A South Korean court has ruled in favor of former KT&G directors in the first trial of a shareholder derivative lawsuit brought by activist fund Flashlight Capital Partners (FCP).
The 11th Civil Division of the Daejeon District Court dismissed the damages claim filed against the former KT&G directors by Agnes, a special-purpose company set up by FCP, according to legal and investment banking sources on the 12th. FCP was represented by the law firm Hannuri, while the KT&G directors were represented by Bae, Kim & Lee.
FCP had earlier sent KT&G a demand letter arguing that the company's board had donated treasury shares at below-market prices to affiliated foundations and other bodies over 17 years starting in 2002, building friendly ownership stakes and causing losses to the company. The letter called on KT&G to conduct its own investigation and to take steps to recover damages from those responsible. After KT&G refused, saying the donations of treasury shares "were carried out lawfully in line with public-interest purposes and social contribution activities," FCP filed the shareholder derivative suit in January last year.
Industry observers had estimated that FCP filed the suit putting KT&G's losses at up to about 1 trillion won, but the amount actually filed with the court was around 69.8 billion won ($50 million). The scope of the claim appears to have been narrowed to donations of treasury shares tied to scholarship foundations, mutual-aid associations and public enterprises made between 2015 and 2019.
The court is understood to have accepted KT&G's position that the board's past decisions to donate treasury shares fell within the legitimate discretion of business judgment, serving public-interest purposes and social contribution, and to have dismissed all of FCP's claims.
The ruling removes, at least for now, the legal uncertainty over the treasury-share donations that had continued for years. A KT&G official said, "We respect the court's ruling that the former directors' decisions were lawful." An FCP official said the fund would review whether to appeal.
