[Asia Economy Reporter Kim Hyewon] Hyosung Group is in the process of changing the head of the group who effectively controls the company from Honorary Chairman Jo Seok-rae to Chairman Jo Hyun-joon.
According to the government on the 1st, Hyosung Group recently submitted an application to the Fair Trade Commission (FTC) to change the designated individual (head of the group). This is because Honorary Chairman Jo finds it difficult to continue his role as the designated individual due to health reasons.
The designated individual is the actual controller of the company and bears all responsibilities related to the designation of the group and related data. Depending on who the FTC designates as the designated individual, the companies subject to sanctions for unfair profit extraction by special related parties and the head of the group’s family may change.
As of the end of September last year, Hyosung Group’s eldest son, Chairman Jo Hyun-joon, holds 21.94% of the holding company’s shares, and the third son, Vice Chairman Jo Hyun-sang, holds 21.42%. Hyosung Group reportedly submitted a hospital diagnosis report of Honorary Chairman Jo, citing his health condition as the reason for the change of the designated individual. It is also reported that documents were submitted indicating that some of Honorary Chairman Jo’s voting rights on shares (9.43%) would be delegated to Chairman Jo.
The FTC determines the designated individual based on whether the person exercises control. Even if the ownership stake is small, if the influence on management activities is significant, that person can be designated as the designated individual.
Honorary Chairman Jo was sentenced to three years in prison in the second trial for evading taxes amounting to about 130 billion KRW, but was not detained in court considering his health condition. In December last year, the Supreme Court acquitted him of some charges of corporate tax evasion but upheld charges of illegal dividend distribution, and sent the case back to the Seoul High Court.
Honorary Chairman Jo’s health condition is not only a factor considered by the FTC in deciding whether to change the designated individual but may also affect the execution of his sentence in the future. According to the Criminal Procedure Act, execution of a sentence can be suspended if there is concern that imprisonment would harm the prisoner’s health or threaten their life.
Because of these circumstances, it is known that there are considerable differences of opinion within the FTC about whether to accept the change application.
Hyosung’s side stated, "Honorary Chairman Jo is 85 years old this year and is in very poor health due to a recurrence of gallbladder cancer, a chronic illness. The actual management rights have been exercised by Chairman Jo, who took office in 2017, and we believe it is reasonable to change the designated individual to reflect the actual management."
Hyundai Motor Company is also reported to have submitted materials to the FTC requesting to change the next designated individual from Honorary Chairman Chung Mong-koo to Chairman Chung Eui-sun.
The FTC is currently reviewing internally and plans to designate and announce the heads of large business groups on May 1.
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