Daemyung Chemical Chairman Kwon Oil Loses Second Trial in 50 Billion Won Put Option Lawsuit [Invest&Law]

Dispute Over Modainochip Former CEO's Put Option
Court: "Payment Must Be Made Regardless of Sales Performance"

Chairman Kwon Oil of Daemyung Chemical has been ordered by the court to pay approximately 50 billion won to the former CEO of an affiliate company who exercised a stock purchase claim (put option), as per their agreement. Chairman Kwon is a well-known figure in the domestic mergers and acquisitions (M&A) industry, often described as a 'reclusive businessman' and a 'fashion tycoon.'

According to the investment banking (IB) industry and legal circles on December 9, the Seoul High Court Civil Division 12-3 (Presiding Judges Kim Yongseok, Jang Seokjo, and Bae Gwangguk) upheld the original ruling in the appeal filed by the Park brothers, former CEOs of Modainochip, against Chairman Kwon, maintaining the first-instance decision in favor of the plaintiffs. Chairman Kwon is the largest shareholder of Daemyung Chemical, which owns Modainochip as a subsidiary.

Put Option Exercised... Chairman Kwon’s Side Refused, Citing 'Sales Target Not Met'

The dispute dates back to the 2016 'Innochip Technology Stock Purchase Agreement.' That year, Daemyung Chemical Group sought to merge Innochip Technology and Moda, an outlet operator. Former CEO Park initially opposed the deal, citing concerns about a possible decline in stock value, but changed his stance after the agreement was signed.

The agreement stipulated that 'the Park brothers could sell their 1,644,232 shares at 30,000 won per share starting three years later, and Chairman Kwon would pay the share purchase price within three months of being notified of the put option exercise.' Subsequently, Daemyung Chemical Group expanded its business into fashion and logistics, investing in about 300 companies through several intermediate holding companies, including Modainochip.

In 2023, after exercising the put option, the Park brothers filed a lawsuit when Chairman Kwon failed to fulfill his purchase obligation. Chairman Kwon’s side argued, "The contract was premised on Modainochip’s electronics division achieving 500 billion won in sales," and claimed, "In 2019, Modainochip’s sales actually plummeted and the company posted an operating loss."

Court: "Put Option Granted to Ensure Merger... Irrespective of Sales Performance"

The first-instance court ruled, "Chairman Kwon must pay 42.8 billion won and 6.5 billion won plus interest to the Park brothers, respectively." The court first determined that "the stock purchase agreement was validly established," and pointed out, "There is no condition regarding sales achievement specified in the contract, nor can such a condition be found in the draft or amended agreements."

The court also emphasized that the put option was intended as protection against a decline in stock value. The court stated, "The essence of a put option is to purchase shares at a fixed price regardless of future declines in share value," and added, "There are many internal and external factors that can affect business success or failure, and it is entirely foreseeable that targets may not be met."

Furthermore, the court noted, "Chairman Kwon claims the agreement was intended to motivate former CEO Park to achieve targets, but this is not convincing," and concluded, "The argument that Chairman Kwon granted the put option to ensure the success of the merger, as claimed by former CEO Park, is more persuasive."

Chairman Kwon appealed the first-instance ruling, but the appellate court also found the original judgment to be correct.

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