(1) No domestic member company of a business group subject to limitations on cross shareholding shall secure any shareholding in an affiliate (limited to any shareholding in a domestic affiliate; hereinafter the same shall apply) to form a circular shareholding; and no domestic affiliate in a circular shareholding relationship among the member companies of a business group subject to limitations on cross shareholding shall secure any additional shareholding in an issuing company (among shares that a company having a shareholding in an affiliate has acquired or owned by allotment of new shares under Article 418(1) of the Commercial Act or by stock dividends under Article 462-2(1) (hereinafter referred to as "new share allotment, etc."), shares within its equity ratio prior to new share allotment, etc. and any shareholding in an affiliate following a merger between domestic member affiliates of a group of circular shareholding companies shall be excluded); provided, this shall not apply in any of the following cases:
1. A company’s merger or division, an all-inclusive share exchange or transfer, or acquisition by transfer of the entire business;
2. Exercise of security rights or the receipt of an accord and satisfaction;
3. Where a company having a shareholding in an affiliate has acquired or owned shares by new share allotment, etc., some of which are shares of an issuing company, acquired or owned in excess of its equity ratio prior to new share allotment, etc. due to share forfeiture of another shareholder, etc. or any other similar reason;
4. With regard to a company which has commenced administrative proceedings for a company showing signs of insolvency pursuant to Article 8(1) of the Corporate Restructuring Promotion Act, where a council of financial creditors has determined, by resolution under Article 24(2) of that Act, property contribution by the same person (including his or her relatives) or participation in a capital increase by issuing new shares (including a debt-equity swap for the relevant claims) by a company having a shareholding in an affiliate that is a shareholder of the relevant company showing signs of insolvency;
5. Where a financial creditor defined in subparagraph 2 of Article 2 of the Corporate Restructuring Promotion Act has concluded an agreement on the implementation of a work-out plan with a company showing signs of insolvency defined in subparagraph 7 of Article 2 of that Act, and a council of financial creditors has determined, by resolution, property contribution by the same person (including his or her relatives) or participation in a capital increase by issuing new shares (including a debt-equity swap for the relevant claims) by a company having a shareholding in an affiliate that is a shareholder of the relevant company showing signs of insolvency.
(2) A company that has secured a shareholding in an affiliate pursuant to the proviso, with the exception of the subparagraphs, of paragraph (1) shall dispose of the relevant shares (referring to the shares acquired or owned in excess of its equity ratio prior to a decision on new share allotment, etc., or on property contribution or capital increase by issuing new shares, in the case of paragraph (1)3 through 5) acquired or owned within the period specified in the following; provided, this shall not apply where the circular shareholding formed or reinforced through a shareholding in an affiliate under paragraph (1) is eliminated as one of the other member companies of a group of circular shareholding companies disposes of shares it has acquired or owned in an issuing company:
1. A company that has secured a shareholding in an affiliate pursuant to paragraph (1)1 or 2: Six months from the date of acquisition or ownership of the relevant shares;
2. A company that has secured a shareholding in an affiliate pursuant to paragraph (1)3: One year from the date of acquisition or ownership of the relevant shares;
3. A company that has secured a shareholding in an affiliate pursuant to paragraph (1)4 or 5: Three years from the date of acquisition or ownership of the relevant shares.