[Invest&Law] Sewoon District 5 PF Dispute...Court Rules "IGIS Asset Management Must Pay KB Securities 914 Million Won in Damages"

Follow-up Project Promise After Termination of Arrangement Contract

Court Awards 914 Million Won Out of 2.53 Billion Claimed

In the legal battle between KB Securities and IGIS Asset Management over project financing (PF) financial arrangement for the Sewoon 5-1·3 Redevelopment Project in Jung-gu, Seoul, KB Securities has partially won. The court ruled that if parties agree to terminate an existing financial arrangement agreement in exchange for providing financial arrangement opportunities in another project, the responsibility does not end at simply providing project information—there is also an obligation to execute actual contracts and pay fees as stipulated in the agreement.

According to legal sources on September 9, the 20th Civil Division of the Seoul Central District Court (Presiding Judge Kim Mincheol) ordered IGIS Asset Management to pay KB Securities KRW 914 million, plus delayed damages, in a first-instance lawsuit. KB Securities had filed a claim for damages totaling KRW 2.53 billion against IGIS Asset Management.

Dispute Begins with Change in PF Lead Arranger

KB Securities was the main financial arranger responsible for capital funding, including bridge loans and the main PF loan, for the Sewoon 5-1·3 redevelopment project. Financial arrangement refers to the work of connecting project owners in need of capital with financial institutions that provide loans. In real estate development, this involves designing loan structures—including loan size and interest rates—and assembling financial institutions to successfully secure financing.

To carry out the project, Sewoon 5 PFV (a special purpose company established for this development) was formed, and IGIS Asset Management also took part as an investor. Initially, KB Securities and others were to be granted the exclusive right to act as financial arrangers. However, in 2022, the project operator attempted to raise capital through another financial institution, resulting in termination of the original contract.

Instead, the PFV agreed to pay the existing arrangement firms a termination settlement of KRW 3.4 billion, and IGIS Asset Management agreed to ensure that by April 2024, the arrangers could receive a total of KRW 4.6 billion in arrangement fees from other projects in which IGIS Asset Management participated. KB Securities' share of this was 55%, amounting to KRW 2.53 billion. The agreement explicitly stated that at least two financial arrangement opportunities would be provided annually, and actual contracts would be secured, resulting in total fees exceeding KRW 4.6 billion.

Afterward, IGIS Asset Management introduced several development projects to KB Securities, but most did not lead to actual arrangement contracts. When KB Securities claimed damages, IGIS Asset Management countered by arguing that it had fulfilled its obligation to provide 'opportunities' by introducing project information and soliciting KB Securities' participation.

"Providing Business Information Is Not Enough"… KB Securities Partially Prevails

The first-instance court ruled that merely introducing projects was insufficient. The bench explained that IGIS Asset Management's obligations included not only providing information on funding needs and guaranteeing participation rights, but also ensuring the execution of actual financial arrangement contracts and the payment of fees totaling KRW 4.6 billion.

The preferential negotiation right granted to KB Securities was also a factor. While in some projects KB Securities requested higher fees compared to competitors, the court stated that the fact that the financial terms were "somewhat less reasonable than those of other institutions" alone did not exempt IGIS Asset Management from the obligation to finalize contracts and pay fees. Furthermore, it weighed against IGIS Asset Management that it entered into contracts with other financial companies without a separate negotiation with KB Securities.

However, the court did not fully accept KB Securities' claim for total damages. KB Securities had already received a fee of KRW 245 million from one development project. The court set the final loss amount at KRW 914 million, which is 40% of the remaining KRW 2.285 billion.

The court also considered that, had actual arrangement work been performed, costs such as investor sourcing, due diligence on financial terms, and contract drafting would have been incurred. Since the deals fell through, these costs were not realized. It also took into account that the high fees proposed by KB Securities in some projects contributed in part to the collapse of certain negotiations.

Since neither party appealed, this ruling has become final.

This content was produced with the assistance of AI translation services.