Smilegate founder Kwon Hyuk-bin, chief vision officer (CVO), was ordered in the first trial of his divorce suit with his spouse, Ms. Lee, to partition assets worth about 2.55 trillion won. It is the largest amount ever among domestic divorce and asset-partitioning rulings made public.
Following its loss in the first trial in Apr. over a damages suit in the 100-billion-won range tied to a breach of an initial public offering (IPO) covenant, Smilegate also faced a ruling for a large asset partitioning in CVO Kwon's divorce suit, compounding legal headwinds inside and outside the company. Both cases could proceed to higher courts, so legal uncertainty is expected to continue for the time being.
◇ Corporate value and partitioning method at issue on appeal
On the 9th, the Seoul Family Court's Domestic Affairs Panel Division 3 accepted the divorce petition filed by spouse Ms. Lee against CVO Kwon. However, it dismissed the claim for consolation money, finding both sides equally responsible for the breakdown of the marriage. It set the contribution to asset formation at 65% for CVO Kwon and 35% for Ms. Lee. Accordingly, it ordered CVO Kwon to transfer 35% of the Smilegate shares he holds to Ms. Lee and pay 65 billion won in cash.
CVO Kwon's net assets recognized by the court amount to about 7.3375 trillion won, of which Smilegate shares account for 96.8%. The value of the Smilegate shares held by CVO Kwon was calculated at about 7.1049 trillion won. The value of the 35% in shares that Ms. Lee will receive is about 2.4867 trillion won. Adding 65 billion won in cash brings the total asset partitioning to about 2.55 trillion won.
Lee Cheol-woo, head attorney at Culture Law Office, said, "Given the recent trend of courts broadening the scope for recognizing marital breakdown, it does not appear likely that the very acceptance of the divorce claim will be overturned on appeal," adding, "However, Ms. Lee's contribution to asset formation, the asset-partitioning ratio, and the in-kind partitioning of shares could change in the higher court."
On appeal, there is a possibility that the value of the shares will be recalculated to reflect changes in Smilegate's performance. This is because, in principle, the value of assets subject to asset partitioning is assessed as of the date the fact-finding hearings conclude. Attorney Cho Deok-jae of law firm HIRO said, "Depending on game performance and other factors, the value of Smilegate shares at the close of appellate pleadings could differ," adding, "There is room for the contribution to asset formation and the partitioning method to be reassessed on appeal."
There is also a possibility that the first-trial decision ordering an in-kind transfer of 35% of the shares could be changed to another method such as a cash payment. Attorney Cho explained, "If CVO Kwon's side proves both the intent to pay in cash and the actual ability to raise funds, there is room for the partitioning method to change on appeal," while noting, "Given the sheer size of the partitioning under the current ruling, it will likely be difficult to secure that much cash."
◇ IPO and divorce suit both head to higher courts; legal uncertainty to drag on
Smilegate also lost in the first trial in Apr. in a suit in the 100-billion-won range over an alleged IPO covenant breach. The Seoul Central District Court ordered Smilegate to pay 100 billion won and default interest of 12% per year from Dec. 2023 in a damages and purchase price claim brought by Mirae Asset Securities against Smilegate. The dispute stemmed from an investment by Rhinos Asset Management, with Mirae Asset Securities, which brokered a convertible bond (CB) transaction, joining the suit as the plaintiff.
In 2017, Rhinos Asset Management acquired 20 billion won worth of CB issued by Smilegate RPG, contracting to pursue an IPO if net profit exceeded a certain level. After the success of "LOST ARK," when Rhinos requested an IPO push, Smilegate argued that the listing obligation had lapsed due to accounting losses under the adoption of Korea International Financial Reporting Standards (K-IFRS). But the court found that Smilegate met the contractual listing requirements and did not accept the company's argument.
Smilegate appealed the first-trial ruling. If the first-trial decision is upheld, annual default interest of 12 billion won will accrue on top of the 100 billion won principal. Concerns have also been raised that, beyond the financial burden, trust in contract performance could be damaged in future external fundraising and financing.
Because both cases stand only at the first-trial stage, legal uncertainty surrounding Smilegate is expected to persist for the time being. The IPO covenant suit has already entered the appellate stage, and CVO Kwon is also seen as likely to contest the divorce and asset-partitioning ruling.
It is also a variable that some issues in the two suits overlap. After the first-trial ruling in the IPO suit, Ms. Lee's side submitted a preparatory brief to the divorce court addressing the contribution to asset formation and the assessment of any breach of the principle of good faith in that ruling. In the IPO suit, Smilegate RPG's corporate value before the merger was presented as about 8.08 trillion won. However, the corporate value and facts found in the IPO suit do not legally bind the divorce suit.
Attorney Cho said, "Because these are different trials, the corporate valuation or fact-finding in one case does not apply as-is to the other," adding, "It can be a strong reference, but the IPO suit also has the limitation that it is not a final ruling." He continued, "It is more likely that the divorce panel considered that corporate value as one of several elements in assessing asset value rather than adopting it wholesale."
If both suits proceed to higher courts simultaneously, the 100-billion-won damages liability and the 2.55 trillion won asset-partitioning outcome may remain unsettled for a long time, prolonging uncertainty inside and outside the company. The IPO covenant suit poses a financial risk the company must bear directly, while the divorce suit is a factor that heightens management uncertainty through potential changes in CVO Kwon's equity stake.
Although the risk of a direct threat to management control is limited, some analysts say prolonged legal disputes could burden decision-making around investment and development. Attorney Lee said, "Even if the stake is split 65 to 35 as in the first-trial ruling, CVO Kwon would still hold a majority, so the chance of a direct impact on control is not high," adding, "However, there could be reputational issues outside the company or noise stemming from the lawsuits."
Lee Jae-hong, president of the Korea Game Policy Society, said, "Given the large scale of the asset partitioning, the dispute could drag on, similar to the case of Chey Tae-won, chairman of SK Group," adding, "Because games require investment over years, the longer the legal dispute lasts, the greater the uncertainty felt by executives, employees, and development teams will become, not only for decisions around investment and development."