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LIN achieved a significant victory in the appeal court by overturning the initial trial court decision in the KRW 50 billion asset-backed commercial paper (the “ABCP”) case.
The case involved Hyundai Motor Securities’ losses due to its investment in the ABCP, with foreign private placement bonds as the underlying assets. Hyundai Motor Securities filed a lawsuit against two Korean securities firms (the “Defendants”) that sponsored and organized the issuance of the ABCP.
After the initial trial court dismissed the claim in its entirety, LIN joined as co-counsel of Hyundai Motor Securities for the appeal proceedings and successfully overturned the initial decision. The Appellate Court ruled in favor of Hyundai Motor Securities and held the Defendants liable for KRW 24.5 billion, representing 50% of the losses incurred.
In 2018, the Defendants sponsored and organized the private issuance of ABCP totaling approximately KRW 160 billion. The ABCP were based on foreign currency bonds issued by CERCG Capital and guaranteed by its Chinese parent company CERCG. Hyundai Motor Securities was one of the institutional investors that purchased the ABCP in the amount of approximately KRW 50 billion.
Unfortunately, just three days after the purchase, a corporate bond issued by another subsidiary of CERCG and guaranteed by CERCG defaulted on its payment. This default triggered the cross-default provision of the ABCP’s payment guarantee, ultimately leading to the ABCP being unable to be repaid on the due date. In light of these developments, Hyundai Motor Securities filed a claim for unjust enrichment and damages against the Defendants.
The trial court initially ruled in favor of the Defendants, resulting in no damages awarded to Hyundai Motor Securities. Following this outcome, LIN joined as co-counsel and pursued the case with a focus on reinforcing fiduciary duty and investor protection legal principles.
LIN placed particular emphasis on the sponsor’s obligation to exercise due diligence and conduct thorough investigations of the underlying assets, particularly considering that various circumstances indicated CERCG's poor financial condition prior to and at the time of the issuance of the ABCP.
In doing so, LIN highlighted the trust relationship that exists between sponsors and investors in securitization transactions and argued that failure to fulfill these obligations constitutes a tort under civil law. Such neglect not only puts investors at risk but also undermines the integrity of the securitization process.
The court concurred with our position and ordered the Defendants to pay KRW 24.5 billion, representing 50% of Hyundai Motor Securities’ losses resulting from their investment in the ABCP.
This court ruling has established a fundamental principle that financial institutions or sponsors responsible for the structuring of asset-backed securities must ensure that investors are safeguarded through proper due diligence on underlying assets and accurate provision of information. This principle applies equally to private placement transactions involving professional investors, with the extent and nature of the sponsor’s duty of care dependent on the specific circumstances and substance of the transaction.
Our Firm intends to contribute to the healthy development of the domestic capital market by establishing a fair and equitable legal doctrine for bona-fide institutional investors against sponsors or underwriters that fail to fulfill their obligation to protect investors by neglecting their due diligence responsibilities on the underlying assets. We believe that this ruling will help level the playing field for institutional investor plaintiffs, who often face a disadvantage when seeking to protect their rights and interests simply because they are deemed “professionals”.
If you have any inquiries regarding case, please contact below:
Hong Won LEE(hwlee@law-lin.com)
Yoon Min RAH(ymrah@law-lin.com)
Hyun Sang YOUN (US)(hsy@law-lin.com)
Chosunbiz, Ja Woon Noh
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https://biz.chosun.com/topics/law_firm/2023/02/22/A32OHTJEINDSFBQ5F3ON2D5DQI/
The case involved Hyundai Motor Securities’ losses due to its investment in the ABCP, with foreign private placement bonds as the underlying assets. Hyundai Motor Securities filed a lawsuit against two Korean securities firms (the “Defendants”) that sponsored and organized the issuance of the ABCP.
After the initial trial court dismissed the claim in its entirety, LIN joined as co-counsel of Hyundai Motor Securities for the appeal proceedings and successfully overturned the initial decision. The Appellate Court ruled in favor of Hyundai Motor Securities and held the Defendants liable for KRW 24.5 billion, representing 50% of the losses incurred.
In 2018, the Defendants sponsored and organized the private issuance of ABCP totaling approximately KRW 160 billion. The ABCP were based on foreign currency bonds issued by CERCG Capital and guaranteed by its Chinese parent company CERCG. Hyundai Motor Securities was one of the institutional investors that purchased the ABCP in the amount of approximately KRW 50 billion.
Unfortunately, just three days after the purchase, a corporate bond issued by another subsidiary of CERCG and guaranteed by CERCG defaulted on its payment. This default triggered the cross-default provision of the ABCP’s payment guarantee, ultimately leading to the ABCP being unable to be repaid on the due date. In light of these developments, Hyundai Motor Securities filed a claim for unjust enrichment and damages against the Defendants.
The trial court initially ruled in favor of the Defendants, resulting in no damages awarded to Hyundai Motor Securities. Following this outcome, LIN joined as co-counsel and pursued the case with a focus on reinforcing fiduciary duty and investor protection legal principles.
LIN placed particular emphasis on the sponsor’s obligation to exercise due diligence and conduct thorough investigations of the underlying assets, particularly considering that various circumstances indicated CERCG's poor financial condition prior to and at the time of the issuance of the ABCP.
In doing so, LIN highlighted the trust relationship that exists between sponsors and investors in securitization transactions and argued that failure to fulfill these obligations constitutes a tort under civil law. Such neglect not only puts investors at risk but also undermines the integrity of the securitization process.
The court concurred with our position and ordered the Defendants to pay KRW 24.5 billion, representing 50% of Hyundai Motor Securities’ losses resulting from their investment in the ABCP.
This court ruling has established a fundamental principle that financial institutions or sponsors responsible for the structuring of asset-backed securities must ensure that investors are safeguarded through proper due diligence on underlying assets and accurate provision of information. This principle applies equally to private placement transactions involving professional investors, with the extent and nature of the sponsor’s duty of care dependent on the specific circumstances and substance of the transaction.
Our Firm intends to contribute to the healthy development of the domestic capital market by establishing a fair and equitable legal doctrine for bona-fide institutional investors against sponsors or underwriters that fail to fulfill their obligation to protect investors by neglecting their due diligence responsibilities on the underlying assets. We believe that this ruling will help level the playing field for institutional investor plaintiffs, who often face a disadvantage when seeking to protect their rights and interests simply because they are deemed “professionals”.
If you have any inquiries regarding case, please contact below:
Hong Won LEE(hwlee@law-lin.com)
Yoon Min RAH(ymrah@law-lin.com)
Hyun Sang YOUN (US)(hsy@law-lin.com)
Chosunbiz, Ja Woon Noh
View original article▼
https://biz.chosun.com/topics/law_firm/2023/02/22/A32OHTJEINDSFBQ5F3ON2D5DQI/