'Public Interest Whistleblowing' Revealing Large Corporation's Unfair Practices Puts SMEs at a 'Life-or-Death Crossroad'

Although the Fair Trade Commission imposed a 40.8 billion won fine, Lotte Mart's attack led to court receivership

[Asia Economy Reporter Kim Jong-hwa] Although a large corporation, Lotte Mart, was found guilty of unfair abuse of power and fined 40.8 billion KRW by the Fair Trade Commission, the small and medium-sized enterprise (SME) that is the representative of the whistleblowing company is revealed to be on the brink of survival, pushed into court receivership.

From 2012 for three years, Shinwha Co., Ltd., which supplied pork to Lotte Mart, complained to the Korea Fair Trade Mediation Agency about damages such as ▲ being forced to supply pork belly at prices lower than cost for Lotte Mart’s own discount events ▲ price cuts on supply prices ▲ shifting logistics costs, labor costs, promotion costs, trimming costs, and consulting fees to them.

However, Lotte Mart denied these claims and hired a major law firm to take legal action against Shinwha Co., Ltd., resulting in a five-year-long lawsuit. As a result, in November 2015, the Korea Fair Trade Mediation Agency recommended that Lotte Mart pay Shinwha Co., Ltd. 4.8 billion KRW. Lotte Mart rejected this in December of the same year and cut off transactions with Shinwha.

In January of the following year, Shinwha applied for corporate rehabilitation due to worsening management, and the court approved the rehabilitation. In November last year, the Fair Trade Commission imposed a fine of 40.8 billion KRW on Lotte Mart for violating the Large-scale Distribution Business Act, and in December, Lotte Mart filed an administrative lawsuit opposing the fine imposed by the Fair Trade Commission.

Unlike Lotte Mart, which is unaffected by the 40.8 billion KRW fine, Shinwha Co., Ltd. has been devastated by the five-year civil lawsuit against the large corporation. After the transaction with Lotte Mart was cut off, sales plummeted, and the number of employees was reduced to one-tenth. Before the conflict with Lotte Mart, Shinwha was a promising SME achieving annual sales of 68 billion KRW.

Yoon Hyung-cheol, CEO of Shinwha Co., Ltd., said, "We are currently under court receivership, unable to overcome losses of about 17 billion KRW and all kinds of slander, persuasion, and attacks from Lotte Mart, and are at a crossroads between life and death." He added, "Although the Fair Trade Commission uncovered the unfairness of the abusive company, to receive compensation for damages, we have to enter a civil lawsuit that will take more than five years. The record fine imposed on the abusive company will go to the national treasury, but our company stands at the brink of survival without any compensation or financial relief."

Shinwha pointed out the irrationality of the damage compensation system for whistleblowing companies. They filed complaints with the Small and Medium Business Administration and the Promotion Corporation to receive emergency management stabilization funds for SMEs and submitted an appeal to Park Young-sun, Minister of SMEs and Startups, but only received replies stating "It is not allowed by regulations."

They also applied for rehabilitation company loans from the Korea Asset Management Corporation but were denied support because HACCP or venture company certification had expired for more than five years. Regarding this, the company argues, "It has been five years since we responded to the Fair Trade Commission’s results against the large corporation’s legal team and major law firm, and as a whistleblowing company that caused the 40.8 billion KRW fine to be credited to the national treasury, if this is actively interpreted and our contribution recognized, we are fully qualified for loan support."

CEO Yoon said, "From the perspective of a victim company of abuse, various support systems only look like a beautiful but sour fruit," and added, "The honor of being a whistleblowing company is a glory with wounds." He appealed, "A social environment must be established as soon as possible where excessive defensive rights exercised by abusive large corporations, cleverly exploiting legal weaknesses to delay, or habitual practices backed by former officials and major law firms’ enormous power do not occur."