[Invest&Law] Urbanbase vs. Shinhan Capital: Appeals Trial Over 'Put Option Dispute' to Begin Next Month

Put Option Exercised During Startup Rehabilitation
First Trial Recognizes Founder’s Personal Liability
"Founder Signed as 'Interested Party' in Contract"

The appeals trial over the "put option (stock purchase right)" dispute between Shinhan Capital and the CEO of the construction platform startup Urbanbase is set to begin in earnest. In the first trial, the court ruled that the startup CEO must be held personally responsible for the entire investment amount, regardless of the company’s rehabilitation process, drawing significant attention from the venture investment industry.

According to legal sources on October 14, the Seoul High Court’s Civil Division 16 (Presiding Judge Kim Inkyum) will hold the first hearing of the appellate trial on November 20 for the claim for payment filed by Shinhan Capital against former Urbanbase CEO Ha Jinwoo.

This case originated from an investment agreement signed in 2017, when Shinhan Capital acquired 1,586 redeemable convertible preferred shares (RCPS) of Urbanbase, worth approximately 500 million won. The contract included a put option clause stating that “in the event of the commencement of rehabilitation proceedings, the investor may demand the purchase of shares from the interested party (the CEO).”

After Urbanbase applied for a simplified rehabilitation procedure at the Seoul Bankruptcy Court at the end of 2023 and received a commencement decision in January the following year, Shinhan Capital exercised the put option against the former CEO Ha. In response, Ha argued that “rehabilitation was an unavoidable business failure, and the investor is shifting all risk of loss onto the founder.” In July, the first trial ruled in favor of Shinhan Capital, ordering Ha to pay approximately 1.25 billion won, including principal and interest.

The first-instance court stated, “Since he signed the contract as an interested party, it is difficult to view the investor as having abused a superior position,” and added, “Ha signed the agreement with full awareness of its contents, and there is no evidence that Shinhan Capital imposed unfair terms.” The court’s reasoning was that even if there is no separate joint guarantee clause, if the founder signs as an “interested party,” he must repay the full investment personally, regardless of the company’s rehabilitation status.

Ha appealed the first-instance ruling. The appellate trial is expected to focus on legal arguments over the validity of the put option clause and the scope of the founder’s personal liability.

This case is considered a representative example of defining the boundary of risk-sharing in contracts between investors and founders. While the put option in RCPS investment agreements is typically used as a mechanism for investment recovery, concerns have grown within the startup and venture community that, when a founder participates as an “interested party,” it could lead to personal liability over their own assets.

A lawyer specializing in startup investment agreements commented, “This case clearly demonstrates a structure in which a founder can be held personally liable, independent of the corporate rehabilitation process,” and added, “Since the ‘interested party’ clause in the investment agreement was the key basis for the first-instance court’s decision, startups should be aware that signing as an ‘interested party’ may entail risks beyond those of a joint guarantee.”