Joseph Hwang
On May 31, 2024, ADOR held the extraordinary shareholders' meeting by the court's decision. As a result, Min's position as ADOR's CEO and Director (a member of the board of directors) could be continuously maintained, the approved three new directors from HYBE's side had become members of the board of directors instead of Min's former two directors. Thus, the total number of directors including Min is four, and the predictable result of the directors' vote at the directors' meeting is "1 (Min) : 3 (HYBE)". In fact, Min's management rights at ADOR are likely to be taken away at any time after this shareholders' meeting, even if the court's decision caused the success of keeping the position of director.
Let's return to the shareholders' agreement between Min and HYBE with the court decision. Although these are partially opened, their written expressions herein are not supposed to be perfectly the same as the originals. Nevertheless, I think that it's useful to review them to help understand this case.
◈ First, "Article 2.1" of the shareholders' agreement
"Article 2 Matters Concerning the Management of Min Hee-jin
2.1 Appointment of CEO and Director
(a) Unless Min Hee-jin commits acts that constitute grounds for removal of a director under the Commercial Act, such as acts in violation of the Articles of Incorporation, laws and regulations, or this Agreement is terminated, HYBE shall take necessary measures, including exercising the voting rights of its shares at the general meeting of shareholders of ADOR, to ensure that Min Hee-jin retains the position of CEO and director of ADOR for a period of 5 (five) years since November 2, 2021, the date of establishment of ADOR.
(b) (omitted)
(c) In cases of these following clauses hereof, HYBE may require Min Hee-jin to resign from the position of Representative Director (CEO) and/or Inside Director, in which case Min Hee-jin shall resign without any hesitation from the position of Representative Director and/or Inside Director.
1. Min Hee-jin has intentionally or negligently caused damage to ADOR of approximately USD 720,000 (KRW 1 billion) or more
2. Min Hee-jin is in material breach of this Agreement
3. Min Hee-jin has committed breach of trust, embezzlement, or other illegal violations in connection with the operation of ADOR
4. If Min Hee-jin is otherwise materially disqualified from performing her duties as CEO"
Paragraph (a) of the above article describes the cases in which HYBE can dismiss Min's position as ADOR's CEO and inside director in enforcement. And paragraph (c) is the clause of the terms of the contract (4 conditions) that HYBE can require Min's resignation as ADOR's CEO and inside director.
◈ Second, the summarization of the court's decision
"MAIN SENTENCE
WHEREAS;
1. The Debtor (HYBE) shall hereby not vote in favor of the proposal to remove Ms. Min Hee-jin as an inside director of ADOR Inc. at the extraordinary meeting of shareholders (including serial meetings or resumed meetings) of ADOR Inc. to be convened on May 31, 2024.
2. Pay approximately USD 14.4 million (KRW 20 billion) to the Creditor (Min Hee-jin) if the Debtor (HYBE) violates the order in paragraph 1. hereof.
3. Dismiss the rest of the Creditor's motion.
4. Order the Debtor to pay the costs of the case thereto."
* The Creditor's (Min Hee-jin's) requested coercive compliance money was KRW 30 billion when the Debtor (HYBE) would violate the court's decision, however the court accepted only KRW 20 billion, reduced by KRW 10 billion.
(a) Preserved rights of the Creditor (Min)
In order to be granted a provisional legal position by the court, the creditor who applies should prove to have preserved rights against the debtor (HYBE). The court accepted that Min has a right to demand the retention of the representative director (CEO of ADOR) as an inside director by Min's insistence pursuant to the provision "Article 2.1" of the shareholders' agreement between HYBE and Min. Thus, the court ruled that HYBE is legally obligated to protect Min's preserved rights during her contracted term of office with the Debtor (HYBE) unless there is a breach of contract.
(b) Necessity of preservation
Since Min has acceptable preserved rights in this claim, the court judges whether the Creditor Min is necessary for preservation. To accept the necessity of preservation of Min's application, the following requirements should be satisfied; whether (i) the Creditor can obtain relief for her rights on the merits of the case, (ii) it's possible to compensate her damages caused by the dismissal of director with money financially, if approve to remove her position of representative director and inside director, (iii) as a result, the Creditor's damages are irreparable if denies the Creditor's request. After consideration, the court granted the Creditor's claim.
* In addition, the court had to determine whether Min Hee-jin had grounds for removal. If the statutory grounds for Min Hee-jin's removal existed, Min Hee-jin's provisional disposition could be set aside. Therefore, after reviewing and hearing the materials submitted by the Creditor and the Debtor, the court was able to conclude that
- The existence of a cause of removal or resignation for Min Hee-jin is subject to full evidentiary investigation and close examination in the merits proceedings, and the allegations and materials submitted so far do not sufficiently establish the cause of removal or resignation alleged by HYBE.
- It is clear that Min Hee-jin sought to weaken HYBE's control over ADOR by taking NewJeans out of HYBE's control or pressuring HYBE to sell its shares in ADOR, and that Min Hee-jin sought ways to gain independent control of ADOR.
- However, it is difficult to conclude that Min Hee-jin went beyond the stage of exploring such options to concrete implementation, and it is difficult to conclude that Min Hee-jin's conduct, while it may constitute a betrayal of HYBE, does not constitute a breach of trust with respect to ADOR.
* Furthermore, the court had to consider what was at issue: ADOR's loss caused by the decline in HYBE's stock price but the court decided that there was a lack of probability in association with this issue. And regarding minor matters raised by HYBE, the court almost denied all of them.
◈ Next phase
Min Hee-jin requested the second press conference after the ADOR extraordinary shareholders' meeting concluded on May 31, 2024. At the press conference, she expressed her satisfaction with her position as a representative director and inside director but expressed her concern about the removal of two former directors from her side. Her attorney worried about the case if she was unilaterally removed from the position of representative director but only held her position of inside director by the appointed new directors of HYBE side. Because the appointment of the representative director is an agenda item that belongs to the board of directors, not to the shareholders' meeting, this situation means that HYBE can declaw Min in the ADOR while maintaining her position of CEO by the vote of the appointed new directors on the board of directors. It would not be necessary to remove her CEO position as well critically. Therefore, we can wonder why Min has offered an olive branch to HYBE without any dispute. Min knows very well what her weakness is now.
So we can also imagine the situation that ADOR will be managed and operated by the co-representative director with Min and one of the new directors appointed by HYBE. As mentioned above, the representative director is appointed by the board of directors' resolution. The Korean Commercial Act allows the representative position of the company to be co-representative and independent representative. The difference between co-representatives and independent representatives is how the company's management's duties and responsibilities are charged. Still, the effect on the outside as a CEO is the same.
Even though there are some ways to control Min by HYBE, HYBE would be able to give up to remove Min's position without any aggressive action. This means that HYBE will not do anything for her until the expiration date of the contracted term of a director of ADOR in the shareholders' agreement. The reason for this assumption is that the lawsuit related to this dispute will be raised to the court, if Min appeals when she loses this case, the final decision of the Supreme Court will be finished after the termination of Min's contract period. This situation will be useless and inefficient.
The important point of view is how HYBE proves Min's betrayal of HYBE as a criminal sin and what HYBE's intention of the solution to this case.
* References and quotations:
https://youtu.be/uZaqwQRu-Ek?si=BPtxPZCAfc3ojUp0
https://www.koreatimes.co.kr/www/art/2024/06/398_375723.html
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