KCGI to sue Korean Air Chairman Cho

Korea Corporate Governance Improvement CEO Kang Sung-boo

By Jhoo Dong-chan

The Korea Corporate Governance Improvement (KCGI) said it requested board members of Hanjin KAL to sue Korean Air Chairman Cho Won-tae for damages.

The homegrown private equity fund (PEF) is Hanjin KAL's second-largest shareholder as its subsidiary Grace Holdings owns a 15.98 percent stake in Hanjin Group's holding company. Korean Air is Hanjin KAL's air carrier unit.

According to the KCGI, Chairman Cho and two Hanjin KAL executive officials, including CEO Suk Tae-soo, borrowed 160 billion won ($131.7 million) worth of short-term debt to avoid an external audit with the audit committee system in December last year.

Under related laws, a listed firm with the total assets of less than 2 trillion won is subject to an external audit, where the audit committee is appointed by the firm's board member.

In a bid to more closely monitor Hanjin Group's businesses, the PEF requested Hanjin KAL to appoint Jinsung Accounting Corp. Park Ji-seung as an external audit director in December.

Korean Air Cho and the two Hanjin KAL management officials, however, borrowed the 160 billion won to allegedly allow the holding company's total assets to reach over 2 trillion won in the book in order to avoid the external audit.

The KCGI claimed Hanjin KAL had to shoulder unnecessary interest when the firm repaid 105 billion won out of the total of 160 billion won worth of short-term debt in February.

Korean Air Chairman Cho Won-tae

“Cho and two Hanjin KAL officials allowed the firm to borrow the money to avoid the external audit. Due to the decision, Hanjin KAL had to shoulder unnecessary costs,” the KCGI said.

“If Hanjin KAL board members does not sue Cho within 30 days, the KCGI will file a shareholder derivative suit.”

This would be the first time for the activist fund to wage a legal battle against the Cho family if it sues him.

The KCGI added its action is limited to a civil suit, not criminal proceedings.

In June, Delta Air Lines, which was believed to support Cho, acquired a 4.3 percent stake in Hanjin KAL. It said it would increase its stake in Hanjin KAL to 10 percent over time, a possible pressure on the KCGI if the U.S.-based airliner partners with the Cho family.