Last week, the Korean government announced that it would initiate a reviewing process for the approval of the KEB sale soon. Interestingly enough, today it was reported also that before the government’s announcement, Lone Star Fund had sent an official letter to the Korean government regarding the government’s approval issue on the long-waited sale of Korea Exchange Bank(KEB) from Lone Star Fund to HSBC bank. Lone Star Fund and HSBC had entered into the stock purchase agreement and the deadline of the agreement is coming at the end of this July. It was reported that Lone Star Fund stated in that problematic letter that if the Korean government kept delaying the approval, the fund would file a lawsuit domestically and internationally against the Korean government for the compensation of damages by the sale’s deferment(here is a news article).
Well, someone, especially western people, can say that there would be no problem in sending a letter to the other party noticing potential legal disputes. However, it is quite unusual in Korean legal culture that a private enterprise warns the government stating otherwise it would sue the government. Of course, it is legally acceptable and in some cases, a statutory right of a private enterprise, to file a lawsuit against the government, but culturally it is not common to take this kind of open and public action to press the government hard in Korea.
By the way, as a matter of law, the fund would be permitted to file a lawsuit to a Korean court, however, the chances are that the fund would not win the case. Under Korean law, in order for the fund to win the case, the fund must prove there has been an unlawful act of the Korean government in delaying the approval. But, the approval itself is a right, not an obligation, of the government provided by the law and there have been lawsuits affecting the validity of the ownership of KEB by the fund, which have made the Korean government hold the approval procedures until the courts make decisions.
However, an actual lawsuit between internationally renowned private equity funds and the Korean government regarding private investment transactions in Korea could harm Korea’s credentials in international investment and financing markets. That is what the Korean government might be paying attention to.
© 2008 Wonil Chung, a Korean Corporate Lawyer/Chung & Partners, a Korean Corporate Law Firm. All rights reserved. Some copyrights, photos, icons, trademarks, trade dress, or other commercial symbols that appear on this post are the property of the respective owners.