Prosecutors Indict DL Corporation for Violating Subcontracting Act... Failure to Issue Contracts and Payment Delays

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] DL Corporation has been brought to trial on charges of repeatedly failing to issue subcontract agreements or pay increased subcontract payments to subcontractors.

The Fair Trade Investigation Division of the Seoul Central District Prosecutors' Office (Chief Prosecutor Ko Jin-won) announced on the 7th that DL Corporation was non-detained indicted for violating the Act on the Fairness of Subcontract Transactions (Subcontract Act). DL Corporation is the holding company of DL Group, ranked 19th in the business world. The Subcontract Act stipulates that the principal contractor is subject to punishment.

According to the prosecution, DL Corporation is accused of failing to issue subcontract agreements within the statutory deadline or omitting legally required payment deadlines and other details in the contracts over approximately 1,300 instances from April 2015 to April 2018.

Article 3 of the Subcontract Act (Issuance of Written Documents and Preservation of Documents) requires the principal contractor to issue a contract before the start of construction when commissioning construction to a subcontractor (Paragraph 1), and mandates that the contract must include ▲commission details ▲completion time ▲subcontract payment, payment method, and payment deadline as specified in Article 3 of the Enforcement Decree of the Act on the Fairness of Subcontract Transactions (Paragraph 2).

Additionally, DL Corporation is charged with failing to increase subcontract payments by approximately 89 million KRW over 55 occasions from October 2015 to July 2018, despite the obligation to raise subcontract payments according to the increase rate of the principal contract amount. They are also accused of not paying delayed interest of 89 million KRW when paying increased amounts after the statutory deadline.

Article 16 of the Subcontract Act (Adjustment of Subcontract Payments Due to Design Changes, etc.) obliges the principal contractor to increase subcontract payments according to the increase rate when the principal contract (contract received from the client) amount is increased. It also requires notifying the subcontractor of the reasons and details of the increase within 15 days of receiving the increase from the client and increasing the subcontract payment within 30 days. Furthermore, if the additional subcontract payment is made more than 15 days after receiving the additional amount from the client, interest must be paid.

Moreover, the prosecution included charges that DL Corporation failed to pay delayed interest of 120 million KRW on advance payments made after the statutory deadline over approximately 640 occasions from May 2015 to April 2018, and failed to pay statutory fees of 79 million KRW when settling subcontract payments using substitute payment methods (accounts receivable secured loans).

Article 6 of the Subcontract Act (Payment of Advance Payments) requires the principal contractor to pay advance payments to the subcontractor within 15 days according to the advance payment ratio when receiving advance payments from the client, and to pay interest at the legally prescribed rate if payment is delayed. Article 13, Paragraph 7 of the Subcontract Act (Payment of Subcontract Payments, etc.) stipulates that when the principal contractor pays subcontract payments using substitute payment methods, fees for the period from the payment date to the repayment date must be paid to the subcontractor on the payment date.

In August 2019, the Fair Trade Commission imposed a fine of 735 million KRW on DL Corporation for failing to pay delayed interest on subcontract and advance payments and not issuing contracts on time while commissioning manufacturing and construction to hundreds of small and medium-sized enterprises.

In May 2020, the Ministry of SMEs and Startups held a mandatory prosecution request review committee and requested the Fair Trade Commission to indict DL Corporation. The prosecution investigation began in June of the same year when the Fair Trade Commission filed charges against DL Corporation.

A prosecution official stated, "DL Corporation, a large corporation, violated various legal obligations toward subcontractors by exploiting its superior position in subcontract transactions over a long period. Such actions can worsen the management environment of subcontractors and increase the possibility of poor construction, causing damage, so strict measures are necessary."

He added, "The prosecution thoroughly investigated the charges filed by the Fair Trade Commission following the Ministry of SMEs and Startups' request for prosecution, revealed the facts of the case, and decided on a non-detained public trial considering the importance of the matter."

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