Namyang Dairy Products Stock Plummets 11% at Close... Who Is Responsible for the Prolonged Litigation?

The stock price of Namyang Dairy Products closed down about 11% amid concerns over the prolonged management rights dispute. The deterioration in investor sentiment is interpreted as a result of expectations that the legal battle between Hong Won-sik, chairman of Namyang Dairy Products, and the private equity firm Hahn & Company over the sale of management rights will continue for several more years.

According to the legal and financial investment sectors on the 18th, the period for non-acceptance of appeal review in the stock transfer lawsuit filed by Hahn & Company against Chairman Hong and others has passed. The expiration of the non-acceptance period means that the Supreme Court will proceed with a formal hearing. The Supreme Court can dismiss an appeal within four months from the date of receipt without substantive review if there is no significant violation of law or other special reasons in the lower court's ruling.

Hong Won-sik, chairman of Namyang Dairy Products, is holding a public apology press conference related to the 'Bulgaris incident' at Namyang Dairy Products headquarters in Gangnam-gu, Seoul on the 4th. Last month, Namyang Dairy Products announced at the 'Symposium on Developing Antiviral Foods in the COVID-19 Era' that the Bulgaris product was confirmed to reduce COVID-19 by 77.8%. However, the research results were revealed to have exaggerated the findings from animal 'cell-level' experiments, causing controversy. In response, Hong Won-sik, chairman of Namyang Dairy Products, announced his intention to resign at the public apology press conference on the same day. Photo by Kim Hyun-min kimhyun81@

Prolonged Litigation... Who Bears the Litigation Costs and Liability for Damages?

Previously, both the first and second trial courts ruled in favor of Hahn & Company (Hahn & Co). The legal community anticipated that it would be practically difficult to present new legal arguments in the appeal, so the Supreme Court was expected to dismiss the appeal without a hearing. Had the dismissal been decided, Chairman Hong and his family would have been obligated to sell all their shares to Hahn & Co according to the transaction completion obligation. However, since the Supreme Court decided to hear the case, it is expected to take another 1 to 3 years to reach a final conclusion. During this period, concerns about litigation costs and corporate value decline have emerged. The losing party bears the burden of litigation costs. Hahn & Co has also filed an additional damages claim lawsuit to hold Namyang Dairy Products accountable for the delay in transferring management rights and normalization.

Earlier, Chairman Hong signed a stock purchase agreement to transfer all 53.08% of Namyang Dairy Products shares to Hahn & Co after public sentiment worsened due to the Bulgariis exaggerated advertising controversy in 2021, which sparked a boycott movement. However, Namyang Dairy Products unilaterally postponed the extraordinary shareholders' meeting for the management rights sale and notified Hahn & Co of contract termination by refusing to fulfill the contract. Subsequently, Hahn & Co filed a lawsuit demanding prompt contract fulfillment against Chairman Hong and the Namyang family, marking the start of the legal dispute.

So far, both sides have shown disagreements over issues such as dual representation, separate agreements, family privileges, and the spin-off of Baekmidang. In particular, Chairman Hong's side claims that the contract is invalid because the law firm Kim & Chang, which acted as legal counsel during the SPA signing process, represented both Namyang Dairy Products and Hahn & Co, which they argue is problematic. However, both the first and second trial courts ruled that Chairman Hong's family must proceed with the electronic registration procedure for share transfer to Hahn & Co as per the contract. Chairman Hong's side changed their legal counsel to Barun Law LLC from the second trial and has attempted a turnaround by submitting dozens of petitions to the Supreme Court, presumably by personnel from Chairman Hong's side, after the appeal.

So Far, Hahn & Co Holds the Advantage in the Litigation

Namyang Dairy Products and Hahn & Co have already engaged in multiple legal battles. Hahn & Co achieved complete victories in cases such as ▲injunction against stock disposal (August 2021) ▲injunction against exercising voting rights (September 2021) ▲injunction against enforcement of the Namyang Dairy Products-Daewoo Winia agreement (January 2022) ▲stock transfer contract enforcement lawsuit 1st trial (September 2022) ▲penalty lawsuit (December 2022) ▲stock transfer contract enforcement lawsuit 2nd trial (February 2023).

Recently, the activist fund Cha Partners Asset Management also filed a lawsuit against Chairman Hong and Namyang Dairy Products directors seeking cancellation of the resolution on remuneration limits and has requested suspension of remuneration and retirement pay payments. The plan is to adjust the high remuneration received by Chairman Hong and others, as well as future retirement pay, and to halt the receipt of remuneration by directors who may be involved in illegal activities until the lawsuit outcome is determined.

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