The Wall Street Journal-20080201-Samsung Dealt a Blow as Court Backs Car-Unit Creditors

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Samsung Dealt a Blow as Court Backs Car-Unit Creditors

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SEOUL, South Korea -- A South Korean court ruled that Samsung Group affiliates and its chairman must pay 2.3 trillion won ($2.44 billion) to creditors of Samsung's now-defunct car unit.

The ruling deals the latest blow to South Korea's largest conglomerate, which is already mired in a potential bribery and accounting scandal.

Yesterday's ruling by the Seoul Central District Court was on a disagreement over a payment plan between Samsung and the 14 creditors of Samsung Motors Inc., which went into court receivership in 1999. At the time, Samsung Chairman Lee Kun-hee gave the creditors nonlisted shares of another Samsung affiliate, Samsung Life Insurance, to cover their losses. Samsung was planning to list the life-insurance company by 2000 so the creditors could sell their shares and cash in. But that plan didn't work out, in part because of a regulatory debate on its listing, and Samsung Life remains unlisted. Samsung Motors was sold to Renault SA and is now called Renault Samsung Motors.

Samsung Motors creditors made an effort to sell their stake to foreign private-equity funds such as Newbridge Capital and Kohlberg Kravis Roberts & Co. but failed. The creditors filed the lawsuit against Mr. Lee and Samsung affiliates in 2005, seeking 4.7 trillion won of debt and interest.

The court ruled that Samsung affiliates were responsible for the debt if creditors weren't able to cash in their shares and called for the conglomerate to sell the remaining shares held by the creditors and provide the money "and interest" to them. If the sale of the shares isn't enough to pay off the debt, the court called for Mr. Lee himself to pay the rest using his 500,000 shares, as stated in the agreement with the creditors.

A Samsung Group spokesman said the company hasn't decided whether to appeal.

The ruling is another setback for Samsung Group, whose public image has suffered recently from potential scandals. A special prosecutor's team is investigating, among other things, whether the conglomerate created slush funds under its employees' names and used the money for bribes.