Hanyang Securities faced minority shareholders in court on May 7 over a disputed 50 billion won share issuance. Seoul Southern District Court held a hearing on an injunction to block 2.389 million new shares allocated to majority owner KCGI Fund No. 2 at 21,000 won each, with payment due May 8. Shareholders argued the capital raise violates Commercial Act provisions on business purpose and equal treatment, while the company cited the need to maintain its net capital ratio ahead of a September derivatives license application.
Court Examines Third-Party Share Allocation to KCGI Fund
Seoul Southern District Court's Civil Division 51 conducted the hearing on the morning of May 7. Hanyang Securities' board of directors approved the third-party allocation on the 25th of last month, targeting KCGI Fund No. 2 Private Investment Limited Partnership as the sole recipient. The share price of 21,000 won represents a 12.9% premium over the reference price.
The payment deadline is set for May 8. The court scheduled its final decision to coincide with this timeline, with the presiding judge stating that the ruling must be issued by May 8 given the imminent payment and effective dates.
Shareholders Cite Commercial Act Violations in Legal Challenge
Minority shareholders asserted that the capital raise fails to meet Commercial Act Article 418's requirement for 'business purpose' in third-party allocations. Attorney Jeong Ji-young, representing the shareholders, further claimed the issuance violates Article 382-3, which mandates director loyalty to all shareholders and equal treatment obligations.
Shareholders pointed to KCGI's history as an activist fund that previously criticized similar third-party allocations at other companies. They noted that KCGI acquired control one year ago at 58,500 won per share, while the new share price of 21,000 won represents less than half that valuation. Shareholders characterized this pricing as a mechanism to lower the majority owner's cost basis and strengthen control.
The shareholder side also argued the company failed to conduct fair simulations or adequate reviews of alternative funding methods. They stated the move contradicts Hanyang Securities' previously disclosed corporate value enhancement (value-up) plan and causes irreparable harm to general investors.
Hanyang Securities Defends Capital Raise for NCR Compliance
Law firm Hwawoo, representing Hanyang Securities, argued that preemptive capital strengthening was essential to defend the net capital ratio (NCR) for obtaining an over-the-counter derivatives license in September. The company stated that without the capital raise, NCR would plunge from the 630% range to the 200% range, creating obstacles for new business entry and leverage-liquidity ratio management.
The company characterized the issuance as responsible management, noting that the majority shareholder subscribed to common shares at a premium rather than redeemable convertible preferred shares (RCPS) that would allow future fund recovery and exit. Company representatives stated that KCGI already holds a stable ownership stake, eliminating any management control defense motive.
Hanyang Securities cited the stock price's upward trend following the announcement as evidence of positive market reception. The company referenced recent similar cases in the capital market, including Korea Zinc, arguing that the core issue concerns the interests of all shareholders rather than protecting specific shareholders' opportunity rights.
Commercial Law Framework Governs Third-Party Allocations
Commercial Act Article 418 permits third-party share allocations only in exceptional cases 'necessary to achieve business purposes such as introducing new technology or improving financial structure.' Revised Commercial Act Article 382-3 stipulates that directors must protect the interests of all shareholders and treat all shareholders equally.
The court concluded the hearing without additional written arguments due to the imminent payment deadline. The presiding judge confirmed that the court's decision would be issued by May 8.
FAQ
What share allocation did Hanyang Securities approve on the 25th of last month?
Hanyang Securities' board of directors approved a third-party allocation of 2.389 million new common shares to KCGI Fund No. 2 Private Investment Limited Partnership at 21,000 won per share, representing a 12.9% premium over the reference price, with a total value of 50 billion won.
Why did minority shareholders file an injunction against the share issuance?
Minority shareholders argued the capital raise violates Commercial Act Article 418's 'business purpose' requirement for third-party allocations and Article 382-3's shareholder equal treatment duty, claiming the pricing at 21,000 won per share (less than half the 58,500 won acquisition price from one year ago) serves to lower the majority owner's cost basis rather than legitimate business needs.
How did Hanyang Securities defend the capital raise in court on May 7?
The company stated that preemptive capital strengthening was essential to maintain the net capital ratio (NCR) for obtaining an over-the-counter derivatives license in September, arguing that without the raise NCR would drop from the 630% range to the 200% range and create obstacles for new business entry and ratio management.
