“In the end, it means we won’t receive any money.”
Sellers at Balaan, who were anxious due to delays in payment settlements, were devastated upon seeing a notice from CEO Choi Hyung-rok on the morning of the 28th. This was because there were only excuses, and no concrete plans on when they would receive their settlements.
The controversy over unpaid seller settlements at Balaan, which holds the largest market share in the domestic online luxury goods transaction platform sector, shows signs of prolonged duration. Balaan has not been able to provide settlements to sellers since the 24th. In a notice on the 25th, the company stated it had discovered a "transaction" calculation system error and would reveal a new settlement plan on the 28th after recalculation.
However, on the promised 28th, Balaan once again postponed the announcement of its payment plan. CEO Choi Hyung-rok expressed regret over the settlement delay in the notice that day, saying, "I apologize for causing concern over the delay in settlements. We will finalize the implementation plan within this week and meet with you (the sellers) next week to explain the circumstances and future plans."
Concerns are growing in the industry that Balaan, which has completely depleted its capital, is facing a liquidity crisis, raising fears of a recurrence of the "T-Mon and WeMakePrice incident." The T-Mon incident refers to the case last year where e-commerce platforms T-Mon and WeMakePrice were unable to pay 1.3 trillion won in sales due to financial deterioration, impacting 48,000 companies.
Balaan's average monthly settlement amount is 30 billion won, with over 1,300 sellers. Currently, it is reported that several billions to tens of billions of won in settlements are frozen for each company. There are also suspicions that Balaan is preparing for corporate rehabilitation. The Fair Trade Commission stated it is monitoring the situation and is in contact with Balaan.
◇ "It’s just like T-Mon" sellers agitated over hundreds of billions unpaid
Balaan sellers have unanimously referred to the situation as a "mini T-Mon incident." They have started taking measures, such as halting product sales, considering that previous shopping platforms like Monogram, T-Mon, and Allets began with payment delays and ended up closing or entering corporate rehabilitation. Some sellers are reportedly preparing for legal action in case they do not receive their settlements in the future.
One seller who has not received payments from Balaan said, "Many people ask why we sold products on a platform in a state of capital depletion, but Balaan had the largest transaction volume and also claimed it would implement an escrow system."
According to Balaan's 2023 audit report submitted to the Financial Supervisory Service, Balaan has a total capital deficit of minus (-) 7.7 billion won, which signifies it is in a state of complete capital depletion. Consequently, Balaan has been pointed out by overseers for the uncertainty regarding its ongoing business viability.
Balaan has continuously attempted to secure funding, but it has faced difficulties attracting investments as concerns over the platform have increased due to a decrease in luxury demand and incidents like T-Mon. Ultimately, it reduced its corporate value from a peak of 300 billion won to around 20 billion won and successfully secured 15 billion won in conditional investment from SILICON2 last month. SILICON2's investment involves acquiring convertible bonds issued by Balaan in two installments of 7.5 billion won each.
According to the registration certificate, Balaan has received the first investment of 7.5 billion won from SILICON2. Many in the market believed that Balaan would use this funding for seller settlements.
However, as the payment of settlements is delayed, speculations arise that SILICON2 is directly managing Balaan’s financial disbursement, rendering it unable to use these funds, or that Balaan's financial situation has deteriorated to the extent that 7.5 billion won is insufficient to resolve the issue. Industry insiders report that Balaan's cash assets were around 1 billion won before SILICON2's investment. There are claims that Balaan's total capital was minus (-) 18 billion won last year, which is more than double compared to 2023.
On the 28th, CEO Choi Hyung-rok explained in a notice to sellers that "this (settlement delay) issue is not something that can be handled by independent decision-making; it is a necessary procedure that requires consultation and agreement with various stakeholders, including existing investors." This implies that Balaan is not in a situation where it can operate independently.
◇ Did it implement the promised escrow system or not?
A significant number of sellers have raised suspicions that the escrow system Balaan was supposed to implement last September has not been introduced. Escrow is a system that guarantees safe transactions for cash transactions, mandated by the Fair Trade Commission as of April 1, 2006. When a consumer makes a purchase, the payment is held by a third-party financial institution and is paid to sellers upon confirmation of customers’ purchases.
While Coupang, 11Street, and Gmarket use escrow, Balaan has reportedly directly managed payment amounts. The failure to implement an escrow system was also an issue in the massive unpaid settlement incident caused by T-Mon last year.
Balaan announced it would implement an escrow system in response to the escalating anxiety of sellers due to last year's large unpaid settlement incident at T-Mon. However, the PG (payment gateway) company Hyper-Corporation, which acts on behalf of Balaan's settlement services, stated on the 25th that they only provide infrastructure regarding Balaan's payment processing and do not directly participate in the settlement funds, which supports claims that Balaan still managed the settlement payments directly.
One Balaan seller lamented, "Many people wonder why I sold products on a platform in a state of capital depletion, but Balaan had the largest transaction volume and also claimed it would implement an escrow system."
There are also suspicions that Balaan is preparing for a rehabilitation process. This arose from claims made by a seller who attended a meeting at Balaan's headquarters on the 25th, where they allegedly saw a file labeled 'rehabilitation-related submitted materials' on the company computer screen. Despite various suspicions, Balaan has not provided any significant explanations.
Balaan plans to meet with sellers next week to disclose plans regarding payment delays. It is reported that the related schedule and methodology are currently under discussion. As stated by CEO Choi Hyung-rok in the notice, it is also known that they are considering changes to the company's management structure, including additional external funding.
Meanwhile, SILICON2, which recently invested in Balaan, claims it was not aware of the unpaid settlement issue in advance. At the shareholder meeting held the day before, SILICON2 stated, "We just became aware of this issue recently," and added, "Communication with (Balaan) management has not been smooth, and we will clarify our position through future disclosures." It is estimated that the cumulative investment amount Balaan has raised since 2017 is about 90 billion won.