[Asia Economy Reporter Park So-yeon] Align Partners Asset Management stated that SM Entertainment (hereinafter SM) should stop paying royalties according to the settlement agreement even after the early termination of the contract with Like Planning, the personal company of major shareholder Lee Soo-man.
On the 9th, Align disclosed the original text of the illegal act maintenance claim it filed with the SM board of directors on the 18th of last month.
The illegal act maintenance claim is a right for minority shareholders to request directors to stop violations when directors' actions violate laws or articles of incorporation and may cause irreparable damage to the company. It can be filed with the court or directly in writing to the directors.
According to the claim text disclosed by Align that day, SM terminated the producing license contract with Like Planning early on December 31 of last year, but according to 'Producing License Contract Appendix 2' (agreement on settlement after contract termination), it must continue to pay royalties to Mr. Lee.
Align stated, "Mr. Lee is effectively receiving a 6% royalty on revenue from previously released albums and music without any obligation for services, until 2092, and will also receive a 3% royalty on management revenue until the end of 2025."
They added, "If the post-settlement agreement is carried out as is, it is estimated that over 40 billion KRW will be paid in royalties in the first three years, and over 50 billion KRW in the next ten years."
They also said, "The Seoul Regional Tax Office conducted two tax audits on the Like Planning service contract and the Like Planning producing license contract and imposed hundreds of billions of KRW in additional taxes. Although the Like Planning contract has ended, the post-settlement agreement remains valid."
Align pointed out that the SM board’s execution of the post-settlement agreement could constitute unfair support to a related party under the Fair Trade Act, breach of duty of trust in business, and violate directors’ duty of care (the obligation to act in the company’s best interest).
Align said, "We decided to disclose the original claim text so that all SM shareholders can be informed of this minority shareholder rights exercise," and added, "If necessary, we are considering further disclosure related to additional minority shareholder rights exercises."
Previously, Align had taken shareholder action claiming that Like Planning, Lee’s personal company, signed a producing contract with SM and received hundreds of billions of KRW annually in royalties through practices such as 'providing work preferentially,' damaging SM’s shareholder value.
In response, SM early terminated the contract with Like Planning through a board resolution on December 31 of last year.
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