The Supreme Court has ruled that former KT Chairman Hwang Chang-kyu and former KT CEO Koo Hyun-mo have some liability for damages to minority shareholders in connection with issues like “politician fund-splitting.” The Supreme Court’s 3rd Division overturned a lower court decision that did not recognize the liability for damages of Hwang and others, and remanded the case to the Suwon High Court.
In 2019, 35 minority shareholders of KT, who had held 33,676 shares for more than six months, filed a lawsuit for damages worth approximately 76.5 billion won against KT’s former management, claiming that Hwang and 11 others intentionally or negligently violated laws or neglected their duties, causing damage to KT.
They alleged that they were harmed by the overseas sale of Mugunghwa Satellite No. 3, cash contributions to the Mir Foundation, political fund creation and remittance by employees in the CR division responsible for external cooperation, and the KT Ahyeon station fire and changes in communications facility grading.
The minority shareholders claimed that former KT management caused damage by selling the strategic asset of Mugunghwa Satellite No. 3 to a company in Hong Kong without approval from the Korea Communications Commission and permission from the Minister of Knowledge Economy in April 2010. They also noted that Hwang made a decision to contribute 1.1 billion won to the establishment of the Mir Foundation upon the request of the Federation of Korean Industries in October 2015, resulting in damages.
Regarding the “politician fund-splitting,” they pointed out that from May 2014 to October 2017, Goo created a slush fund of about 330 million won by purchasing and reselling gift certificates and used it to support 99 members of the National Assembly. They also included in their claims the management issues arising from the fire at the KT Ahyeon station in Seoul in November 2018, after which the Minister of Science and ICT classified the station as a ‘critical communication facility (A-C level),’ although it was managed as a D-grade.
Both the first and second trial courts ruled that the former KT management was not liable for damages. The courts determined that the defendants had only been informed post-factum regarding the sale of Mugunghwa Satellite No. 3 and acknowledged that there was no specific review regarding the contributions to the Mir Foundation, but concluded that the evidence submitted was insufficient to claim dereliction of duty as a director.
The courts also found no evidence of political fund creation. They determined that although Goo’s involvement in remitting political funds constituted a violation of laws and dereliction of duty, the funds provided as political contributions were entirely returned to the company, absolving him of liability. They also stated that the former management cannot be held responsible for damages incurred from the Ahyeon station fire based merely on general supervisory responsibilities.
In contrast, the Supreme Court found that Hwang and Goo had partial liability for damages. It pointed out that CR division employees did not face any restraint or oversight from other employees, including Hwang and Goo, in creating the slush fund. The court noted, “Hwang, Goo, and other directors did not take steps such as confirming and inspecting the state of KT’s internal control system to prevent the creation of off-the-books funds through the cash conversion of gift certificates.” It determined that Hwang and Goo neglected their supervisory duties over the CR division employees’ execution of duties from May 2014, when the slush fund was created, and March 2016, when they were appointed as directors, until the slush fund creation ended in October 2017.