As the management rights dispute issue has emerged, Hanjin KAL's stock price has recorded the upper limit for two consecutive days; however, shareholders of Dong Sung Bio Pharm are not smiling amid the same management rights issue. This is because, after the management rights dispute occurred and the company applied for corporate rehabilitation (court receivership) to the court, the stock price plummeted, eventually leading to a halt in stock transactions.
Investors typically expect that when a management rights dispute occurs, they will gather all available funds to buy more stocks, but the opposite scenario can also occur. There are concerns that management trying to protect the company might suddenly apply for rehabilitation procedures if they face a funding shortage.
Hanjin KAL's stock price recorded the upper limit for two consecutive days beginning on the 13th. As Hoham Group increased its stake in Hanjin KAL to 18.46%, narrowing the equity gap with the largest shareholder, Chairman Cho Won-tae, to 1.67%, the possibility of a management rights dispute boosted the stock price. The stock price, which was in the 80,000 won range on the 12th, soared to the 150,000 won range in just two days, setting a new record high.
After an analysis suggested that Hoham Group would find it difficult to shake the existing management rights, Hanjin KAL's stock price dropped 17% on the 15th; however, compared to before the management rights dispute ignited, the stock price remains high.
The reason why management rights disputes influence stock prices is that there is a high possibility of equity conflicts. Typically, the parties involved in a dispute gather as much equity as possible to secure management rights.
A representative example of investors' expectations regarding management rights disputes is the Korea Zinc incident. The stock price of Korea Zinc, which had remained in the 400,000 won range, soared to 2 million won (based on closing price) as the management rights dispute intensified. At that time, Young Poong and MBK Partners initiated a public buyout to secure equity, causing the stock price to surge nearly fivefold in four months.
However, not all shareholders benefit from management rights disputes. In the case of Dong Sung Bio Pharm, where a management rights dispute occurred around the same time, the stock price not only failed to rise but, in fact, was halted entirely since the 8th. This occurred as the company abruptly applied for rehabilitation procedures following a management rights dispute within the owning family.
After news broke that Dong Sung Bio Pharm had applied for rehabilitation procedures to the court, its stock price fell to the lower limit. Since then, it has been in a state of trading suspension.
Insiders believe that the current management, at a disadvantage in the management rights dispute, strategically opted to present the rehabilitation procedure as a means to prevent attempts to change management, such as calling an extraordinary general meeting. Earlier, it was reported that Chairman Lee Yang-kyu of Dong Sung Bio Pharm had planned an extraordinary general meeting to replace the board of directors to regain management rights from the current CEO, Na Won-kyun, but the extraordinary meeting is now blocked due to the initiation of rehabilitation proceedings.
When the rehabilitation procedure is initiated, it is common for the existing representative to continue management as the custodian, which can work in favor of the current management. Because of this, corporate rehabilitation is seen as a strategic tool that allows for the safeguarding of management rights while postponing all debts. Even if the court dismisses the rehabilitation procedure, it is seen as an advantage for buying some time.
There have been previous instances where applications for corporate rehabilitation, contrary to their original intent, have been used as a defensive measure in management rights disputes, similar to the case of Dong Sung Bio Pharm.
A similar situation occurred at TERA SCIENCE, a KOSDAQ-listed company known for its lithium theme stocks. The largest shareholder and minority shareholders claimed that the current management was suspended due to embezzlement and malpractice, and they applied for the initiation of rehabilitation procedures. They stated their intention to replace the current management through the rehabilitation process. However, two previous applications for corporate rehabilitation were dismissed.
InnoWise (formerly Hwashin Tech), a KOSDAQ-listed company engaged in management rights litigation, also chose the rehabilitation procedure. In 2020, InnoWise Korea was established to acquire InnoWise, and after CEO Yang Kyung-hwi became the largest shareholder, conflicts with the original owner, Mr. Nam, intensified. As disputes surrounding management rights escalated, including lawsuits, the company applied for initiation of rehabilitation procedures. Ultimately, in 2021, it underwent the process of delisting due to a refusal of audit opinion.
Among unlisted companies, CleanWrap, widely recognized for food packaging products like cling film, is cited as a representative case of a company that opted for corporate rehabilitation in a management rights dispute. The sons of the late founder Jeon Byeong-su have engaged in a management rights lawsuit for years; however, in March, the Supreme Court appeared to resolve the dispute in favor of the elder son.
However, soon after the judgment, CleanWrap, led by the younger son who had lost management rights, applied for rehabilitation procedures to the court, bringing the management rights dispute back to the forefront. At that time, the largest shareholder was the elder son, who held 76% of the equity; however, the initiation of the rehabilitation process limited shareholders' rights, leading to renewed uncertainty regarding management rights.
CleanWrap not only had more assets than liabilities but also had liquid assets that could be converted to cash in a short period totaling 65 billion won. This assessment indicated that it was not in a situation to apply for rehabilitation procedures. The industry speculated that the management rights dispute was the direct cause of the application for rehabilitation. However, CleanWrap voluntarily withdrew its rehabilitation application.