Jungheung Construction will file an administrative lawsuit in response to the government's imposition of a penalty surcharge. The government’s judgment that it unfairly supported its affiliate is considered "an excessive application of the law." Jungheung Construction was penalized with a surcharge of more than 18 billion won for providing free credit guarantees (unfair support and private gain) to Jungheung Engineering, in which the group chairman’s son is the largest shareholder. The penalty surcharge amounts to three times the company’s net profit from last year (6.173 billion won).
The government determined that Jungheung Construction's provision of credit guarantees to Jungheung Engineering, which is owned by the group chairman’s son, contributed to the expansion of the Jungheung Group's business and laid the groundwork for Jungheung Engineering's acquisition of Daewoo E&C. This implies that unfair support was provided for the purpose of succession within the group.
According to the Fair Trade Commission and Jungheung Construction, the company decided to appeal to the Seoul High Court against the penalty surcharge of 18.021 billion won imposed on Jungheung Construction and its six affiliates by the Fair Trade Commission on the 10th. The appeal is planned to be filed immediately after the commission's decision, which has the effect of a first-instance ruling, is delivered to Jungheung Construction. A representative from Jungheung Construction stated, "We plan to contest the legality of the penalty surcharge through an appeal as it is an excessive application of the law."
According to the Fair Trade Commission, Jungheung Construction provided free credit enhancement totaling 3.2096 trillion won for 24 real estate project financing (PF) and asset-backed loans related to 12 development projects implemented by Jungheung Engineering and its six affiliates from July 2015 to February this year. The credit enhancement was provided in the form of a "fund supplement agreement" without any fees.
Jungheung Construction and Jungheung Engineering are comprehensive construction companies focused on apartment construction and sales, known for their "Jungheung S-Class" brand. Jungheung Construction holds 76.74% equity owned by chairman Jeong Chang-seon, while Jungheung Engineering is fully owned (100% equity) by Jeong Chang-seon's son, Jeong Won-joo, who is also the vice chairman of Jungheung Group. Additionally, Jungheung Engineering, along with Jungheung Construction, acquired Daewoo E&C in 2021 (with a 50.75% equity stake).
The fund supplement agreement questioned by the Fair Trade Commission is a contract where a third party agrees to supplement a debtor's funds by investing or lending if the debtor's ability to repay declines, and the agreement is submitted to financial institutions after execution.
The Fair Trade Commission has identified that Jungheung Construction's fund supplement agreement enabled Jungheung Engineering and its affiliates to pursue large-scale projects, achieving sales of 6.678 trillion won and profits of 1.0731 trillion won as of the end of 2023. Jungheung Engineering’s construction capability ranking rose from 82nd in 2014 to 16th in 2024, and it became a large corporation owning over 40 affiliate companies, partly due to such support.
The point of contention between the Fair Trade Commission and Jungheung Construction is whether the fund supplement agreement is an industry practice. In materials provided by Jungheung Construction to ChosunBiz, it claimed that "there have been about 28,000 fund supplement agreements recognized from July 1, 2015, to May 18, 2025" and stated, "The Fair Trade Commission has never regulated any of these numerous fund supplement agreements as unfair support actions." Furthermore, it noted, "If the same standard is applied to the market, there would be an explosion of law violation cases, which could lead to significant confusion in the market."
On the other hand, the Fair Trade Commission argues that the fund supplement agreements of other construction companies and this case of penalty surcharge are essentially different. It stated that fund supplement agreements are typically provided by construction companies with equity shares to developers, and this can be seen as compensation received in exchange for construction rights. However, in this case, the sanctioned business sites have no participation from Jungheung Construction.
Seok Dong-soo, head of the Fair Trade Commission's unfair support monitoring division, noted that "this is a case where a construction company without construction equity provided credit enhancement without additional compensation," and added that a penalty surcharge was imposed only on those projects for which Jungheung Construction had no construction rights among the fund supplement agreements it made with Jungheung Engineering.
In response, Jungheung Construction asserts that "participation in construction is not the only form of compensation, and various tangible and intangible benefits related to the credit enhancement agreement were obtained depending on business interests, including interest revenue, brand usage fees, brand value increase, and opportunities to participate in development and construction projects."
Meanwhile, the Fair Trade Commission views Jungheung Construction's support for Jungheung Engineering as part of management succession. It implies that chairman Jeong Chang-seon utilized such methods to support the growth of Jungheung Engineering, which is 100% owned by his son, Jeong Won-joo, who is the vice chairman of Jungheung Construction and also the chairman of Daewoo E&C. The Fair Trade Commission also pointed to the Gwanggyo C2 block project in Yongtong-gu, Suwon, Gyeonggi Province, as one of the business sites where Jungheung Construction provided fund supplement agreements. The Gwanggyo C2 block development project is a business site supplying 2,231 housing units across 10 buildings, with a total height of five underground floors and 49 above ground floors.
The Fair Trade Commission stated, "Through the success of large-scale projects like Gwanggyo C2, Jungheung Engineering rapidly rose to become a key company in the group, amassing substantial sales and profits, acquiring Daewoo E&C in 2021, and completing its governance transition centered on Jungheung Engineering as the holding company in 2023, thereby achieving management succession to the second generation of the same individual."
In the legal community, there is a prevalent opinion that the situation is unusual, and they must wait for the court's judgment. Lawyer Kim Jong-sik from Law Firm Lin stated, "The Fair Trade Commission has not provided guidelines on the fees for fund supplement agreements, and there has been a tendency for these agreements to be provided for free as a practice. Thus, Jungheung Construction may feel wronged. The dispute between both parties is likely to continue in the future at the high court."
A lawyer from a law firm remarked, "Given the massive size of the penalty surcharge, the Fair Trade Commission appears confident in proving substantial allegations regarding improper supports for management succession. However, we must observe what decision the High Court will make."