Invest1 publisher3 min readPublished
Namyang's counterclaim turns an ex-chairman's 44.4 billion won severance suit into a repayment order
Namyang's shareholders never lawfully approved director pay, the Seoul Central District Court found, so Hong Won-sik has no right to severance after 47 years and must return part of what the company already paid him.
The Investor · Invest desk
What happened
- Hong Won-sik sued Namyang Dairy Products in May 2024, about two months after stepping down as a director, demanding 44,357,750,000 won in executive severance pay.
- The Seoul Central District Court's Civil Division 41, presided over by Judge Lee Kyu-hoon, ruled against him on the 27th of last month, and legal sources described the decision on the 13th.
- The court also granted the company's counterclaim, ordering Hong to pay Namyang 1.172 billion won as the return of unjust enrichment.
- Shareholders had capped director pay at 5 billion won at Namyang's 2023 and 2024 meetings, but separate litigation annulled both resolutions as defectively adopted.
- Hong appealed on the 31st of the same month and Namyang lodged its own appeal, moving the dispute to a second-instance court.
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Why it matters
- exposure Compensation a director has already banked becomes reachable by the company when the resolution behind it fails, so a defence against a pay claim can be run as a claw-back.
- constraint Until Namyang's shareholders pass a resolution that survives challenge, any director pay the company disburses rests on the same footing the court has just voided.
- decision A Korean company facing a large severance demand from a former insider now has to decide whether to counterclaim for money already paid rather than only contest the demand.
- precedent Procedural attacks on shareholder resolutions become a route to reclaiming executive pay. Meeting records bear on what a departing chairman can collect.
Between what Hong Won-sik asked for and what he has been ordered to pay lies about 45.5 billion won [1]. Across the roughly 47 years of service he cited as his entitlement, the demand works out at about 944 million won for each year [2][9]. The court did not weigh whether that was too much, because it found nothing to measure it against. "Because no annual salary exists as a basis for calculation, no right to claim severance pay arises for Hong," the court said [11].
The reasoning turns on procedure. Article 388 of the Commercial Act provides that directors' compensation is determined by a shareholder resolution when the articles of incorporation do not fix the amount [8]. The court said the article "is a mandatory provision intended to prevent the harm of directors pursuing personal gain in connection with their own compensation and to protect the interests of the company and its shareholders" [12]. It added that a director cannot exercise a right to claim compensation "unless there is a basis for finding that a shareholder resolution was adopted on the amount, method and timing of payment" [13]. Separate litigation voided the 2023 and 2024 resolutions for defective adoption [10]. Hong's claim came to about 8.9 times a ceiling that no longer existed [4].
Namyang did more than defend. It filed a counterclaim for compensation already paid to Hong [18], arguing that money disbursed without a lawful resolution never had a legal basis and amounted to unjust enrichment [7]. The court agreed, and the sum it ordered returned is about 2.6% of what Hong had sued for [3][2]. The report does not say which pay periods that money covers.
Chung Ho-sung, one of the Yulchon Hwawoo lawyers who acted for the company [6], said the decision "reaffirmed the legal reasoning of existing Supreme Court precedent that put the brakes on so-called self-dealing pay" [15]. He added, "It made clear that even after long service at a company, severance pay cannot be claimed without a lawful shareholder resolution" [16].
In my view this is narrower than a general rule that Korean executive pay is now recoverable. The order rests on two resolutions already annulled in other proceedings [10] and on the finding that pay disbursed without a lawful resolution must be returned as unjust enrichment [14]. A company whose meetings were properly carried faces no such claim. Chung framed the wider point as one of procedure, saying the ruling "is significant in emphasizing that directors' compensation at a listed company cannot be set by the controlling shareholder's will alone, but must reflect shareholders' will through lawful procedure" [17]. Both sides are now at the second instance [4]. I would expect Namyang's appeal to concern the size of the repayment.
What to watch
- Whether the second-instance court keeps the unjust enrichment order and whether the repayment figure rises or is set aside.
- Whether Namyang convenes a shareholder meeting to pass a director pay resolution that survives challenge.
- Whether other Korean companies with annulled pay resolutions file counterclaims against former directors.