'Loss of Management Rights' Chairman Hong Won-sik Faces 'Dark Clouds' Ahead... Piling Lawsuit Claims

Han&Co and Remaining 'Penalty Claim Lawsuit · 50 Billion Won Compensation Suit'
Daewoo Winia and M&A Legal Dispute Enter 3rd Round
Must Also Respond to Severance Pay Maintenance Claims

The future of Hong Won-sik, chairman of Namyang Dairy Products, who lost the nearly three-year-long management rights dispute, is expected to be fraught with difficulties. As the loss of management rights has been finalized, it is unlikely that he will be able to avoid substantial compensation liabilities in lawsuits for damages that have been raised so far.

According to the distribution industry on the 4th, the Supreme Court Civil Division 2 upheld the original ruling in favor of the plaintiff, Han & Company (Han & Co), in the stock transfer lawsuit filed against Chairman Hong and his family.

With the Supreme Court ruling on this day, the management rights dispute that lasted over two years has effectively come to an end, but legal disputes such as damage claims between Chairman Hong and Han & Co still remain.

Lawsuit for 31 billion KRW penalty and additional damage claims in the 50 billion KRW range

First, separate from the stock transfer lawsuit, there remains a 'penalty claim lawsuit' previously filed by Chairman Hong's side. In September 2021, after the stock purchase agreement with Han & Co was terminated, Chairman Hong's side filed a penalty claim lawsuit worth approximately 31 billion KRW against Han & Co, holding them responsible for the contract failure. A penalty is a fine set to ensure the fulfillment of an obligation and differs from liquidated damages, which compensate for the other party's losses.

Chairman Hong's side lost the first trial held in December 2022, and in January of last year, the appellate court also dismissed the case against Chairman Hong's side. Subsequently, Han & Co filed an application in February to the court to confirm the amount of litigation costs related to the penalty lawsuit. The first trial accepted Han & Co's application as is, but Chairman Hong's side appealed this decision in April. However, in August of the same year, the second trial also dismissed Chairman Hong's appeal, and his side filed a final appeal to the Supreme Court.

In November 2022, separate from the management rights dispute lawsuit, Han & Co additionally filed a damage claim lawsuit worth about 50 billion KRW against Namyang Dairy Products, holding Chairman Hong's side responsible for the delay in transferring management rights and normalization. Although the responsibility for the failed sale became clear, this was intended to hold Chairman Hong accountable for the failure to hand over management rights and the delay in normalization.

Legal dispute with Daewoo Winia Group also ongoing

Chairman Hong is also engaged in litigation with Daewoo Winia Group, aside from Han & Co. After terminating the contract with Han & Co, Chairman Hong agreed to sell management rights to Daewoo Winia Group. Daewoo Winia Group signed an agreement to acquire Namyang Dairy Products and paid a deposit of 32 billion KRW, but when they did not receive a refund, they filed a return lawsuit.

In the first trial held in November 2022, the court ruled in favor of Chairman Hong, but in the second trial last year, it was decided that Chairman Hong must pay the 32 billion KRW deposit and delay damages received when signing the 'Mutual Cooperation Implementation Agreement' with Daewoo Winia Group.

Chairman Hong's side immediately protested and filed a notice of appeal through the law firm Yulwoo on the 27th of last month, and the legal battle between Chairman Hong and Daewoo Winia Group has entered the third trial. Given the significant financial pressure from Han & Co's damage claims and the loss of management rights confirmed by the Supreme Court ruling on this day, Chairman Hong is expected to face even greater difficulties in the lawsuit with Daewoo Winia Group.

Lawsuit to maintain Chairman Hong Won-sik's remuneration

Additionally, activist fund Cha Partners Asset Management, which owns 3% of Namyang Dairy Products' shares, is demanding the Namyang Dairy Products board to suspend payment of Chairman Hong's retirement pay and remuneration. Earlier, Cha Partners pointed out, “The approval of the remuneration limit for Namyang Dairy Products directors was passed due to illegal exercise of voting rights by Chairman Hong, the largest shareholder and a special related party,” and “Chairman Hong and the directors receive remuneration based on an invalid shareholders' meeting resolution.” According to Article 402 of the Commercial Act, when there is a risk of irreparable damage caused by a director violating laws or the articles of incorporation, an auditor or a shareholder holding more than 1% of shares can file a maintenance claim to stop the director's actions.

On this day, Cha Partners requested Han & Co to “strive for the interests of all shareholders, not just the controlling shareholder,” and demanded that Han & Co conduct a public tender offer for minority shareholders' shares at the same price of 820,000 KRW per share as the controlling shareholder's share transfer price. Cha Partners emphasized, “A public tender offer at 820,000 KRW per share is intended to grant general shareholders the right to sell their shares at the same price as the controlling shareholder during a change in management rights, and many countries enforce mandatory public tender offer systems.”