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Newsletter | February 2016, Issue 1
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Antitrust & Competition
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Did Eight Affiliates of the Korean Conglomerate, Kumho Asiana Group, Violate Korean Antitrust Law by Extending Commercial Paper Maturity Periods?
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The Korea Fair Trade Commission (“KFTC”) investigated the conduct of Kumho Asiana Group’s (“Kumho Group”) eight affiliates over a two-day period in 200935 for allegedly extending the maturity periods of commercial papers issued by Kumho Industrial and Kumho Tire.
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In November 2015, the KFTC concluded its long investigation with a finding of no violation, and determined that the affiliates did not engage in any act of “unjust support.36”
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Background
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At the end of 2006, Kumho Group had acquired funds from financial investors to acquire Daewoo Construction. Through a shareholders’ agreement, Kumho Group gave these financial investors options to sell Daewoo Construction shares back to Kumho Group (“put-back options”).
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However, starting in 2007, the construction industry began to suffer a downturn. Due to the 2008 global financial and the US subprime mortgage crisis, Daewoo Construction’s share prices began to spiral downward.
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In June 2009, Kumho Group entered into a financial restructuring agreement with its major creditor banks. During the corporate restructuring, Kumho Group began the process of selling Daewoo Construction.
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By the end of 2009, financial investors were able to exercise their put-back options. This is important, because due to complications in obtaining investment funds, Kumho saw that completing the sale before the deadline to exercise the put-back options would be difficult.
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Thus, on December 30, 2009, Kumho Industrial and Kumho Tire had to enter into a “workout” process.
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During this process – and over the critical two-day period (Dec. 30-31, 2009) – Kumho Group’s eight affiliates extended the maturity period of commercial papers that were issued by Kumho Industrial and Kumho Tire.
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The KFTC investigated this extension under the suspicion that the eight affiliates had engaged in an act of “unjust support.”
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Kim & Chang’s Representation & KFTC’s Finding
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Kumho Group’s Position: Kumho Group argued that this extension of the maturity periods did not constitute “unjust support,” because it was conducted as part of a proper corporate restructuring:
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At the time, all Kumho Group affiliates had entered into the financial restructuring agreement with the major creditor banks; and
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When the maturity extension occurred, Kumho Industrial and Kumho Tire were in the “workout” process.
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KFTC’s Finding: The KFTC sided with Kumho Group, and was further persuaded that the maturity period extension did not constitute “unjust support” under the KFTC’s Guidelines on Acts of Unjust Support, because it had to be done to reallocate losses within unavoidable scope.
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Kim & Chang, who represented five of the eight affiliates (Asiana Airlines, Kumho Resort, Asiana Airport, Kumho Industrial, and Asiana IDT), was instrumental to the KFTC’s finding of no violation.
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From December 30 to 31, 2009.
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| 36 |
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Under Korean competition law, a holding group cannot provide benefits to its affiliates, where, when viewed from an arms-length basis, such an act is not justifiable.
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