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Newsletter | August 2015, Issue 2
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CORPORATE
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Recent Notable Court Decisions Concerning LBO Transactions
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Recently, Korean courts issued notable decisions on leveraged buyout (“LBO”) transactions.
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Merger-type LBOs. On January 22, 2015, the Seoul Central District Court entered its final judgment for the directors of the target company, Hi-Mart, on an alleged breach of fiduciary duty case in a “merger-type” LBO transaction, and were found not guilty. Hi-Mart is the first meaningful court decision to provide a standard for reviewing “merger-type” LBOs.
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Security Interest-type LBOs. Since 2006, the Supreme Court has consistently entered verdicts against directors of the target company in a security interest-type LBO transaction, in which the directors approved the provision of target assets as security to support the LBO financing.
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However, on March 12, 2015, the Supreme Court affirmed the lower court’s “not guilty” verdict and found for the representative director of the target company, Ubistar, in a case commonly referred to as Onse Communications. This was a breach of fiduciary duty case brought by the prosecutor’s office against the representative director of Ubistar in a security interest-type LBO transaction. This ruling is a deviation from the majority of court decisions on security interest type LBOs.
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Capital Reduction / Dividend-type LBOs. In contrast, with respect to “capital reduction / dividend-type” LBOs, the Supreme Court, in a June 2013 case, found that there was no breach of fiduciary duty when the directors approved a capital reduction / dividend payment to support the LBO financing.
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Notwithstanding these recent court decisions, in breach of fiduciary duty cases concerning LBO transactions, the Supreme Court continues to stand by its general position that whether or not directors of a target company are found to have breached their fiduciary duty depends on the specific facts and circumstances of each transaction.
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Accordingly, we recommend potential acquirers contemplating a LBO transaction to conduct a comprehensive review of the potential legal risks and pitfalls based on the material facts and circumstances of the transaction against legal precedents to date.
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