Hyundai Kefico Continuously Issues Delayed and Incomplete Documents
Kyochon F&B Unilaterally Reduces Distribution Margins for Partner Companies
On July 1, the Ministry of SMEs and Startups announced that it had convened the 30th Mandatory Accusation Request Deliberation Committee and decided to request the Fair Trade Commission to refer Hyundai Kefico, for violating the Subcontracting Act, and Kyochon F&B, for violating the Fair Trade Act, to the prosecution.
The two companies subject to this accusation request have, over extended periods, continuously delayed or incompletely issued written documents to subcontractors with whom they have long-standing subcontracting relationships, or have unilaterally reduced the distribution margins of partner companies by abusing their superior bargaining positions, causing significant damage.
First, between May 2020 and May 2023, Hyundai Kefico commissioned the manufacture of molds for automobile parts to 18 subcontractors. For a total of 98 contracts with 13 of these subcontractors, the company issued written documents containing the required information up to 960 days after the work start date. For 86 of these delayed-issued documents and an additional 12, totaling 98 contracts, the documents omitted the delivery date. During the same period, Hyundai Kefico paid subcontracting fees to 16 subcontractors more than 60 days after the statutory deadline from the date of receipt of the goods, and failed to pay approximately KRW 247.9 million in delayed interest.
The Fair Trade Commission had previously ordered Hyundai Kefico to take corrective measures to prevent recurrence and imposed a fine of KRW 54 million in October of last year for these violations. The Ministry of SMEs and Startups explained that the decision to request prosecution was made because Hyundai Kefico continuously delayed and incompletely issued written documents, which caused confusion over payment deadlines and led to prolonged delays in final payments, and because, as a large corporation, its practices have a significant impact on the transaction culture in the automobile parts market. The ministry thus judged that strict sanctions were necessary.
Kyochon F&B, the franchisor operating the franchise business under the "Kyochon Chicken" brand, entered into a contract with a distributor to supply franchise-exclusive cooking oil. In May 2021, during the contract period, Kyochon F&B unilaterally reduced the supply margin for the exclusive oil to zero. As a result, in October of last year, the Fair Trade Commission ordered corrective measures to prevent recurrence and imposed a fine of KRW 283 million.
The Ministry of SMEs and Startups determined that strict sanctions were necessary, considering that Kyochon F&B, as a leading domestic chicken franchise with over 1,300 franchise locations nationwide, abused its superior bargaining position to disadvantage small and medium-sized enterprises, which must be eradicated to protect SMEs and uphold social trust.
Choi Wonyoung, Director-General of the Small Business Policy Office at the Ministry of SMEs and Startups, stated, "The mandatory accusation request system is designed to protect small and medium-sized enterprises from unfair transactions by parties in a superior bargaining position." He added, "The decision to request prosecution in these two violation cases is meaningful in that it helps prevent disadvantages and future disputes for subcontractors caused by chronic transaction practices in the automobile parts manufacturing market, and protects SMEs from franchisors in a dominant position." Choi further emphasized, "We plan to take strict action against chronic unfair practices that harm SMEs or violate the law through abuse of superior bargaining positions."
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