Court Orders Former Namyang Dairy Products Chairman Hong Won-sik to Pay 66 Billion Won in Damages...Company Value Decreased Due to Delayed Acquisition [Comprehensive]

[Financial News] The court has ordered former Namyang Dairy Products Chairman Hong Won-sik to pay 66 billion won in damages for delaying the acquisition of Namyang Dairy Products.
On the 27th, the Seoul Central District Court's Civil Agreement Division 31 (Presiding Judge Nam In-soo) partially ruled in favor of Hahn & Company, a private equity fund manager, in its damages lawsuit of approximately 93.6 billion won against Hong Won-sik. The court determined that Hong must pay 66 billion won to Hahn & Company. However, all remaining claims filed by Hahn & Company against Hong's wife, Ms. Lee, and his grandson, Mr. H, were dismissed.
The court found that due to Hong's delay in fulfilling the contract, the 'owner risk' was not resolved, resulting in a decline in Namyang Dairy Products' corporate value and causing substantial losses for Hahn & Company. The court also acknowledged that if Hong had fulfilled the contract on time, Hahn & Company could have used the stock purchase funds to generate profits, and recognized damages equivalent to the interest rate applied to commercial transactions.
However, the court did not recognize any liability for damages on the part of Hong's wife and grandson. The panel explained that the core of this stock purchase agreement was the transfer of management rights, and given the size of their shareholdings, it was unlikely that their failure to transfer shares would have delayed the transfer of management rights or caused damages.
This ruling comes about three years after Hahn & Company filed a lawsuit in November 2022 seeking over 50 billion won in damages. During the proceedings, Hahn & Company increased its claim to approximately 93.6 billion won.
The conflict between the parties began in May 2021 when a stock purchase agreement (SPA) was signed for the transfer of management rights. At that time, Hong and his family agreed to sell their 53.08% stake in Namyang Dairy Products for 310.7 billion won, but two months later, Hong failed to attend an extraordinary shareholders' meeting, effectively overturning the contract. In September of that year, he notified Hahn & Company of the contract's termination.
Hahn & Company filed a lawsuit to enforce the share transfer and won the first trial in September 2022. The Supreme Court of Korea upheld this ruling in January last year. In March of the same year, Hahn & Company was able to exercise management rights over Namyang Dairy Products by appointing recommended directors at the regular shareholders' meeting, nearly 33 months after the initial agreement.
Hahn & Company argued that Hong's unauthorized absence from the extraordinary shareholders' meeting significantly delayed the acquisition, during which time the company's assets and cash reserves declined and operating losses accumulated, resulting in damage to corporate value.
On the other hand, Hong's side countered that the deterioration in Namyang Dairy Products' performance was due to a general industry downturn and that even if Hahn & Company had secured management rights as scheduled, it would have been difficult to reverse the situation. However, the court rejected these arguments and sided with Hahn & Company.
scottchoi15@fnnews.com Choi Eun-sol Reporter