After many twists and turns, the Corporate Vitality Enhancement Act has been finally enacted. The legislation is aimed at revitalizing Korea’s major industries, such as shipbuilding and steelmaking, which have been suffering from oversupply.

The so-called “one-shot” law is designed to help companies engaged in ailing sectors eliminate excess capacity and improve productivity. Firms will be given regulatory relief and tax breaks, if their restructuring plans win approval from an evaluation committee. 

Slated to take effect in August, the new law is expected to spark a flurry of restructuring activities, as it exempts qualified companies from the complex and cumbersome web of regulations scattered across existing laws.

In particular, mergers and acquisition activities are likely to become more brisk, as the legislation will not only simplify the required procedures but allow new forms of business combination.

For instance, under the new law, a company would be able to push for a merger with another company without approval from its shareholders, if the target company’s market capitalization is less than 20 percent of its own market value. 

Minority shareholders will also see their rights curtailed. A corporation’s shareholders who are opposed to its acquisition by another company will be given only 10 days, as against the current 20 days, to demand that the acquiring firm purchase their shares at a fair price.

The law is also expected to spur corporate governance reforms as it will ease regulations on holding companies.

This bold regulatory relief is expected to inject new vitality into Korea’s major industries. But it could also motivate some unscrupulous entrepreneurs to abuse them in transferring corporate wealth and control rights to their children.

The evaluation committee is intended to address these concerns. The experts from the public and private sectors will have to carefully scrutinize restructuring plans and reject those that are intended to abuse the eased rules.

The government and the ruling party had desperately sought the legislation, asserting that it is essential to rejuvenating Korea’s ailing industries. Now that the bill has been enacted, the new economic team led by Finance Minister Yoo Il-ho should be able to enhance the competitiveness of Korea’s major industries and thereby revitalize the faltering national economy.

The government needs to devise a detailed guideline to determine whether an industry is suffering from excess capacity and oversupply, and whether companies can raise productivity and improve their financial health through restructuring.

Of course, the act alone cannot revive the economy. So the government and the ruling party need to redouble efforts to persuade the main opposition party to pass other economy-related bills.