Lee Soo-man·SM Legal Dispute: "Clear Illegality" VS "Sound Business Judgment"

Submission of Additional Written Materials on the 28th

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The legal battle between former SM Chief Producer Lee Soo-man and SM regarding the issuance of new shares and convertible bonds continued. Lee's side claimed that the illegality was clear. On the other hand, SM Entertainment argued that it was a sound business decision.

The Seoul Eastern District Court Civil Division 21 (Presiding Judge Kim Yuseong) held a hearing on the injunction request filed by Lee against SM to prohibit the issuance of new shares and convertible bonds at 10:30 a.m. on the 22nd. Lee's legal representative was the law firm Hwawoo, and SM Entertainment's legal representative was the law firm Kwangjang.

Lee's side stated, "According to Article 418 of the Commercial Act, when new shares are issued, they must be given preferentially to existing shareholders, and issuing to a third party is only permitted in exceptional cases," adding, "Given the suspicion of changes in SM's governance structure, SM's issuance of new shares lacks legitimacy in purpose and means and is presumed illegal."

Previously, Lee's side argued that when a corporation issues new shares and convertible bonds to a third party who is not an existing shareholder, the issuance must be necessary to achieve business purposes and must minimally infringe on preemptive rights within the necessary limits. They claimed that both conditions were not met in this case, asserting illegality.

Lee's side said, "This is not a conflict between good and evil but a legal issue of whether third-party new share issuance is legitimate in business terms," and added, "Since it is clear that the illegal requirements are not met, we hope the application will be granted."

In contrast, SM Entertainment argued that the decision met both the legitimacy of purpose and appropriateness of means.

SM Entertainment stated, "The current situation has nothing to do with the management dispute claimed by the creditor," and said, "The issue is whether to uphold a wrong business decision for the major shareholder's private interests or to make a management decision for all shareholders."

They continued, "The decision meets both the legitimacy of purpose and appropriateness of means, and it is unfair that the creditor is trying to nullify a sound business decision through a hostile takeover (M&A)." They added, "Although the acquisition of new shares by Kakao is an issue, principles such as minimal infringement and proportionality have been carefully considered in light of laws and precedents."

SM Entertainment also clarified the necessity of the partnership with Kakao. They emphasized, "There are issues of capital partnership with platform companies, and it is necessary to create a creative group with multiple decision-making systems, so changes in physical and human structures are required," adding, "Kakao is the optimal partner to assist with distribution and production needs."

They further argued, "Even if Kakao's stake increases, Lee could maintain his status as a major shareholder, and Kakao does not gain any management benefits," and stated, "Since Kakao did not own SM shares last year, Kakao will have no voting rights at the upcoming shareholders' meeting."

Meanwhile, the court plans to decide after reviewing additional written materials submitted on the 28th.

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