Namyang Dairy Products’ “860 million won donation controversy” reaches parliamentary audit... Hahn & Company tracks former owner’s use of funds [fn Market Watch]

[Financial News]  Allegations of breach of trust over donations made by Namyang Dairy Products’ former owner’s family have reached a National Assembly audit. The matter led to an additional complaint as private equity firm (PEF) manager Hahn & Company reviewed the company’s past use of funds after acquiring control. It is drawing attention not only for the legal risks facing the former owner’s family but also as a case of post-acquisition internal-control reform at a PEF-owned company.
According to the investment banking (IB) industry on the 20th, at the National Assembly Culture, Sports and Tourism Committee’s audit the previous day, Rep. Kim Jae-won of the Rebuilding Korea Party raised questions about sponsorship funds given to cultural and arts organizations by former adviser Lee Woon-kyung, spouse of former Namyang Dairy Products Chairman Hong Won-sik.
Referring, among other organizations, to the Hyundai Museum of Contemporary Art Association, where Lee had served as vice chair, Rep. Kim said she was under investigation on suspicion of using about 860 million won in Namyang Dairy Products funds for sponsorships in her own name. The point was that, apart from the aims of cultural and arts sponsorship, the source of the funds and the process by which they were spent must be transparent.
Namyang Dairy Products previously disclosed that it had filed a complaint against Lee last September on suspicion of breach of trust under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes. The amount involved in the allegation is approximately 857.98 million won.
Namyang Dairy Products alleges that from 2002 to 2023, Lee donated or provided sponsorships using company funds to cultural, arts and social organizations in which she was involved in a personal capacity, and used corporate cards and other company resources for related activities. Lee’s side is reportedly countering that there was a precedent in a similar case in which prosecutors previously determined the activity was a form of social contribution and decided not to indict.
The issue in this case is not the public benefit of the donations but the propriety of the use of corporate funds. Even for a company’s social contribution activities, the legal assessment may vary depending on internal approval procedures, the company’s interests and the purpose for which the funds were used. As the investigation is ongoing, the breach-of-trust allegation has not been established.
In a separate case involving the private use of company funds, Lee was sentenced by a court of first instance in January to two years and six months in prison, suspended for four years. Her two sons, former executive director Hong Jin-seok and former assistant executive director Hong Beom-seok, were also found guilty. The court at the time found that about 3.7 billion won in company funds had been used for private purposes.
What has drawn the attention of the IB industry is that scrutiny of past fund disbursements has continued following the change in control. Hahn & Company has been overhauling the former owner-centered management structure since securing control of Namyang Dairy Products in 2024.
The PEF industry considers it important, in the process of increasing the value of an acquired company, not only to improve its financial structure but also to correct past related-party transactions and fund-disbursement practices. Companies where the owner’s family had substantial influence are seen as especially likely to have their corporate value directly tied to the independence of their internal controls.
The Namyang Dairy Products case shows that a PEF’s post-acquisition efforts to increase corporate value are not limited to improving profitability. Regardless of the outcome of the investigation, attention is focused on how scrutiny of past management practices and a revamp of internal controls will affect the restoration of corporate trust.
A PEF industry official said, “After acquiring an owner-controlled company, it is necessary to examine even past practices in the use of funds that do not show up in financial statements,” adding, “How independently internal controls are established after an acquisition is an important factor in increasing corporate value.”


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