South Korea’s activist fund Korea Corporate Governance Improvement (KCGI) filed a damage lawsuit against incumbent and former directors of Hanjin KAL, the parent company of Korean Air Lines, claiming the management decision of seeking short-term loan of 160 billion won ($134.6 million) caused unnecessary losses.

Grace Holdings, a KCGI’s subsidiary holding the second-largest ownership stake in Hanjin KAL, filed a suit with the Seoul Central District Court on Monday, demanding the company’s three directors including Hanjin Group Chairman Cho Won-tae compensate for the losses caused by unnecessary borrowing of 160 billion won at the end of last year.

KCGI said the directors who had approved the borrowing plan breached their fiduciary duty to shareholders and incurred unnecessary interest costs by taking out 160 billion won worth short-term loans at high borrowing rates in December last year from 10 financial institutions. The activist fund argued the borrowing was aimed at upping its assets to over 2 trillion won to set up an audit committee instead of appointing an outside auditor.

Hanjin Group refuted that it was a “normal management activity” to brace for rising uncertainties in the market.

It was the latest challenge waged by KCGI to the transportation conglomerate, after the Seoul-based activist fund took over a 9 percent stake in Hanjin KAL in November 2018 and ramped up its ownership to 16 percent to strengthen control and watch over the conglomerate’s governance as the second-largest shareholder. The fund has been upping its pressure on the group demanding improvement in transparent management.

Early this month, it joined a bid for the country’s second largest full-service carrier Asiana Airlines after Korean Air Lines in hopes of bringing about changes to the management of the country’s full-service airline industry long run by family owners.

By Han Woo-ram and Choi Mira

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]