Allegations of 183 Billion Won Support for Daughters' Company
Board of Directors Claims Business Judgment Rule
Chung Mongwon, Chairman of HL Group, is facing a shareholder derivative lawsuit over allegations that he used 183 billion won in funds from a subsidiary to support a newly established private equity management firm owned by his two daughters. Minority shareholders argue that the transaction was intended to secure friendly shares to strengthen Chairman Chung's control over the group, thus constituting a breach of the director's duty of loyalty under the Commercial Act. In contrast, the company is expected to counter that the transaction was part of a legitimate business judgment.
According to minority shareholders and the complaint, the lawsuit centers on a large-scale movement of funds in 2022. HL Holdings invested 183 billion won in its subsidiary HL Wico through a paid-in capital increase and loans. This amount is 73 times greater than HL Holdings' net profit for 2022, which was approximately 2.5 billion won. HL Wico then invested these funds in a private equity fund. The fund was managed by Lotus PE, a newly established company in its first year with a capital of 500 million won, wholly owned by Chairman Chung's two daughters, Chung Jiyeon and Chung Jisoo.
The minority shareholders who filed the lawsuit claim that the purpose of this transaction was to strengthen Chairman Chung's control over the group. After this business deal, Chairman Chung's daughters acquired a 3.24% stake in HL Holdings, worth over 10 billion won. As a result, the proportion of friendly shares held by Chairman Chung and his affiliates rose to 30.31%. HL Holdings' other institutional investors, including the National Pension Service, hold a combined 25.99% stake, meaning Chairman Chung's control is not absolute.
HL Holdings maintains that the investment was made in the promising secondary battery sector and invokes the business judgment rule. The company argues that the decision was made in good faith based on sufficient information, and therefore, it cannot be held responsible for unforeseen losses. A representative from HL Holdings stated, "Since the investment has not been recovered, the loss is not yet confirmed," adding, "The secondary battery market has deteriorated rapidly." The representative also explained, "Several other projects conducted with Lotus PE have performed well," emphasizing that the investment was not intended to cause losses to the company.
Kim Jonghwa, an attorney at Changcheon Law Firm (11th Bar Exam), representing the minority shareholders, argued that this was a case of 'corporate opportunity misappropriation' and a conflict of interest, as business opportunities were funneled to the chairman's children's company. "This constitutes a breach of the duty of loyalty to shareholders under the amended Commercial Act," Kim said. He further asserted, "If a conflict of interest is found, the business judgment rule cannot be applied." Park Seongdong Legal Times Reporter
※This article is based on content supplied by Law Times.
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