[Exclusive] "Declare Hwacheon Daeyu Excessive Dividend Invalid"... First Hearing on Hwacheon Daeyu Excessive Dividend Invalidity Lawsuit on the 21st of Next Month

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyung-min] The first trial of a lawsuit filed by Seongnam citizens claiming that the dividend resolution of the special purpose company (SPC) ‘Seongnam Eutteul,’ which brought astronomical profits to Hwacheon Daeyu Asset Management (Hwacheon Daeyu), is invalid, will begin next month.

According to the legal community on the 30th, the 1st Civil Division of the Suwon District Court Seongnam Branch will hold the first hearing of the lawsuit filed by Seongnam citizens against ‘Seongnam Eutteul’ to confirm the invalidity of the dividend resolution on the 21st of next month. This lawsuit was filed on September 20 by nine Seongnam citizens, including Mr. Kim. Attorney Lee Hoseon, who is representing them legally, argues that the profit distribution structure and method carried out through the shareholders’ meeting of ‘Seongnam Eutteul,’ the developer selected for the Daejang-dong development project, "violate mandatory provisions under the Commercial Act and are therefore invalid." The attorney emphasized, in particular, that "Seongnam Urban Development Corporation could have received more dividends than Hwacheon Daeyu, but deliberately did not take such measures, which strongly suggests breach of fiduciary duty and constitutes a shareholder agreement against public order, thus invalid."

According to the prosecution and courts, at that time, the shareholders of Seongnam Eutteul were divided into preferred shares (4,650,050,000 KRW) and common shares (349,995,000 KRW). Seongnam Urban Development Corporation held 53.76% of the preferred shares, while SK Securities (85.72%) and Hwacheon Daeyu (14.28%) held the common shares. In total shareholding, SK Securities and Hwacheon Daeyu accounted for 7%. Over three years, Seongnam Urban Development Corporation received 182.2 billion KRW in dividends, whereas SK Securities and Hwacheon Daeyu received 404 billion KRW. Experts suspect that "Hwacheon Daeyu and others exploited the fact that preferred shares usually have no voting rights despite receiving a higher dividend ratio, exercising voting rights at the shareholders’ meeting to secure large profits."

The attorney stated, "If the court accepts the plaintiffs’ claims, Hwacheon Daeyu and its related parties will have to return all the dividends they received as unjust enrichment." The recent atmosphere, influenced by the prosecution’s investigation, is favorable to the Seongnam citizens. The prosecution has arrested and indicted Hwacheon Daeyu’s major shareholder Kim Man-bae and others, specifying charges of breach of trust. The court is expected to consider these prosecution investigation details when deciding whether to accept the request to confirm the invalidity of the dividend resolution. The Seongnam citizens who filed this lawsuit lost the first trial of a lawsuit to confirm non-existence of debt demanding the return of unjust profits taken by Seongnam Eutteul in September.