"Defaulted on 100 Million Won Promissory Note and Filed for Rehabilitation to Defend Management Control"
"Trading Suspension Triggered for Personal Gain, Infringing on Shareholder Property Rights"
"Former CEO Na Wonkyun, the previous management, and the owner’s family defaulted on a promissory note worth 100 million won and filed for unnecessary rehabilitation in order to retain management control. As a result, the company’s stock trading has been suspended, and the losses are being borne entirely by minority shareholders. We are committed to normalizing the company as soon as possible to restore shareholder value."
Baek Seohyun, CEO of Brand Refactoring and the current largest shareholder of Dong Sung Pharmaceutical, explained the current situation of the company in an interview with Asia Economy on the 13th.
Brand Refactoring became the largest shareholder of Dong Sung Pharmaceutical in April by acquiring a 14.12% stake, along with management rights, from former Chairman Lee Yanggu, the second-generation founder, for 12 billion won. According to the agreement, an extraordinary shareholders’ meeting should have been held within 50 days after the contract date of April 21 to transfer management control.
However, former CEO Na Wonkyun, who is the nephew of former Chairman Lee, suddenly announced on May 7 that an electronic promissory note worth 100 million won had defaulted. The reason for the default was "insufficient funds." This means that Dong Sung Pharmaceutical, with annual sales of 90 billion won and net assets of 40 billion won, did not have 100 million won in its account, leading to the default.
On the same day, former CEO Na filed for corporate rehabilitation with the Seoul Bankruptcy Court. Once under rehabilitation, the company cannot extend or repay debts without court approval, restricting normal business operations. Subsequently, the auditor of Dong Sung Pharmaceutical filed a complaint against former CEO Na and others for embezzlement amounting to 17.7 billion won, and the Korea Exchange suspended trading of Dong Sung Pharmaceutical shares.
Baek Seohyun pointed out, "Former CEO Na and others deliberately defaulted and filed for rehabilitation even though Dong Sung Pharmaceutical had enough cash to prevent the default through the issuance of convertible bonds and other means." He added, "Furthermore, by exploiting the fact that former CEO Na would be appointed as the administrator during rehabilitation, they used default and rehabilitation as tools to defend management control."
Baek Seohyun emphasized that only shareholders are suffering from these "underhanded" tactics to defend management control. In fact, following the rehabilitation filing, the chain of defaults, and the allegations of embezzlement and breach of trust against former CEO Na, Dong Sung Pharmaceutical’s stock price fell to 973 won on May 7. Moreover, with trading currently suspended, recovery remains uncertain.
In particular, Baek Seohyun insisted that the "pre-rehabilitation merger and acquisition (M&A)" being pursued by former CEO Na and others must be stopped. This is because, under the current circumstances, if Dong Sung Pharmaceutical is acquired by a third party through M&A, there is a high likelihood of a large-scale capital reduction without compensation and a third-party paid-in capital increase. Similar cases occurred with Tmon and SsangYong Motor, where capital reductions and paid-in capital increases were carried out.
He stated, "A pre-rehabilitation M&A is an irresponsible move that disregards the value of existing shareholders’ stocks, even if they become worthless. If the company is unilaterally handed over to a particular group, it can be seen as an infringement of shareholder rights and even fraud against shareholders."
He continued, "Brand Refactoring is preparing an additional 15 billion won in funding to save Dong Sung Pharmaceutical. Through a rights offering and other means, we will normalize the company without damaging shareholder value and establish a transparent, shareholder-centered governance structure to rebuild the brand and secure long-term growth engines."
Meanwhile, Dong Sung Pharmaceutical announced through a disclosure on the 2nd that former CEO Na Wonkyun has been dismissed.
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