Kwon Hyuk-bin's Smilegate Stake Drops From 100% to 65%: What Changes for Governance?

As a court ruled that Smilegate founder and Chief Visionary Officer (CVO) Kwon Hyuk-bin, who also chairs the Hope Studio Foundation, must hand over 35% of his company shares to his estranged wife in their divorce lawsuit, the possibility of a shift in Kwon's "100% governance structure" maintained for over 20 years has grown significantly.

Even if the ruling is finalized as is, Kwon would retain a 65% stake to maintain management control, but it would become difficult for him to independently handle major matters requiring special resolutions at a shareholders' meeting, such as amending articles of incorporation or carrying out mergers and divisions.

With the property division scale reaching around 2 trillion won, marking the largest in South Korea's divorce litigation history, and given that the share division could impact corporate governance, industry observers speculate that Kwon is likely to appeal the ruling.

The Family Division 3 of the Seoul Family Court (Presiding Judge Jung Dong-hyeok) accepted the divorce petition filed by Kwon's wife, Ms. Lee, today (the 9th), ruling that "the defendant (Kwon) shall pay 35% of Smilegate shares in kind to the plaintiff (Lee) as a division of property."

This marks the largest amount ever recorded for a property division in a domestic divorce and property division lawsuit.

If the property division ratio decided by the court is finalized as is, Kwon's management control over Smilegate itself is expected to be maintained, but its exercise will be partially restricted.

Kwon has held a 100% stake in Smilegate since 2012.

Under the Commercial Act, major issues such as amending the articles of incorporation, corporate mergers and divisions, and the dismissal of directors or auditors must go through a special resolution at a shareholders' meeting.

Passing a special resolution requires the approval of at least two-thirds of the voting rights of attending shareholders and at least one-third of the total issued shares.

Even if the property division becomes a reality, Kwon will still hold a majority stake (65%), meaning there will be no issues in exercising overall management control.

However, for critical matters requiring a special resolution, it is expected to become impossible to pass them unilaterally without agreement from his ex-wife's side.

As Kwon's sole governance structure is broken, there is also the possibility that Ms. Lee's side may demand the convening of an extraordinary shareholders' meeting or that the shares could be sold to a third party in the future.

Considering these factors, the industry believes that Kwon is likely to appeal, objecting to the property division ratio.

Kwon's side reportedly argued during the trial that Ms. Lee was not a co-founder of the company and did not contribute financially.

However, the court ruled that since Ms. Lee was registered as the company's CEO during its early establishment stages and has dedicated herself to household chores and child-rearing for a long period, Kwon must pay cash of 65.1 billion won and shares amounting to 35%—valued at 2.4867 trillion won—out of the 7.1049 trillion won estimated value of the Smilegate shares.

Previously, the largest known property division amount in a domestic divorce suit was 944 billion won, which was set in the remand appellate ruling on July 26 for SK Group Chairman Chey Tae-won and Art Center Nabi Director Roh Soh-yeong.

However, unlike Chairman Chey's case where a 2 billion won alimony was finalized, the court dismissed Ms. Lee's claim for alimony in Kwon's case.

Kwon's legal representative told reporters, "We have some regrets regarding the court's judgment that the marriage has broken down, but we understand the dismissal of the alimony claim to mean that the defendant was not at fault. We will review the ruling and discuss it with our client to make a decision."

(Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.