Fair Trade Commission to Focus on Investigating Whether Prepayments Are Secured in Acquisition and Merger Mutual Aid Companies

[Sejong=Asia Economy Reporter Joo Sang-don] The Fair Trade Commission (FTC) announced on the 21st that it will actively conduct on-site investigations to prevent additional consumer damage following recent consumer harm during mergers and acquisitions of funeral service companies.

The FTC has identified numerous cases where, amid the recent restructuring of the funeral service industry, companies exploited the difference between bank deposits and mutual aid association collateral through mergers and acquisitions, or misused half of the advance payments?which have no operational restrictions? for non-business purposes. Accordingly, the FTC judged that proactive investigations into violations of the Installment Transactions Act and other issues are necessary for funeral service companies that have recently undergone or are scheduled for mergers and acquisitions to prevent consumer harm.

The FTC noted that funeral service companies hold large amounts of advance payments secured in banks, and since advance payments are regularly received from consumers every month, there is a strong incentive to withdraw these funds without authorization during mergers and acquisitions. Advance payments refer to the total amount received in advance from consumers, which, as of the end of September last year, amounted to a total of 5.5849 trillion KRW across all funeral service companies.

According to the FTC, the CEO of Company A merged a total of four funeral service companies and then manipulated some consumers’ cancellation application documents submitted to the bank to withdraw deposits without authorization. The unauthorized withdrawal is estimated to be about 400 million KRW. Subsequently, the CEO sold Company A to the current CEO, and shortly after, Company A ceased normal operations and closed down. As a result, about 3,000 consumers were compensated for only half of the amount they had paid. In particular, approximately 300 consumers whose deposits were withdrawn without authorization received no compensation at all.

There was also a case where unauthorized withdrawal of advance payments was attempted after acquiring a funeral service company. Company B was sold to an acquisition consortium in January this year. The consortium immediately attempted to withdraw 160 billion KRW deposited in the bank, but the attempt was blocked by the FTC and the bank. The consortium then tried to join the mutual aid association to withdraw the difference between deposits and collateral but was rejected by the association. Later, the consortium attempted to establish its own mutual aid association to withdraw the difference between deposits and collateral, but this was also blocked by the FTC. Ultimately, after failing to withdraw the deposits, the consortium resold Company B to another funeral service company.

An FTC official stated, "Unauthorized withdrawal of advance payments violates the Installment Transactions Act and is subject to corrective orders and prosecution. If any suspicious circumstances of breach of trust or embezzlement under commercial law are found, we will immediately request an investigation by law enforcement agencies. We are currently conducting on-site investigations into the most urgent cases and plan to proceed with sequential on-site investigations based on urgency going forward."

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