This article was published on April 1, 2025, at 4:11 p.m. on the ChosunBiz MoneyMove site.
Luxury distribution platform Balaan has found itself in a difficult situation after suddenly applying for corporate rehabilitation proceedings (court protection), leaving SILICON2, which invested about a month ago, in a bind. Although SILICON2 celebrated its successful investment by significantly lowering the company's valuation from its last funding round, the court protection of Balaan puts most of its investment at risk. The industry is now questioning SILICON2's capability for due diligence.
On April 1, investment banking (IB) industry sources reported that Balaan filed for corporate rehabilitation proceedings at the Seoul Rehabilitation Court the previous day. The court immediately ordered a preservation measure and a comprehensive prohibition order. The prohibition order freezes the creditors' claims to prevent them from securing the company's major assets through enforcement, provisional seizure, or auction processes. It was confirmed that Balaan's legal representative is attorney Kim Kwan-ki, who is also in charge of Homeplus's corporate rehabilitation proceedings.
At the beginning of last month, SILICON2 signed a mezzanine investment contract with Balaan worth 15 billion won. This involves acquiring 15 billion won in convertible bonds (CB) issued by Balaan in two stages. SILICON2 has already deposited 7.5 billion won. The second investment will proceed conditionally, based on the criteria of achieving 'a sales ratio of over 50% for the past two months' and 'achieving monthly operating profits for the last two consecutive months' between November 1, 2025, and May 1, 2026.
SILICON2's decision to opt for a mezzanine investment structure appears to be a move to consider acquiring management rights in the future. The shareholders' agreement between SILICON2 and Balaan includes a call option allowing SILICON2 to purchase a limit of 50% plus one share. The value of Balaan set by SILICON2 in this investment is approximately 29 billion won, a fraction of its valuation during the previous Series C funding round (300 billion won).
SILICON2 seems to view the significantly lowered valuation of Balaan as an opportunity to acquire management rights. To this end, SILICON2 reportedly has been negotiating with Balaan since the end of last year. It has also designed a structure to convert all redeemable convertible preferred shares (RCPS) held by Balaan's existing investors into common shares, thereby reducing expenditures after acquiring management rights. SILICON2 described the investment at the time as "an investment for stable management rights acquisition and strategic synergy."
However, as Balaan entered court protection just a month after SILICON2's investment, scrutiny of SILICON2's investment capability is growing. There are questions about whether SILICON2 could have anticipated the current situation through due diligence on Balaan's financial conditions prior to the investment. One industry insider noted, "Typically, investment is conducted after several months of investigating the company’s operational capacity and financial status," adding that, "Particularly in Balaan's case, most of its existing investors had reported impairment losses, so more thorough due diligence was necessary."
The loss of SILICON2's initial investment due to Balaan's application for court protection is an unavoidable situation. Since Balaan's liabilities exceed its assets, it's analyzed that there will essentially be nothing left for SILICON2, the subordinate creditor. The repayment rate for e-commerce platform TMON is also forecasted to be at around 1%. According to the audit report released at the end of 2023, Balaan's cumulative deficit amounts to approximately 78.4 billion won, with current liabilities exceeding current assets by 8.1 billion won. It is also reported that there are no clauses requesting the return of investment funds in case of corporate rehabilitation applications or liquidation.
There are criticisms that the timing of SILICON2's fund deployment indicates a failed investment. A legal expert specializing in corporate rehabilitation explained, "The price of assets entering corporate rehabilitation proceedings is determined at liquidation value, and existing shareholders' equities are also extinguished without compensation," noting that "this means that the costs incurred to secure management rights will be dramatically reduced."
Meanwhile, the Seoul Rehabilitation Court is set to hold a hearing for Balaan CEO Choi Hyung-rok on the 3rd before deciding on the commencement of rehabilitation proceedings. Following the appointment of an investigator, the exact scale of creditors is expected to be revealed. According to Balaan, the number of creditors is reportedly over 800.