[로펌의기술]② Relief pitcher Hwa-woo for the ‘1st group lawsuit’ of Doosan Infra… Setting a milestone in the M&A dispute

Enter 2021.01.20 06:00

Doosan Infracore’s 1st and 2nd referee Kim & Chang, FI legal representative Sejong
From the appeal,’Hwawoo’…

The ‘1 trillion won lawsuit’ held by Doosan Infracore and financial investors (FI) ended on the 14th with Doosan’s victory. It has been five years since the first lawsuit was filed. The Doosan Group, which was preparing to sell Doosan Infracore, has cleared a major hurdle of’lawsuit risk’.

This lawsuit was at stake with a large amount of money of 1 trillion won, and the economic community was very interested in determining the direction of the Doosan Group’s restructuring. The legal community also paid attention to which hand the Supreme Court would finally raise in that the judgments of the first and second trials were 180 degrees different.

There was also a point of watching that a large law firm’s pride confrontation. Kim & Chang was in charge of Doosan Infracore’s legal representative, and Sejong was in charge of FI’s legal representative, and sparks sprang from the first trial. However, there was a separate main character. Doosan Infracore reinforced its lawyers by appealing to the Supreme Court after losing in the second trial. Former Justice Lee In-bok joined the existing lawyers centered on Kim & Chang.

Hwawoo, a law firm to which the former Supreme Justice belonged, also naturally joined the lawyers. Before the appeal, Hwa-woo, who became a relief pitcher, added the meaning and impact of’Drag & Call’ to the capital market to the defense, and the Supreme Court accepted this as it was and gave Doosan Infracore’s hand. The relief pitcher became the winning pitcher.

◇ From M&A to what is the duty of the major shareholders to provide data?
Doosan Infracore established Doosan Infracore China (DICC) in 1994 to target the Chinese market. After that, in 2011, it passed 20% of DICC’s stake to FI to 380 billion won, and it was listed on the Chinese stock market within three years to help FIs recover their investment. However, as the Chinese construction market slowed, the listing collapsed, and FI pushed for a sale to recover the investment.

When Doosan Infracore and FI signed an investment contract in 2011, drag and call was specified in the contract. Drag-and-Call is a British-American M&A (merger and acquisition) technique that combines the right to purchase together with minority-equity investors and the right to purchase priority by large shareholders. Recently, it is often used in Korea.

In this contract, FI, which has only 20% of the shares, guaranteed the right to claim a joint sale, which could sell up to 80% of Doosan Infracore’s shares in the event of a failure in listing on DICC. If the FI exercises the right to claim for mutual sale, Doosan Infracore, the majority shareholder, agrees to this and can sell DICC to a third party or exercise the right to buy a 20% stake held by FI.

However, there was a problem in the process of writing the investment statement that FI would send to the prospective takeover. Doosan Infracore refused to submit the data, saying that it is necessary to confirm the authenticity of the prospective takeover because it is a data containing trade secrets. Eventually, the sale process was stopped, and FI filed a lawsuit claiming that Doosan Infracore had interfered with the exercise of their rights.

The first referee gave Doosan Infracore’s hand. The first trial court judged that “the evidence submitted by the plaintiff (FI) alone is insufficient to admit that Doosan Infracore has interfered with the decision process of the prospective buyer in the plaintiff’s sale of DICC shares, and there is no evidence to admit it.” .

On the other hand, in the second trial, the result was reversed. The second trial, who raised FI’s hand, judged that Doosan Infracore interfered with FI’s exercise of the right to claim a companion sale. Doosan Infracore did not provide sufficient data, so the sale process did not proceed anymore at the stage of preparing the investment statement. The 2nd Tribunal said, “Doosan Infracore refused to provide data without justifiable reason, even though it is obligated to cooperate with the sale procedure in a position to accept the sale procedure according to the exercise of the right to request for joint sale by the plaintiff if DICC does not go public. And violated the obligation to cooperate.”

At the same time, the second trial judge said that Doosan Infracore should buy a 20% stake held by FI, as the exercise of the right to claim companionship was canceled due to the interference of Doosan Infracore. Article 150 (1) of the Civil Code (when a party to be disadvantaged due to the fulfillment of a condition interferes with the fulfillment of the condition against good faith, the other party may claim that the condition has been fulfilled).

However, the Supreme Court saw that the second trial ruling was wrong. It is true that Doosan Infracore did not provide the data properly, but at the same time, it was judged that FI did not cooperate sufficiently with Doosan Infracore to confirm the authenticity of the acquirer. In addition, it was considered that the mere refusal to cooperate was insufficient and specific interfering behaviors were necessary to establish the interfering behavior set forth in Article 150 (1) of the Civil Code, which was put forward by the second trial court as the basis for the judgment.

The usual M&A process goes through 15 stages, and the sale process in this case was halted at the fourth stage, the preparation of the investment introduction (IM) and bidding guide. The FI argued that Doosan Infracore should pay the price for the stock purchase on the basis of the failure to cooperate with the data submission in step 4. It was judged that it could not be regarded as an obstructive act under Article 150 (1) of the Civil Code.

◇ M&A Legal Dispute Milestone,’Corporate Dispute Specialist’ Park Jae-woo, attorney
This Supreme Court ruling attracted great interest from the legal community and the investment industry in that it was the first precedent of a legal dispute related to a new M&A technique,’Drag and Call’.

For the first time, the Supreme Court proposed specific criteria for the extent to which the contracting party’s obligation to cooperate when exercising the right to claim for mutual sale is recognized and the conditions under which obstruction against good faith is recognized.

The legal community has given the meaning of the Supreme Court decision as a decision that set a milestone in the M&A legal dispute. According to the judgment of the second trial, there is a high possibility that all contracts with drag-and-call agreements will be involved in legal disputes. This is because even in the early stages of the sale process, where the expected purchase price and the sale price are not confirmed, the majority shareholder’s preferred purchase option may be deprived and punished for violating the obligation to cooperate. The drag-and-call M&A technique is virtually incapacitated.

Attorney Park Jae-woo (34th Judicial Research and Training Institute), who defended the case, said, “The Drag & Call agreement is a rational investment recovery plan created by M&A transaction consumers based on the principle of self-responsibility and legal stability through private autonomy. “It is the key to consider the balance in balance,” he said. “The second trial ruling did not fit that purpose, but the Supreme Court ruling confirmed that the drag-and-call agreement remains in effect.”

“According to the judgment of the second trial, the position of the majority shareholder, who has no choice but to be cautious in providing related data to verify the goodwill and sincerity of the buyer to protect trade secrets, is seen as an act of interfering with the exercise of the right to claim for sale.” If this was confirmed, it would be against the common sense of the M&A transaction, and in particular, foreign investors would see M&A as a very unstable transaction in the Korean market or as a transaction that must be judged by the court every time.”

He led Hwawoo’s lawyers from the time he submitted a review opinion to Doosan Infracore after the second trial decision. Attorney Lee In-bok, former Supreme Judge Lawyer, Sang-Mook Lee (31st Judicial Research & Training Institute), lawyer Jun Joo Joo (25th Judicial Research & Training Institute), and Hyejin Hwang (37th Judicial Research & Training Institute) helped Park.

In the legal community, it is evaluated that Hwawoo’s strategy, including the significance of the latest M&A techniques and market impact, was effective. Attorney Park said, “I focused on the intrinsic purpose of the drag and call agreement,” he said. “I did the best I could by mobilizing all the available personnel.”

In 2013, attorney Park resigned as the last judge in the administration of Suwon District Court. As a judge, he was mainly in charge of labor and administrative cases. After joining Hwawoo based on his experience as an administrative judge, he has mainly worked on corporate-related civil and criminal litigation, legal risk management (CRM), management disputes, labor, and administrative cases.

Appeal trial for Samsung Group’s claim for restoration of inheritance rights, Kumho Group’s stock sale, trademark rights, and mutual ownership cases, tobacco litigation filed by the National Health Insurance Corporation against tobacco companies (defendant BATK, BATKM), public relations between POSCO Engineering and EM Construction He led provisional injunctions and civil lawsuits related to the contract successful bidder status.