The embezzlement case involving Hong Won-sik, the former chairman of Namyang Dairy, is currently under investigation by prosecutors and going through legal proceedings. The main contents are as follows:

Case Overview

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1. Embezzlement and Breach of Trust Charges: Former chairman Hong Won-sik was accused of embezzling and breaching trust involving 20.1 billion KRW of company funds. In August 2024, Namyang Dairy filed a lawsuit against him. Prosecutors are investigating evidence of his personal use of company funds, which includes overseas trips, purchasing artworks, and personal use of corporate credit cards and vehicles¹²³.
2. Additional Charges: Prosecutors are also looking into allegations that Hong inflated distribution margins through intermediaries, causing a loss of approximately 17.1 billion KRW to the company. This investigation revealed that company funds were diverted to support family living expenses⁴.
3. Family and Employee Involvement: Hong’s family and former employees are also under investigation for embezzlement and breach of trust, with the related amount totaling 25.6 billion KRW⁴⁵.

Investigation Progress

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1. Search and Seizure and Summons: In October 2024, prosecutors searched Hong’s residence and the Namyang Dairy headquarters, subsequently summoning him for questioning as a suspect. Family members were also investigated, and some have reportedly admitted to the charges¹³.
2. Arrest and Indictment: In December 2024, Hong was arrested and indicted on charges of violating the Special Act on the Punishment of Specific Economic Crimes (embezzlement and breach of trust) among others⁴.
3. Ongoing Legal Battles: The legal dispute between Namyang Dairy and Hong continues. Since Han & Company acquired the management rights of Namyang Dairy, various conflicts, including lawsuits over severance pay, have persisted¹⁶.

Future Outlook

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The prosecution is currently reviewing the possibility of securing an arrest warrant, and additional investigations and legal proceedings are expected until the case is resolved. Namyang Dairy has stated it will strengthen internal management transparency and implement measures to prevent recurrence as a result of this incident⁵.

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Why Han & Company Acquired Management Rights of Namyang Dairy

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The reasons why Han & Company acquired the management rights of Namyang Dairy are as follows:

1. Background of Management Acquisition

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• Namyang Dairy suffered significant damage to its image due to controversies over sales pressure that began in 2013, consumer boycotts, and false claims regarding the COVID-19 prevention effect of its product “Bugars” in 2021⁷⁸.
• These issues led to a decline in the company’s market share and a deepening management crisis, prompting former owner Hong Won-sik to promise to step down from management responsibility⁹⁷.

2. Stock Sale Agreement

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• In May 2021, Hong Won-sik and his family entered into a stock sale agreement with Han & Company to sell 53.08% of their shares for 310.7 billion KRW⁹¹⁰.
• However, Hong raised objections to the terms of the contract and attempted to cancel the deal, leading Han & Company to take legal action¹¹⁸.

3. Legal Disputes and Final Judgment

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• Han & Company filed a lawsuit demanding contract compliance, and after more than two years of legal disputes, it finally won in January 2024 at the Supreme Court¹¹¹⁰.
• Following the Supreme Court ruling, Hong and his family were required to transfer their shares to Han & Company, making it the largest shareholder of Namyang Dairy⁹⁸.

4. Han & Company’s Strategy

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• Han & Company aims to normalize Namyang Dairy’s management by forming a new board of directors and strengthening internal management systems¹².
• Additionally, it is implementing management measures emphasizing ethical management and transparency to regain consumer trust and improve corporate image¹².

Han & Company’s acquisition of management rights marks the end of Namyang Dairy’s long-standing family ownership structure and a transition to a professional management system, which is viewed as a crucial step towards the company’s reconstruction and restoration of competitiveness.

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What Has Former Chairman Hong Been Doing After Retirement?

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Hong Won-sik, the former chairman of Namyang Dairy, has been engaged in various activities following his retirement, as detailed below:

1. Establishment of Personal Corporation and Business Revival

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• In early 2024, Hong founded a personal corporation named “Namyang Deokjeong LLC.” This corporation started with a capital of 300 million KRW, focusing on the manufacturing of coffee, beverages, and food products¹³¹⁴.
• There are speculations that he might re-enter the beverage industry similar to Namyang Dairy, with mentions of possible trademark disputes related to the name “Namyang”¹⁴.

2. Severance Pay Lawsuit

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• Hong has filed a lawsuit against Namyang Dairy demanding the payment of approximately 44.3 billion KRW in severance pay. This seems to be a response to the cancellation of the previous severance pay calculation¹³¹⁵.
• Namyang Dairy has indicated it would take legal action against Hong’s demands, prolonging the conflict¹⁵.

3. Legal Disputes

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• Even after the management rights dispute with Han & Company concluded, several lawsuits continue. Hong has been sued for damages by Han & Company, and he is also facing legal conflicts over the return of deposit money from Daewoo Holdings¹³¹⁵.

Despite preparing for a revival in the beverage business post-retirement, Hong is simultaneously dealing with ongoing legal disputes with Namyang Dairy and related companies.

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