Minority Shareholders, Including Economic Reform Alliance,
Announce Shareholder Derivative Lawsuit Against Lotte Wellfood on July 28
Raise Issues Over Collusion Liability and Overlapping Compensation
Minority shareholders of Lotte Wellfood have filed a damages lawsuit worth 27.3 billion KRW against 17 former and current directors, including Lotte Group Chairman Shin Dongbin. The lawsuit aims to address issues related to collusion fines and Chairman Shin's excessive receipt of overlapping compensation.
On July 29, minority shareholders, including the Economic Reform Alliance, announced in a statement that on July 28, they filed a shareholder derivative lawsuit with the Seoul Southern District Court. The suit seeks to recover 11.8 billion KRW in damages from the company’s collusion fine and 15.4 billion KRW in damages for the unlawful compensation paid to controlling shareholder Shin Dongbin.
Last month, on June 12, these shareholders requested the Lotte Wellfood Audit Committee to file the lawsuit. However, after the company expressed its intention to refuse, the shareholders proceeded to file the derivative lawsuit themselves.
Shin Dongbin, Chairman of Lotte Group. Lotte Group
The lawsuit is divided into two parts. The first concerns the damages claim related to unfair concerted actions (collusion) in the ice cream sector. From February 2016 to October 2019, Lotte Wellfood, Lotte Food, and others were found by the Korea Fair Trade Commission (KFTC) to have engaged in collusion regarding ice cream sales, including prohibiting competitors from entering retail stores, imposing caps on support rates for retailers and distributors, and fixing supply and sales prices for distributors. In February 2022, the KFTC imposed a corrective order and a fine of 11.8 billion KRW.
The minority shareholders argued, "Lotte Wellfood continued collusion for as long as three years and seven months until the KFTC investigation, which cannot simply be seen as isolated actions at the distribution or sales unit level." According to the KFTC investigation, Lotte Wellfood and Lotte Food sales executives held 30 meetings, indicating that the collusion was organized and systematic.
Notably, Lotte Wellfood, under its former names Lotte Confectionery and Lotte Samkang in 2007, had previously received corrective measures for similar ice cream collusion. The minority shareholders pointed out, "The internal control system to prevent collusion still did not function at all," and stated, "It is clear that the directors violated their duty to monitor and prevent collusion."
They also highlighted the issue of Chairman Shin Dongbin's excessive overlapping compensation. In addition to serving as CEO of Lotte Wellfood, Shin holds concurrent positions as CEO of Lotte Holdings and Lotte Chemical, inside director of Lotte Chilsung Beverage, and non-registered chairman of Lotte Shopping. From 2021 to 2022, he also served as non-registered chairman of Lotte Rental. Over the past eight years since 2017, the total compensation he received from each affiliate amounts to 107.1 billion KRW.
Chairman Shin was mostly registered as a full-time executive. However, the minority shareholders stated, "It is physically impossible for one person to serve full-time at four to five companies simultaneously, and it is not credible that Shin Dongbin worked full-time at all these companies." They emphasized, "The entire 15.45 billion KRW in compensation Shin Dongbin received from Lotte Wellfood constitutes unlawful compensation and represents a loss to the company."
They stressed, "Through this lawsuit, we hope to remind the market that serious illegal acts such as collusion must be held accountable, and to help eradicate the practice of controlling shareholders excessively holding concurrent positions and receiving compensation that amounts to private benefit."
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