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Contents and Implications of Recent Decisions on Management Rights Dispute over Lake Side Country Club

Shin & Kim successfully appealed and obtained a reversal of a court approval of a liquidation program put forward by the Nasan Group that would have denied KRW 62.5 billion in claims by SG ABS Specialty Company, a subsidiary of Seoul Guarantee Insurance Co., Ltd. Nasan’s liquidation program, if left unchallenged, would have excluded Seoul Guarantee Insurance’s liquidation voting rights in the process of establishing a program mainly to satisfy M&A debts of KRW350 billion.
 

With regard to the recent management rights disputes involving Seoul Lake Side Country Club (“Lake Side”), Lake Side’s current CEO, Mr. Dae Il Yun transferred management rights to MARS #2, a private equity fund run by Woori Investment & Securities Co., Ltd., in mid-August 2007 following a decision made by Yongin Registry (the “Registry”). However, on August 31, 2007, the Suwon District Court (the “Court”) reversed the decision made by the Yongin Registry, requiring the management rights to be returned after two weeks.

 

At a hearing regarding the decision of the Registry to validate the registration of directors appointed at a Lake Side shareholders’ meeting on August 13, 2007, the Court ordered the cancellation of the prior registration of appointment of directors from MARS #2 and ordered the registration of the appointed directors of the Domestic Family Coalition on August 31, 2007. The ruling concluded a two-week legal dispute between large Korean law firms, including Shin & Kim and Lee & Ko.

 

Lake Side was founded in 1986 by the late Iksung Yun and is a renowned country club located in Yongin. For several years, the club has been embroiled in a management rights dispute among family members involving its current management, namely Mr. Gwang Ja Yun, Mr. Jin Soon Seok, and Mr. Dae Il Yun (“Domestic Family Coalition”); Mr. Maeng Chul Yun, the third child of the late chairman; and family members in Japan. On July 29, 2005, the Seoul High Court held that the Domestic Family Coalition, which already controlled 43.5% of total shares in the club, could exercise the voting rights of another 9% of shares. Accordingly, CEO, Mr. Dae Il Yun assumed the management rights of the club a subsequent shareholders’ meeting and has been managing Lake Side ever since. Mr. Dae Il Yun claimed the 9% share was transferred from other family members in exchange for cooperation in defending management rights during a regular shareholder’s meeting in March 2004. However, former CEO Maeng Chul Yun claims that he was forced to transfer the shares to the Domestic Family Coalition and has accused them of intimidation. Based on these claims, the Court subsequently held prosecution hearing against the Domestic Family Coalition.

 

On June 29, 2007, the court acquitted the Domestic Family Coalition of all claims. The Court found there was no evidence to prove that it had used intimidation against Mr. Maeng Chul Yun. As a result, ownership of the disputed 9% share is still controlled by the Domestic Family Coalition. In turn, they now control 52.5% of shares in Lake Side, which should allow the Coalition to manage Lake Side in a stable manner.

 

In the mean time, MARS #2, which acquired 47.5% of Lake Side’s shares from Mr. Maeng Chul Yun, requested Lake Side to convene a special shareholder’s meeting to appoint five directors from its side. At a special shareholder’s meeting on August 13, 2007, MARS #2 designated a temporary chairman and appointed five new directors on its side, and registered the meeting minutes with the Registry. At the same meeting, the Domestic Family Coalition also appointed five directors on its side and registered the meeting minutes with the Registry. However, the application for the registrations was dismissed by the Registry, and the Domestic Family Coalition filed a formal objection to such decision. In response, the Court ruled in favor of the Domestic Family Coalition.

 

Shin & Kim represented the Domestic Family Coalition and set up a special team led by attorney Yongho Moon, previously as a senior judge of the High Court who joined Shin & Kim in early 2007. The team also included attorney Jong-Han Oh and Yong-Ho Kim, who have represented many clients involved in hostile M&A cases. The Shin & Kim team succeeded in obtaining of the court’s acquittal of claims against the Domestic Family Coalition, and in cancelling the registration of the appointment of directors nominated by MARS #2, conclusively allowing the Domestic Family Coalition to defend their management rights.

 

The law firms, Bae, Kim & Lee, Yulchon, and Barun, represented former CEO Maeng Chul Yun. The law firm of Lee & Ko represented MARS. Such disputes involving large law firms are expected to continue.

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