[Exclusive] Hahn & Co. Files Additional 57.8 Billion Won Damages Suit Against Former Namyang Chairman Hong Wonsik Over Alleged SPA Breaches

Additional Lawsuit Following Earlier Share Transfer and Delay Compensation Claims
"Warranted Condition Differs from Actual Facts, Compensation Required"
Hong Wonsik's Side: "Compensation Is Excessive Relative to Acquisition Price"

It has been confirmed that Hahn & Company (Hahn & Co.), the private equity fund (PEF) manager that acquired management control of Namyang Dairy Products, is additionally pursuing a damages lawsuit worth about 57.8 billion won against former owner and former chairman Hong Wonsik. Separate from the earlier lawsuits over share transfer and delay compensation, Hahn & Co. is now claiming damages on the grounds of breach of contractual obligations such as representations and warranties under the share purchase agreement (SPA).

According to the legal community on the 26th, Hahn & Co. filed a damages lawsuit worth 57.8 billion won in January last year with the 30th Civil Division of the Seoul Central District Court (Presiding Judge Kim Seokbeom) against former chairman Hong, his wife and former adviser Lee Unkyung, and others.

Hahn & Co. previously won the "share transfer lawsuit" filed in response to former chairman Hong's unilateral termination of the contract, thereby securing management control. It then went on to win at first instance on November last year in the "delay in performance damages lawsuit," which sought to hold him liable for transferring the shares late, obtaining a judgment of 66 billion won.

While the first two lawsuits concerned legal liability for whether the contract was performed and for the timing of the delay, the third lawsuit currently under way targets defects in the "state of the company" that was the subject of the sale. In a typical mergers and acquisitions (M&A) transaction, the seller provides certain representations and warranties regarding the company's financial and legal risks, and the contract structure is such that the seller bears liability if material facts are later found to differ from the contract. The current lawsuit is understood to be based on such clauses.

The core issue in this lawsuit is whether there was a breach of the SPA "representations and warranties" (confirmation of facts such as financial condition, assets, and liabilities). Hahn & Co. is said to be arguing that there are material discrepancies between the condition of the company as warranted by former chairman Hong's side at the time of the contract and the facts actually confirmed after the acquisition, and that the amount of impairment in corporate value arising from this should be compensated out of the sale price.

Former chairman Hong's side is reportedly countering that, given Hahn & Co. conducted sufficient due diligence before signing the contract, it is unreasonable to expand liability after the transaction by grouping particular items as losses. At the same time, they are said to have stated that if there is objectively verifiable damage caused by delayed performance, appropriate compensation within that scope is necessary.

Former chairman Hong's side is also said to be objecting on the grounds that "the damages claims are being excessively accumulated relative to the acquisition price (about 310 billion won)." Since Hahn & Co. has filed multiple lawsuits, their argument is that if all of them are combined, the amount of compensation becomes excessively large compared with the sale price.

Hong Wonsik, chairman of Namyang Dairy, held a public apology press conference on the 4th at Namyang Dairy's headquarters in Gangnam-gu, Seoul regarding the Bulgariseu controversy. Namyang Dairy announced last month at a symposium titled "Development of Antiviral Foods in the COVID Era" that Bulgariseu products were found to reduce COVID-19 by 77.8%. However, the study results were reported to have exaggerated findings from in vitro experiments on animal cells, sparking controversy. In response, Hong Wonsik announced his intention to resign at the public apology press conference. / Reporter Kim Hyunmin kimhyun81@

Hahn & Co., on the other hand, is said to be emphasizing that it is a general principle of M&A contracts that the seller bears responsibility if significant undisclosed hidden defects are discovered. Given the nature of a fund that manages investor capital, its position is that holding the seller liable for losses arising from contractual breaches is a legitimate procedure.

Depending on the outcome of this lawsuit, the legal and financial burden on former chairman Hong and his family is expected to increase further. If the result of this 50-billion-won-range lawsuit is added to the previous loss of more than 66 billion won, the actual amount that former chairman Hong's side ultimately retains from the sale proceeds is likely to shrink significantly.

The legal disputes between the two sides were triggered when, in April 2021, shortly after the so-called "Bulgaris incident," former chairman Hong entered into a share sale agreement and then reversed his decision. After a Supreme Court ruling, Hahn & Co. finally secured management control in January 2024. Nevertheless, disputes over the sale proceeds have continued for years, including the 66-billion-won damages lawsuit over delayed share transfer and civil and criminal trials related to embezzlement and breach of trust by the owner family.