The government is pushing to broaden the base with startup programs, but personal liability for founders arising from past investment contracts is emerging as a variable in attempts to try again.
The government says participation is possible as long as one is not under financial sector restrictions, but the startup industry is raising concerns that liabilities stemming from past founding histories could affect a new attempt.
On the 20th, according to the startup industry and legal circles, the Supreme Court's Second Division (Presiding Justice Eom Sang-pil) dismissed an appeal in a suit by Shinhan Capital seeking payment under an agreement against Urbanbase CEO Ha Jin-woo and finalized a ruling ordering Ha to pay Shinhan Capital about 1.3 billion won.
Proptech startup Urbanbase entered corporate rehabilitation at the end of 2023 as market contraction and a delayed KOSDAQ listing converged.
Early investor Shinhan Capital exercised a put option on redeemable convertible preferred shares (RCPS), citing the fact that the largest shareholder, CEO Ha, directly signed the investment contract as an interested party. RCPS are preferred shares with rights that allow investors, under certain conditions, to convert the shares into common stock or have their investment returned.
The contract included a clause allowing a claim against the CEO personally for the investment principal of 500 million won plus 15% annual compound interest if rehabilitation proceedings begin. The courts of first and second instance found that, regardless of whether there was fault, the mere fact of signing as an interested party gave rise to a contractual obligation to pay the share repurchase price.
After the ruling, industry attention turned to how personal liability under investment contracts—akin to joint and several liability for founders—would affect participation in the Ministry of SMEs and Startups (MSS) program "Startup for All." Startup for All is a state-supported startup talent development project that allows anyone with an idea to take a shot at founding; those subject to restrictions due to default to financial institutions, etc., face eligibility limits.
The Ministry of SMEs and Startups (MSS) holds the view that even if there are funds that must be repaid immediately, one can proceed with Startup for All as long as one is not under financial sector restrictions due to legal collection, compulsory execution, or long-term arrears. However, the startup industry remains concerned that if debt issues materialize during the process, whether eligibility can be maintained could become a variable.
To reduce the burden on founders, authorities are pursuing institutional improvements to ban joint and several liability, but the amendment to the Specialized Credit Finance Business Act has not yet passed the National Assembly. The Financial Services Commission also said it would underscore the ban on joint and several liability for individual founders and steer away from related practices, but on the ground, change has not been felt.
A startup official said, "If personal liability arising from past investment contracts continues to follow you while saying re-founding is encouraged, it will not be easy for founders to try again," adding, "Founders with failure experience may find the system even less accessible."
Ha is understood to lack the capacity to repay the debt, which has grown to about 1.3 billion won. With the court's final decision now out, Shinhan Capital says it will watch whether Ha fulfills repayment. It is said to hold the view that past contracts must also be performed.
An official at the Ministry of SMEs and Startups (MSS) explained, "As Startup for All moves into full swing, if specific cases arise, we will review response directions accordingly."