The conflict over Dong Sung Bio Pharm's corporate rehabilitation (court receivership) is intensifying. Dong Sung Bio Pharm is in a management rights dispute between former Chair Lee Yang-gu, son of the late founding chair Lee Seon-gyun, and his nephew, former CEO Na Won-gyun. In the process, Dong Sung Bio Pharm entered rehabilitation, and stakeholders are sharply divided over whether to continue the proceedings.
◇Rehabilitation plan to be submitted in Jan. next year
According to the pharmaceutical industry and according to legal sources on the 10th, the 11th Bankruptcy Division of the Seoul Bankruptcy Court (Presiding Judge Kim Ho-chun) recently decided to extend the deadline for Dong Sung Bio Pharm's rehabilitation plan submission from the 15th to Jan. 19 next year.
Earlier, former CEO Na Won-gyun's side filed for an extension of the submission period with the court on the 4th. A legal community source said, "It appears the extension was requested because the sale process of Dong Sung Bio Pharm is still underway."
Dong Sung Bio Pharm is currently pursuing a merger and acquisition (M&A) before court approval of the rehabilitation plan. The M&A is being conducted as a stalking-horse bid, with United Asset Management Company (UAMCO) as the preliminary acquirer, allowing a change to a final investor if another bidder presents better terms.
UAMCO is a public-leaning institution established with capital from commercial banks. Dong Sung Bio Pharm received letters of intent on the 5th and plans to close bid submissions on the 19th.
Dong Sung Bio Pharm's rehabilitation plan is expected to be submitted to the court after the M&A is carried out. Such plans typically outline how debt will be repaid, using the sale proceeds as funding. A Dong Sung Bio Pharm official said, "We can submit the rehabilitation plan only after the acquirer is confirmed."
◇If rehabilitation is terminated, the M&A is likely to fall through
Founded in 1957, Dong Sung Bio Pharm was led by former Chair Lee Yang-gu, the youngest of three sons and one daughter, after founding chair Lee Seon-gyun died in 2008.
Lee stepped down from the front line of management last year, and his nephew Na took over as CEO. With his nephew at the helm, Lee in April sold his 14% equity stake to the marketing firm Brand Refactoring for 12 billion won. At the time, Na held only a little over 4% of the company's equity.
Dong Sung Bio Pharm applied for rehabilitation with the court in May, citing a need to normalize management. Rehabilitation allows corporations with heavy debt to repay part of what they owe in installments under court supervision, with the rest forgiven. The court accepted this and initiated the proceedings. Former CEO Na and a third party, Kim In-su, were appointed as co-administrators.
Afterward, former CEO Na stepped down in September, and CEO Yoo Young-il of Dong Sung Bio Pharm took office. With the management changed, Dong Sung Bio Pharm said last month it would seek to end (terminate) the rehabilitation process. Brand Refactoring's side is said to hold the position that debt can be repaid by selling non-operating assets, among other methods. Na's side opposes terminating rehabilitation and is continuing with the M&A process.
The court has not yet decided whether to terminate Dong Sung Bio Pharm's rehabilitation. If termination is decided, the M&A process is expected to end. If termination is not granted, the existing rehabilitation proceedings will continue. The court plans to decide after reviewing opinions from creditors, the debtor, and the administrator.
A legal community source said, "The panel appears likely to determine whether there are grounds to terminate rehabilitation for Dong Sung Bio Pharm."