This article was published on Feb. 21, 2025, at 5:37 p.m. on the ChosunBiz MoneyMove site.
The corporate rehabilitation sought by TERA SCIENCE's minority shareholder alliance and former management was rejected again due to failure to meet the application qualifications. The current management stated that they would accelerate the normalization of operations following this incident, but legal disputes are expected to intensify due to ongoing additional embezzlement and breach of trust allegations. TERA SCIENCE experienced a rapid surge in stock price as a lithium-themed stock before plummeting, and is currently under trading suspension.
On the 21st, investment bank (IB) industry sources reported that the Seoul Bankruptcy Court dismissed the rehabilitation procedure application submitted by TERA SCIENCE's minority shareholder alliance (including Mr. Choo and 47 others) on the 18th. This was the second attempt after the corporate rehabilitation procedure submitted to the Busan Bankruptcy Court in June 2024 was dismissed. The minority shareholder alliance has claimed that if they receive a preservation order for TERA SCIENCE's assets from the court through the rehabilitation procedure, they can verify contingent liabilities and conduct another external audit, and thereafter replace the board of directors in a proper manner to normalize the corporation.
The reason the second rehabilitation application was dismissed without review was simple: the applicants did not meet the qualifications. The rehabilitation application can be filed by shareholders and stakeholders who own more than one-tenth of the capital in stock or equity interests. They claimed to hold 9,709,961 shares, which corresponds to more than one-tenth of the shares held by TERA SCIENCE, and applied for the initiation of the rehabilitation procedure on Nov. 1, 2024. At that time, the total number of issued shares was 95,587,404, corresponding to 10.15%.
However, the situation changed when the current management decided on a third-party allocation of new shares worth 15 billion won on Dec. 13, 2024. They paid for the capital increase of 10,791,366 common shares on Dec. 23, which was listed on Jan. 8. The issuance price per share was 139 won, which was one-fifth of the stock price (654 won) before the trading suspension. As a result, the equity of the minority shareholders who applied for the rehabilitation procedure decreased to 9.12%. The minority shareholders and former management hurriedly filed for a ban on the issuance of new shares on Jan. 22, but it was dismissed.
As the situation unfolded, the conflict between the minority shareholder alliance, former management, and the current management is expected to intensify. The former management and the minority shareholder alliance have warned of a strong response, including criminal lawsuits, if the rehabilitation procedure is dismissed. They claim that the amount of embezzlement and breach of trust by the current management reaches 28.2 billion won. In October 2024, they submitted a complaint against the current management to the Seoul Metropolitan Police Agency.
The current management has also filed a counter-complaint against the former management on charges of breach of trust. They argue that the current crisis facing the company is due to the poor management of the former management, and opposed the rehabilitation procedure.
The former management who teamed up with minority shareholders to secure management rights is Kwon Soon-baek, CEO of Blooming Holdings. He sold the company to CDS Holdings, who are aligned with the current management, but unexpectedly became the largest shareholder again on Aug. 27, 2024, when CDS Holdings' shares were disposed of through a forced sale. However, he later relinquished his largest shareholder position to the WePlus Investment Association, the new shareholder, on Dec. 23 of the previous year.
In the midst of the conflict between both sides, the number of embezzlement and breach of trust-related lawsuits surrounding TERA SCIENCE is also increasing. TERA SCIENCE, which had the largest scale of related issues last year, has encountered additional embezzlement and breach of trust allegations this year. The company filed a complaint against Mr. Ha on the 19th regarding embezzlement allegations amounting to 16.9 billion won. Mr. Ha does not hold any position within TERA SCIENCE but has previously faced lawsuits for fraud and obstruction of business along with Mr. Ji-Seo Hyeon, the former CEO of TERA SCIENCE, and Ji's husband, Park Jeong-kyu.