Indiscriminate Management Rights Lawsuits... "Pressuring Through Bankruptcy and Disclosures" (D Report)

Last April, at an extraordinary shareholders' meeting of a Kosdaq-listed company.

The company's CEO strongly protests against a man blocking the entrance.

[Jeon Soon-ok / CEO of SI Resource: Prove your authority first. Do you have the authority? Show me!]

The man escorting people outside is lawyer Jeon, who is well-known for corporate management rights lawsuits.

[SI Resource Side: Where is the shareholder registry?]

[Lawyer Jeon: We have it, why are you asking?]

After a standoff, the shareholders' meeting on this day fell through, but at another meeting held four days later, management rights ultimately passed to lawyer Jeon's side.

[Jeon Soon-ok / CEO of SI Resource: A quorum is required, but they ignored all of that and just started hammering away, saying, "Passed." Is this kind of thing possible in South Korea?]

While the company filed an injunction with the court to suspend the effect of the shareholders' meeting, lawyer Jeon and his associates occupied the company.

When the CEO protested, lawyer Jeon snatched her cell phone, leading to a scuffle, and upon noticing a CCTV camera belatedly, he even blocked the view.

Although the court later put the brakes on the situation by ruling that "the validity of the shareholders' meeting cannot be recognized," in the meantime, lawyer Jeon's side took 3.0 billion won of the 4.1 billion won in client payments the company was supposed to receive as claims and 1.1 billion won in cash, leading to an ongoing return lawsuit.

[Jeon Soon-ok / CEO of SI Resource: They received the trade payments and transferred them directly to the law firm's account. There are so many people I am responsible for, including employees and partner companies. Being unable to do anything is so, so agonizing.]

What returned to the company that narrowly regained management rights was yet another form of pressure.

Demands continued, stating, "We will file a criminal complaint against the CEO for embezzlement and breach of trust, so give us an answer if you want to settle, or else we will file a complaint and make a public disclosure." When they did not comply, applications for public disclosures regarding the filing of the complaint were stubbornly submitted to the exchange as many as 67 times.

Around the same time, money demands were also delivered to another company, Company A, which was experiencing a management dispute.

The reason was that lawyer Jeon, who is currently on trial for unpaid wages, needed money to avoid being detained.

[Choi Mo-si, associated with lawyer Jeon: Our lawyer told me to go and talk, so I said, "Yes, I understand," and came. (The lawyer) needed quite a lot of money by the end of July. Because of some unpaid wages from the past.]

Company B, which was Company A's adversary in the dispute, also claimed it received the same demands.

We met lawyer Jeon and asked for his stance.

[Are you the lawyer?]

He stated that his lawyer license is currently revoked, and that he only provided legal advice to Choi in the capacity of a manager, explaining that the demand for settlement money was a request for help based on personal ties.

[Lawyer Jeon: I am not asking for 5 billion won, but rather saying, "We are in a difficult situation right now, so we need settlement money, and if you can help to that extent, please help."]

At the same time, he claimed that he should receive compensation for helping Company A acquire a corporation.

◆ Where Did the Company Funds That Frequently Leaked Out Go?

The trial lawyer Jeon is facing is the "Sungji Construction unpaid wages" case prosecuted by the prosecution last year.

At the end of 2021, lawyer Jeon took over as CEO on behalf of the largest shareholder who was detained, and was indicted on charges of failing to pay about 5.2 billion won in wages and other dues for 58 workers. He is facing the first-instance sentencing on the 21st.

[Former Sungji Construction employee: Even if they didn't receive their pay for months, they had a sense of responsibility because they had worked there for 30 or 20 years, which is probably why they kept working.]

[Former Sungji Construction employee: I feel a lot of threats to my livelihood. I worked there as a lifelong job, but suddenly the company is collapsing.]

Lawyer Jeon appealed to reasons such as the worsening construction market during the trial, but suspicious fund flows stand out in his account details.

Since taking office as CEO, company funds have frequently flowed out to a law firm and several private companies run by lawyer Jeon.

Regarding the acceptance of the cases, lawyer Jeon maintains that there is no problem.

[Lawyer Jeon: Don't put it like "I funneled them." Don't I know well? About the company. As much as possible, can't I have cases taken to the place where I work?]

He did not give a specific answer as to why the funds were transferred to his private company.

[It was probably returned to the company using this fund again. (The money that went out as a result was much greater.) I don't know much about that.]

Later, through an additional statement, he explained that accounts were simply used in the process of lending and borrowing funds between companies, and there was no private misuse.

However, the legal community points out that it is necessary to examine whether such transactions constitute embezzlement and breach of trust.

Amidst this, the financial situation worsened further after acquiring another company.

[We thought that if we support them with just a little bit of funds, they could receive money after selling (the goods) and things would get better, so that's why we did it back then.]

Lawyer Jeon stated that he is pushing to sell company assets to pay the overdue wages.

◆ A Single Word That Shackled Listed Companies: "We Will File for Bankruptcy"

Lawyer Jeon also pressured listed companies by utilizing bankruptcy applications.

Once a bankruptcy application is filed, a listed company has no choice but to disclose it while anticipating a stock price crash.

[Representative of Kosdaq-listed Company B: Bankruptcy applications can only be filed by creditors or debtors, but (lawyer Jeon's side) filed for bankruptcy claiming to be a shareholder holding two shares. That act alone caused massive obstruction of business.]

Since 2020, there have been 20 cases across 9 companies where lawyer Jeon's law firm filed for bankruptcy against Kosdaq companies only to have them dismissed.

This accounts for more than a quarter of all dismissed bankruptcy cases during the same period.

Critics point out that they might have induced adverse disclosures even while knowing the petitions would be dismissed from the beginning.

On the other hand, lawyer Jeon maintains that it was a legitimate legal procedure to claim damages caused by the illegal acts of management.

[Lawyer Jeon: It may look absurd from the court's perspective, but from my perspective, it is legitimate. Legally, we can claim that a claim is established.]

However, the Busan Rehabilitation Court recently dismissed the bankruptcy application filed by lawyer Jeon's side, ruling that "notifying business partners and banks of the bankruptcy application while failing to attend the trial itself constitutes an abuse of bankruptcy procedures."

They also dragged out time by delaying trial schedules or the payment of advance costs, or by withdrawing right before the trial.

While the Supreme Court holds the position that excessively strengthening requirements at the application stage could shrink applications, there are institutional differences, such as the United States imposing punitive damages for malicious bankruptcy applications and Japan not even initiating the procedures themselves.

Experts point out that strict legal responsibility must be imposed on pressure tactics abusing the disclosure system.

[Ahn Seung-keun / Vice Chairman of the Korea Kosdaq Association: They lack the organization and such to respond to lawsuits or injunctions compared to large conglomerates. When they cause grave harm to the capital market, they should be severely punished so they cannot re-enter.]

[Yang Seok-jo / Lawyer (Former Chief Prosecutor of the Seoul Southern District Prosecutors' Office): Regarding the act of abusing the disclosure system itself, it seems there is room to review whether it falls under "fraudulent unfair transactions under the Capital Markets Act," meaning fraudulent means, schemes, and artifices, and whether "obstruction of business by deceit under the Criminal Act" is established.]

Lawyer Jeon was confirmed to be listed as a CEO or inside director in at least 16 companies.

He denied criticisms from some quarters that he is a corporate raider, stating that he simply conducts lawsuits representing shareholders and receives joint management rights instead of a retainer.

[Lawyer Jeon: I always say this: "Let's do 50-50 management once we find the management rights." That's not a bad thing. I'm doing it using my skills.]

Lawyer Jeon was recently indicted on charges of breach of trust under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes during another corporate acquisition process.

(Reported by Lee Hyun-jung | Video by Seol Min-hwan | Video Editing by Park Na-young | Graphics by Park Taeyeong, Im Chan-hyeok, Yoon Yeong-je | VJ: Kim Jun-ho | Writer: Park Jeong-seon | Intern: Hwang Chae-hyun | Produced by SBS Digital News)
※ Please note: This article was translated by AI and may contain errors.