Only 'Freezing' Nippon Steel Assets... Many Obstacles to Monetization

Effective from August 4 at midnight
but cashing requires sale order decision
If order is ignored
re-notification procedure must be followed
Valuation of unlisted stocks also takes a long time

Japanese Coal Mine Forced Labor Victims, Koreans [Image Source=Yonhap News]

[Asia Economy Reporter Seongpil Cho] It has now been nearly two months since our courts publicly served documents for asset seizure related to compensation for Korean forced labor victims against Nippon Steel (formerly Shin Nippon Steel). Public service is a system where the court posts documents publicly and, after a certain period, considers the documents delivered to the parties involved in the lawsuit. The deadline for this public service is midnight on August 4th, and if this time passes, the seizure order against Nippon Steel will take effect. However, this does not mean that the seized assets can immediately be liquidated into cash for Nippon Steel. It can be seen as merely the 'initiation' of the liquidation process. There are still many procedures left before our courts forcibly sell Nippon Steel’s assets and pay compensation to the forced labor victims. It is said that this could take several years.

What happens after midnight on August 4th?

This public service is a preliminary procedure to sell assets against Nippon Steel, which has not complied with the Supreme Court’s compensation ruling for forced labor victims. Previously, in October 2018, the Supreme Court confirmed the plaintiffs’ victory in a damages lawsuit filed by forced labor victim grandfather Lee Chunsik and others against Nippon Steel, ordering Nippon Steel to compensate each victim with 100 million KRW. Based on this Supreme Court ruling, the victims applied to the court to seize 81,075 shares of PNR, a joint venture between POSCO and Shin Nippon Steel, which is Nippon Steel’s asset in Korea, and requested their sale.

The court follows a procedure to notify the parties when assets are seized and sold, but the Japanese side did not respond despite receiving the related documents. Therefore, the Daegu District Court Pohang Branch’s decision on the 1st of last month was to proceed with public service, which will take effect from midnight on August 4th. Once effective, Nippon Steel will no longer be able to freely dispose of the relevant property. Even if they sell it, the sale will be considered 'invalid.'

The seized assets will be converted into cash and paid to the forced labor victims. The liquidation process can be done through transfer or sale, but this case will proceed through sale because the Japanese side has effectively refused to transfer their assets. The forced labor victims also applied to our courts for sale for the same reason. The liquidation process through sale involves the court appointing an accounting firm to appraise the shares via an enforcement officer, and once the appraisal value is determined, the shares will be sold and converted into cash.

Tokyo Chiyoda (千代田) Ward Marunouchi (丸ノ內) Shin Nippon Steel (currently Nippon Steel) Headquarters
[Image source=Yonhap News]

Many hurdles before liquidation

The problem lies in the complexity of this liquidation process. First, the seizure order decision, which was publicly served this time, only has the effect of freezing Nippon Steel’s domestic assets. A sale order must follow. In other words, the sale order decision, which the legal representatives of the forced labor victims separately applied for at the Daegu District Court Pohang Branch in May last year, must be issued for Nippon Steel’s domestic assets to be liquidated. Moreover, the time it takes for this decision to be issued depends on the discretion of the presiding court, so it is uncertain. This is why the victims’ legal representatives do not place much significance on the seizure order taking effect on the 4th.

Even if a sale order is issued, considering the Japanese side’s attitude so far, it is unlikely they will willingly accept the related documents. In that case, another public service procedure will likely be carried out, which could take several more months. Furthermore, the sale order must be finalized to take effect, and if the Japanese side files an immediate appeal and further appeals, the process will take even longer. In some cases, it could extend beyond a year.

There are many hurdles even after the sale order is finalized. Since the PNR shares subject to seizure are unlisted shares, it is widely believed in the legal community that it will take several months to have them appraised and determine their fair value. A legal expert said, "If they were listed shares, it would be easier to evaluate their value, but unlisted shares are complicated and take much longer." The legal community also anticipates that the Japanese side may file an immediate appeal regarding the sale price of the PNR shares. For example, if the PNR shares are valued at 1 million KRW per share, the Japanese side might argue that the sale price was undervalued and request the court to reconsider.

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