[Invest&Law] 'Hong Won-sik vs Namyang Dairy' 44.4 Billion Won Severance Pay Lawsuit to Begin Next Month

Aftermath of Retirement Pay Dispute Following Management Rights Battle
Namyang Dairy Products Completely Overhauls Retirement Pay Regulations

Hong Won-sik, former chairman of Namyang Dairy Products (age 74), will face the first trial of his lawsuit claiming approximately 44 billion KRW in retirement pay against the company in May. It has been about a year since Hong filed the lawsuit.

According to the legal community on the 1st, the Seoul Central District Court Civil Division 41 (Presiding Judge Jeong Hoe-il) plans to hold the first hearing of the trial on April 29th for the retirement pay claim lawsuit filed by former chairman Hong against Namyang Dairy Products.

Previously, Hong and the private equity fund (PEF) operator Hahn & Company (Hahn & Co) had been in a dispute over the management rights of Namyang Dairy Products since 2021. In early 2024, Hahn & Co became the final winner of the management rights dispute, ending the Hong family’s 60-year ownership of Namyang Dairy Products. However, related civil and criminal lawsuits continued to proceed one after another, prolonging the aftermath.

This lawsuit was filed in May last year. Former chairman Hong claimed about 44.36 billion KRW in retirement pay and delayed interest from Namyang Dairy Products. This amount corresponds to 6.54% of Namyang Dairy Products’ equity capital at the time and is known to be an arbitrarily calculated figure by Hong’s side. The Seoul Central District Court had encouraged both parties to resolve the issue through mutual agreement, but since mediation failed earlier this year, a formal trial will be held.

Additionally, the court is also reviewing Hong’s act of increasing his own retirement pay at Namyang Dairy Products’ regular shareholders’ meeting. In the 2023 regular shareholders’ meeting, Hong voted in favor of raising the 'director’s remuneration limit,' which was increased to a maximum of 5 billion KRW. Since he was a stakeholder who could not exercise voting rights as the largest shareholder at the time, there were criticisms inside and outside the company that this violated the Commercial Act.

The first and second trials ruled that "the resolution on the director’s remuneration limit must be canceled," and the case is currently awaiting the Supreme Court’s decision following an appeal by Hong’s side. If the ruling is finalized, the retirement pay will also be significantly reduced from 17 billion KRW.

Meanwhile, after Hahn & Co became the largest shareholder, Namyang Dairy Products drastically revised its retirement pay regulations. Previously, the chairman received retirement pay equivalent to seven months’ salary per year of service, the vice chairman three months, and executives two months. At the regular shareholders’ meeting on the 28th of last month, the system was amended so that retirement pay is calculated by multiplying 10% of the annual salary by the years of service, regardless of position. A new regulation was also introduced to reduce or withhold retirement pay if an executive causes significant damage to the company due to misconduct.