A Study on Leverage Buyout and Business Judgment Rule

Abstract

Since the Supreme Court's conviction on collateral type Leveraged Buy-Out in 2010, There has been much debate about criminal sanctions over borrowing. LBO, a financial method of borrowing money from outside, has two aspects. One is to increase the efficiency of the target company's operation, and the other is that the buyer does not bear the risk arising from M&A process because the acquisition fund of the company's acquirer is transferred to the target company. In response, LBO is a simple financial technique that raises acquisition funds, and it is argued that it is not desirable to impose criminal sanctions to ensure management's creative activities because the risks arising in the process are general risks accompanying corporate activities. However, the core of criminal punishment for LBO is not the illegality of financial techniques that acquire and merge companies with other people's capital, but that it cannot be allowed to transfer loan to Target company in the M&A process. On the other hand, it is not reasonable to apply the crime of breach based on the trust relationship between the modern monarch and the lord to today's management activities. In addition, it is difficult to function as an entrepreneur's norm because the constituent requirements of the crime of breach are unclear. And management is bound to be very adventurous, but it is not reasonable to punish it criminally. However, while the crime of breach is applied to individual transactions, it is not equal to deny the crime of breach only for management activities. Breach is an efficient means in that it requires minimum ethics and order in company management. In addition, there is no reason to deny the application of breach of trust to LBO, considering that standards have been established to limit the constitutional requirements for breach of trust. The precedent also takes the position that whether or not LBO is guilty of breach of trust should be judged individually depending on whether the act meets the constituent requirements of breach of trust in the M&A process. However, in the judgment of LBO's breach of trust, the punishment is determined based on whether the company is damaged or not without a specific judgment on the violation of duty of care by management or intention. In other words, breach of trust is judged based on whether profits to offset losses are provided to the target company. There is a risk that this will not be interpreted as a crime without damage to the company. Therefore, it is desirable to judge the punishment for LBO in detail in connection with the constituent requirements of the crime of breach.