[Invest&Law] From Politics to Economy 'Judicialization'... Courts Decide the Fate of Companies

Large Conglomerate Owner Wealth Division and Inheritance Disputes Flood Courts
Trend Toward "Ruling According to Law" Strengthens
Increasing Risks for Companies

The phenomenon of the 'judicialization of the economy,' where disputes within large corporate owner families are brought before the judiciary and the fate of companies is decided by court rulings, is intensifying.

Following the 'judicialization of politics,' where the fate of the political sphere is determined by court rulings due to indiscriminate lawsuits and accusations, concerns are growing that even the fate of companies and the national economy will be decided by judicial decisions.

On the 30th of last month, in the appeal trial of the divorce case between SK Group Chairman Chey Tae-won and Noh So-young, director of the Art Center Nabi, the Seoul High Court ruled that Chairman Chey must pay 1.3808 trillion won in property division, shaking the management structure of SK Group. The divorce and property division lawsuit between the couple has affected the management rights of the second-largest conglomerate. SK Inc.'s stock price rose 22% over two days, from 144,700 won on the 29th, the day before the ruling, to 176,200 won on the 31st. This indicates that the market judged the likelihood of a management rights dispute to be high.

The 'HYBE-Min Hee-jin case' also saw fortunes change due to a court decision. The court accepted a provisional injunction filed by Min Hee-jin, CEO of Adore, against HYBE, the largest shareholder, prohibiting the exercise of voting rights, signaling a prolonged management rights dispute in South Korea's top entertainment company.

Additionally, numerous lawsuits that could determine corporate management rights are awaiting court rulings. These include inheritance disputes between the late Koo Bon-moo, former LG Group chairman, his widow Kim Young-sik, and current chairman Koo Kwang-mo; a case where the eldest daughter of Cho Yang-rae, honorary chairman of Korea & Company Group, filed for limited guardianship against Chairman Cho; and the divorce lawsuit of Kwon Hyuk-bin, founder of Smilegate, a gaming company estimated to have assets worth around 10 trillion won. The fate of these companies could change depending on court decisions.

Alongside the 'judicialization of the economy,' it is notable that the court's customary 'consideration of national economic interests' and 'deference to companies' are disappearing, with rulings increasingly adhering strictly to the law.

The so-called '3-5 rule'?a customary practice in criminal cases involving chaebol family heads, where a three-year prison sentence is suspended for five years considering the economic impact?has almost vanished. Similarly, the 'consideration of management and economic factors' seen in civil case rulings is disappearing, replaced by rulings strictly according to the law.

The first trial ruling in the Chey Tae-won and Noh So-young divorce and property division case excluded SK Inc. shares from the property division, stating that "including business assets as subject to property division poses the risk that the company's existence and operation could be influenced by private disputes between spouses, potentially causing excessive economic impact on other stakeholders."

However, the appellate court did not recognize such extralegal considerations and included SK shares as part of the property division.

A senior lawyer from a mid-sized law firm said, "The SK divorce ruling and Min Hee-jin provisional injunction decision effectively change precedents and can be seen as favoring the weaker party. As courts rule strictly according to the law without considering management and economic factors, the risks to companies due to the judicialization of the economy may increase."

Legal Times reporters Park Soo-yeon, Han Soo-hyun, and Hong Yoon-ji

※This article is based on content supplied by Law Times.

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