[Source: Joongang Daily]

In the biggest civil lawsuit in Korean history, the Samsung Group was ordered last January 2008 to repay more than 2.33 trillion won ($2.46 billion) to the creditors of its failed automotive affiliate, Samsung Motor. The judgment was another setback for the country’s largest conglomerate, which is already mired in an independent prosecutor’s investigation into slush fund allegations.

In the aftermath of the 1997-1998 financial crisis, Samsung Motors applied for a court-administered debt restructuring program in June 1999, and Chairman Lee announced his plan to inject private money. Two months later, Samsung signed a deal with the creditors to cover a 2.45 trillion won debt by the end of 2000.

Under the agreement, Chairman Lee handed over his 3.5 million shares of the unlisted Samsung Life Insurance Co. to the creditors and promised to list the company. The insurance firm never went public, and creditors were unable to convert all their shares to cash due to the large volume. Of the 3.5 million shares, Seoul Guarantee Insurance managed to sell 1.16 million. The remainder of the shares is still with the creditors, and the amount still owed by Samsung is 1.63 trillion won.

After the 1999 deal, Samsung sold the failed automaker to Renault of France in 2000. Creditors filed suit in December 2005, claiming 5 trillion won including penalties.

In its ruling last January, the Seoul Central District Court ordered the company to repay 14 creditors of Samsung Motor, stemming from its 1999 collapse, plus accrued interest. Specifically, the court called for Samsung companies to cash out 2.3 million shares in its life insurance unit, which was part of the collateral Samsung Chairman Lee Kun-hee gave creditors, to raise 1.63 trillion won to pay the debt.

The court also added that if less than 1.63 trillion won is raised, Chairman Lee should sell more of his own shares in Samsung Life Insurance to make up for the rest.

The court also told Samsung to pay about 700 billion won in interest for its delayed repayment, based on 6 percent per annum. This is a significant reduction from 19 percent per annum, which is the default interest stipulated in 1999 agreement.

Samsung is expected to file an appeal by 28th of February 2008, the deadline date for filing the appeal. Creditors are also expected to appeal the ruling as the court lowered their claim from an initial request of 5 trillion won.