[Public Companies at a Crossroads] ①- Part 2: A Decade-Long Management Dispute Between Major Shareholder and CEO of 'J-Way'

[Asia Economy Reporter Hyunseok Yoo] In a situation where performance improvement is urgently needed, J-Way is embroiled in a dispute over company management rights between its largest shareholder and the management team. Discord began to surface starting from November last year, after funding was procured through Steve Holdings. Although they are currently fighting over management rights, the relationship between the largest shareholder and the CEO is not short-lived. The largest shareholder, Kim Byeong-geon, Chairman of the Donga Dream Tree Foundation (holding 15.08% stake), became the largest shareholder of J-Way in 2011, and CEO Lee In-beom has been serving as CEO since his appointment in 2012, working closely together since then.

◆ Family Feud Between Largest Shareholder and CEO

In November last year, Kim Byeong-geon, the current largest shareholder of J-Way, convened an extraordinary general meeting of shareholders, stating his intention to appoint a new board of directors. Kim urged proxy voting rights by stating, "Steve Holdings, which exercises proxy voting rights on behalf of the company, was established in October 2019 with a capital of 10 million KRW, and its actual existence is questionable based on the address investigation," adding, "If the company recklessly ventures into another new business with unclear funds, J-Way will be caught in another whirlpool in the future." He further emphasized, "I can no longer neglect J-Way, which has degenerated into an abnormal company due to incompetent and suspicious illegal and irregular management practices, from the standpoint of the largest shareholder."

In the same month, Kim filed a lawsuit to invalidate the issuance of new shares by J-Way. This lawsuit concerns the 2 billion KRW raised by J-Way from Steve Holdings through a paid-in capital increase last year. Additionally, Kim filed an injunction to prohibit the exercise of voting rights on 2.08 million shares of J-Way held by Steve Holdings, and ultimately, Kim won the case. As a result, the exercise of voting rights on J-Way shares held by Steve Holdings is suspended until the main lawsuit on the invalidation of new share issuance is concluded.

On the other hand, Steve Holdings, the third-largest shareholder (holding 10.09%), countered Kim's claims by asserting that Kim is obstructing the company's efforts to secure new growth engines. Steve Holdings stated in their proxy voting solicitation, "Among the director candidates recommended by the largest shareholder Kim Byeong-geon, four have embezzlement and breach of trust amounts totaling 59.6 billion KRW, six companies have been delisted, and most of the other candidates have direct or indirect relationships with these four directors," adding, "The largest shareholder Kim Byeong-geon is obstructing J-Way's entry into new businesses."

The four director candidates flagged by Steve Holdings were Kim Jik, Kim Sang-hyun, Lee Seong-cheon, and Cho Tae-yong. Kim Jik was previously detained on charges of embezzlement while serving as CEO of Emtec Semiconductor. Lee Seong-cheon was sued for embezzlement and breach of trust in 2008 while CEO of Mecca Forum but reached a settlement with the company a year later. Kim Sang-hyun was accused of embezzling approximately 37.5 billion KRW while CEO of Hando High-Tech and was arrested in 2011 after going into hiding following the start of a prosecution investigation in 2008. Cho Tae-yong was detained and indicted in 2011 on charges of embezzlement and breach of trust while serving as President of Support at Eco Solution.

Ultimately, at the extraordinary general meeting held in November last year, the current management team effectively defended itself. The proposal by Kim to change the number of directors to "at least three" was rejected. Among the director candidates recommended by Kim, only Kim Jik was appointed as an inside director.

The current management team recommended five candidates for inside directors: CEO Lee In-beom, whose term expires on the 27th of the following month; Son Seon-yong, Head of J-Way Management; Jeong Seong-hoon, Head of J-Way Business Planning; Kim Seong-eun, Marketing Director of CI Tech; and newly appointed Lee Jin-yong. Additionally, Kim Chang-gu was reappointed as an outside director. Meanwhile, Kim's side proposed four inside directors: Kim Jik, Jeong Jun-man, Lee Seong-cheon, and Kim Jae-hong, and proposed new outside directors including Kim Sang-hyun, Han Kyung-soo, Ahn Seung-won, Baek Dong-hyun, and Cho Tae-yong.

◆ Investors’ Eyes Turn to Next Month

Although the management team succeeded in defending against the largest shareholder's challenge at the extraordinary general meeting, the dispute over J-Way's management rights is still ongoing. Particularly, the fate of the parties is expected to hinge on which side the second-largest shareholder, Leaders Technology Investment (holding 12.90%), supports.

On the 21st, J-Way will hold an extraordinary general meeting in Songpa-gu, Seoul. The main agenda items are the addition of business purposes and changes to the number of directors. J-Way proposed adding businesses for diversification, including manufacturing and printing of paper boxes and packaging materials, waste collection and transportation, intermediate waste treatment, and final waste disposal. Conversely, Kim proposed new director appointments through shareholder proposals, removing Lee Seong-cheon and adding Cho Tae-yong and Kim Sang-hyun.

CEO Lee In-beom stated in a proxy voting solicitation, "It is difficult to turn a profit with the current business alone, so acquiring new businesses is necessary to overcome the current situation and return to profitability," adding, "The current management, including CEO Lee In-beom, believes it cannot rely solely on Kim Jik and others who have been in charge of new businesses since December 2016." He further emphasized, "The largest shareholder Kim Byeong-geon is obstructing the company's entry into new businesses by filing injunctions against the voting rights of Steve Holdings," and "Among the director candidates recommended by Kim Byeong-geon, three have embezzlement and breach of trust amounts totaling 49.9 billion KRW, and three companies have been delisted."

On the 13th, Kim Byeong-geon rebutted the company's claims through another proxy voting solicitation disclosure. He stressed that the current management lacks the capability to revive the company. Kim said, "Before talking about attacks on management rights, the order is to ask and answer whether it is right to continue operating the company as it has been, based on past management performance," adding, "Judging solely by management performance, it is difficult for the current board to revive the company, which is my judgment as the largest shareholder."

He added, "The company's board describes the normal competition for new director appointments as a management rights dispute and talks as if the company's future is uncertain due to challenges to management rights," and "Calling the judgment on management performance a challenge to management rights is illogical; I believe the company can improve efficiency and make rational decisions through internal personnel performance competition and shareholder equity competition." However, he refrained from commenting on the qualifications of the directors proposed by the management side.

This content was produced with the assistance of AI translation services.