Sold Tongyang Life, Left Holding the Bag for Damages... Yuanta's KRW 135 Billion Suit Against VIG, NPS Enters Appeal [Invest&Law]

Paid Full Damages as a Co-Seller Over Meat-Backed Loan Losses
First Trial: "Right to Seek Contributions Recognized, Fund Distributions Lawful"

Yuanta Securities Korea, which sold a 3% stake in Tongyang Life Insurance but was left liable for KRW 191 billion in damages and other costs, is entering the second phase of its civil lawsuit against funds affiliated with private equity firm VIG Partners and their investors.

In the first trial, Yuanta Securities Korea was recognized as having the right to seek contributions toward the damages from the other sellers, but its claim to recover investment funds that had already been distributed was rejected. In the appeal, the key issue is expected to be whether it can reclaim investment funds already paid out by citing losses that were not disclosed at the time of the sale.

According to legal sources on November 4, the Seoul High Court's Civil Division 14-2, presided over by Judge Hong Seonguk, will hold the first hearing in the appeal on November 19 in a lawsuit filed by Yuanta Securities Korea seeking the return of approximately KRW 135 billion in unlawfully distributed funds from VIG-affiliated funds, related companies, and investors including the National Pension Service.

Shares Sold for KRW 53.9 Billion... KRW 191 Billion Paid in Damages, Interest, and Other Costs

The dispute began with the sale of Tongyang Life Insurance in 2015. At the time, Yuanta Securities Korea and VIG-affiliated special purpose companies (SPCs) sold approximately 63% of Tongyang Life Insurance to Anbang Insurance Group for KRW 1.1658 trillion. Yuanta Securities Korea sold a 3% stake and received approximately KRW 53.9 billion.

The following year, problems emerged with nonperforming meat-backed loans (Meat Loan). Losses exceeding KRW 300 billion arose after fraudulent schemes came to light, including inflating the value of collateral and pledging the same meat as collateral multiple times. Anbang Insurance Group claimed that it had suffered losses because the sellers had failed to properly disclose the problems, and sought damages through arbitration before the International Chamber of Commerce (ICC).

In 2020, the arbitral tribunal ordered the sellers to pay KRW 166.6 billion in damages, and a Korean court also approved enforcement of the award. Yuanta Securities Korea ultimately paid the full amount of approximately KRW 191 billion in damages, interest, and arbitration costs in December 2024.

Dispute Over Each Party's Share of Damages... Right to Seek Contributions Recognized

VIG-affiliated SPCs distributed the sale proceeds to the funds, which then paid them to investors, including the National Pension Service. Yuanta Securities Korea demanded the return of approximately KRW 135 billion from VIG-affiliated funds and their general partners (GPs), arguing that "the SPCs acted unlawfully by distributing the sale proceeds without taking future damages liabilities into account." It also sought approximately KRW 89.9 billion of that amount from the National Pension Service. It demanded the return of approximately KRW 12.8 billion and KRW 18.2 billion, respectively, from other mutual aid associations and federations.

During the trial, Yuanta Securities Korea argued that "the co-sellers should share the burden of the damages" and that it had the right to recover the damages in proportion to the sale proceeds it received, known as a right of contribution. It also argued that "potential future damages liabilities should have been recorded as accounting liabilities (provisions)," and stressed that "distributions made without recording them were unlawful."

In response, the National Pension Service and other investors argued that Yuanta Securities Korea may have known, or could have known, about the company's problems because it had previously belonged to the same corporate group as Tongyang Life Insurance. Their position was that liability should not be divided according to the proportion of the sale proceeds because Yuanta Securities Korea may have been more at fault. VIG-affiliated funds and their GPs countered that the damages had not been determined when the distributions were made and that Yuanta Securities Korea's right to seek contributions had not yet arisen.

Problems Came to Light Later... Return of Distributed Funds Denied

The court of first instance recognized Yuanta Securities Korea's right to seek contributions, stating that "the internal allocation of liability is determined according to the proportion of the sale proceeds." However, it found that failing to record the damages liability as a liability was not unlawful. Tongyang Life Insurance did not identify the problems until late November 2016, after the SPCs had completed their distributions.

The court said, "At the time, it was difficult to predict whether a damages liability would arise or how large it would be," adding, "It cannot be concluded that there was an accounting error or any wrongdoing." It particularly stressed that "the problems at issue were discovered only after the transaction, and not even by the target company itself," and that "retroactively deeming past distributions unlawful on this basis would run counter to the purpose of establishing private equity funds and SPCs."

Accordingly, the court dismissed the claims for the return of funds against the funds and GPs, and rejected the claims against investors, including the National Pension Service, on procedural grounds. With Yuanta Securities Korea appealing, the key issue in the second trial is expected to be whether damages liabilities that could not have been anticipated when the distributions were made must be reflected in those past distributions.

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