[Asia Economy Sejong=Reporter Dongwoo Lee] The Fair Trade Commission announced on the 10th that it will impose a fine of 4.079 billion KRW on E-Land Retail and E-Land World for unfairly providing funds and manpower support to E-Land World.
According to the Fair Trade Commission, in December 2016, E-Land Retail paid a deposit to purchase land located in Muan-gun, Jeollanam-do, owned by E-Land World, and a warehouse located in Bupyeong-gu, Incheon, but canceled the contract six months later.
E-Land Retail paid 56 billion KRW as a deposit, which accounted for about 84% of the total price, did not pay any penalty for contract cancellation, and took no action despite the land having a mortgage exceeding the sale price.
This transaction did not go through a board resolution, and it was also unusual internally within E-Land Retail that there was no confirmed intention to acquire the assets.
The Fair Trade Commission viewed that at the time, E-Land World, which was practically unable to take on new loans due to its financial and credit situation, was able to borrow 56 billion KRW interest-free for 181 days through this contract and saved 1.37 billion KRW in interest costs during this period.
E-Land World is an affiliate located at the top of the corporate group E-Land's governance structure. Due to aggressive mergers and acquisitions (M&A) since 2010, liquidity problems arose, and financial conditions worsened further between 2014 and 2017.
E-Land Retail unfairly supported E-Land World not only through real estate but also by transferring brands. In May 2014, E-Land Retail signed a contract to transfer the clothing brand 'SPAO' to E-Land World but deferred the payment of 51.1 billion KRW in installments until June 2017 without charging delayed interest.
The Fair Trade Commission pointed out that E-Land Retail proceeded with this transaction despite knowing that 'SPAO' had future profit-generating potential and that E-Land World had no cash to pay the amount. As a result, E-Land World enjoyed the effect of liquidity supply by deferring payment of up to 51.1 billion KRW and gained an economic benefit of at least 3.5 billion KRW corresponding to interest.
From November 11, 2013, to March 28, 2016, E-Land Retail also paid 185 million KRW in labor costs on behalf of the CEO of E-Land World. Due to such support, E-Land World received a total of approximately 107.1 billion KRW interest-free and avoided the penalty burden from violating the contract of 300 billion KRW worth of redeemable convertible preferred shares (RCPS) issued as the largest shareholder to improve its financial structure.
The fines related to this case are 2.06 billion KRW for E-Land Retail and 2.019 billion KRW for E-Land World.
The Fair Trade Commission stated that this measure is significant as it penalizes illegal acts that maintained market position by using unfair competitive means such as irregular financial support among affiliates to overcome crises caused by reckless business expansion, thereby undermining fair market trading order. It also corrected actions that mobilized affiliate support to maintain the group's ownership and governance structure.
The Fair Trade Commission said, "Through this measure, we hope that a fair trading order will be established in the clothing wholesale and retail market, which people frequently encounter in their daily lives," and added, "We will continue to monitor acts that hinder competition and distort sound trading order in industries closely related to people's lives and strictly handle violations."
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