can be categorized as optional, market mimicking, unimportant or avoidable. To the contrary, national corporate laws contain core corporate law rules, which do have an impact upon EU companies' governance and management. There are, of course, due qualifications to the triviality thesis. First of all, a few rules or sets of rules indeed have had or are bound to have a meaningful impact upon companies and their operations. Second, EC corporate law has increased the regulatory burden of corporate laws across the EU, correspondingly securing higher rents for certain interest groups. Third, secondary EC corporate law has had and will continue to have an impact on the evolution of European corporate laws and the dynamics of regulatory competition. Finally, its production has become an industry itself, employing many EC and national functionaires and lobbyists, and creating occasions for rent extraction by politicians.

Corporate Anatomy Lessons

The book that will lay the groundwork for the corporate law debates of the coming decade is The Anatomy of Corporate Law. Written by seven of the world's leading corporate law scholars - Henry Hansmann, Reinier Kraakman and Ed Rock of the U.S.; Paul Davies of England; Gerard Hertig of Switzerland; Klaus Hopt of Germany; and Hideki Kanda of Japan - The Anatomy of Corporate Law attempts to identify the underlying structure of corporate law, and to provide a framework for understanding the wide range of approaches that different countries take to corporate law regulation. It is hard to overstate the significance - and the success - of this project. Traditional comparative law scholarship tended to explore the differences among jurisdictions in intricate detail. The authors of The Anatomy of Corporate Law insist that these local variations are only that - variations on a single, common theme. Throughout the book, they take a functional approach, an approach that emphasizes the extent to which countries that seem to have very different legal rules nevertheless tend to develop roughly similar solutions to the characteristic problems of corporate law. The central issue for corporate law in every jurisdiction, they argue, is three kinds of agency problem: the potential conflicts between managers and shareholders, between majority and minority shareholders, and between the firm and third parties. To understand how different countries address these conflicts, the authors develop a typology of ten different strategies. The authors divide the strategies into two categories, which they refer to as "regulatory" and "governance" approaches, and then distinguish strategies that operate ex ante from those that come into play ex post. Having developed their typology, the authors then apply it to related party transactions, control transactions, investor protection and a variety of other key corporate law issues. The great virtue of The Anatomy of Corporate Law is that its typology of strategies provides a simple, user-friendly way to compare the corporate law regimes of a wide range of different countries. Almost as remarkable as the typology itself - especially given that the book is the work of seven different scholars - is the clarity and elegance of the analysis. The authors develop and apply their typology in less than two hundred pages, a succinctness that would fill the editors of that other anatomical guide, Gray's Anatomy, with envy. To say so much in so brief a compass, the authors obviously had to exercise ruthless editorial judgment as what to include and what to omit. After describing the authors' typology and exploring several of their applications, I focus on several issues and perspectives that the authors left out. The most important omission is the bankruptcy or insolvency regime. In recent years, it has become increasingly apparent that bankruptcy - or corporate reorganization - is best seen as a component of corporate law; and indeed that it is impossible to understand other corporate law issues without appreciating the role that bankruptcy plays in shaping the incentives of managers and other constituencies even while the corporation is financially healthy. Second, the authors also omit any sustained discussion of corporate groups - that is, the parent-subsidiary arrangements that characterize nearly every large corporation. Although the authors refer to the extensive regulations of corporate groups in Germany and elsewhere, they have little to say about these regulations and do not offer any analysis of the factors that influence a company's decision whether to set up a new business as a division within an existing corporation, or to locate the business in a separate corporation. Finally, the authors do not consider the distinctive challenges of corporate governance in developing countries. Although the authors suggest that the ten-part typology is relevant to any country, their analysis focuses on five notably developed jurisdictions - the U.S., the U.K., Germany, France and Japan. In the developing nations whose corporate law has been a particular concern in recent years, by contrast, it is important to move beyond the typology in order to account for problems such as limited judicial enforcement. My analysis can be seen as a proposing several friendly amendments to the authors' analysis. The additions suggest ways that the anatomy could be made even more complete.