November 22, 2024

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Hyosung Group's headquarters in Seoul (Yonhap)

Earlier this month, Cho Hyun-moon, the second son of late Hyosung Group Chairman Cho Suck-rai, held a surprise press conference to announce his intention to donate his entire inheritance, worth about 100 billion won ($72 million), to a public foundation.

Cho, a former Hyosung executive, has remained estranged from the founding family since he was engaged in a high-profile succession battle with his brothers – Cho Hyun-joon, the eldest, and Cho Hyun-sang, the youngest, in 2014. Currently, the brothers serve as the group’s chairman and vice chairman, respectively.

“By donating the entire inheritance to the foundation, I aim to create a precedent for it to be used for the benefit of the country and society. I believe that other co-heirs will also cooperate in establishing this public interest foundation,” Cho said during the press conference, asking for help from his brothers to set up the foundation and dispose of his inherited shares.

“My greatest wish is to be completely free from Hyosung.”

Olive branch in disguise

The estranged brother seemingly extending an olive branch comes as the Korean chemical, textile and construction conglomerate revamps its ownership structure following the Hyosung patriarch’s death in March this year. Under the scheme, the group will be split into two holding companies – Hyosung Co. and HS Hyosung Co. – to be independently managed by Cho Hyun-joon and Hyun-sang, respectively. A thorough review is also underway to evaluate the assets owned by their affiliated companies before the division.

The second brother owns inherited shares in key affiliates, including Hyosung T&C, Hyosung Heavy Industries and Hyosung Chemical. Even though the estimated amount is only 1-3 percent for each subsidiary, industry watchers believe the soured relationship among the brothers could negatively affect the planned ownership division.

Two weeks have passed since the press conference, but the brothers have remained mum on the issue.

"We respect and appreciate the intention to honor our late chairman's wishes," a Hyosung official said. "However, it has already been three months since the funeral of the honorary chairman, and we are disappointed to learn that Cho Hyun-moon has not personally visited or met with his surviving mother," he added.

The official also said that exchanging proposals through lawyers and making them public without meeting with family members in person is likely not what the former chairman would have wanted, insisting that the family appears to be considering sincere ways to achieve peace and harmony through this period.

Massive inheritance tax

Oh Il-sun, head of Korea CXO Institute, a chaebol tracker here, says Hyun-moon should have been pressured to shoulder the massive inheritance tax, about 50 percent of the inherited fortune. In Korea, wealthy families prefer to set up a public foundation with inherited fortune to get tax cuts.

"If it were not for the inheritance tax in the first place, there is no reason for him to address this issue so hastily,” he said.

Oh suggested that his brothers accept the proposal and help him reduce his tax burden.

“Even a tiny stake (owned by Hyun-moon) could rekindle disputes within the family, putting the burden on the group’s management,” he said, adding that talks may have been underway among them to resolve the issue as soon as possible.

All three brothers must pay inheritance tax within six months of their father’s death, which means the deadline is the end of September. After that, they could face additional costs for the delay.

On July 5, Hyun-moon denied speculations about his possible attempt to evade paying the tax, saying he would spend a sizable amount to set up the foundation.

Decade-long dispute

The conflict among the three brothers traces back to 2014, when Hyun-moon, who joined the management later than his two siblings, provoked his brothers after being sidelined in the succession scheme.

During that year, he accused his older brother Hyun-joon and some key executives of embezzlement and breach of trust, leading to years of legal battles.

Then in March 2017, the older brother in return sued Hyun-moon for allegations of attempted extortion and threats. The prosecutors indicted Hyun-moon in 2022, accepting the oldest son’s claims. The case is still ongoing, with the most recent court hearing -- the eighth -- held last week.

Through the years of conflict, Hyun-moon had sold all his shares and exited the company's management, relocating to Singapore. He has since established and operates the private equity firm Inheritance Enterprises, valued at 60 billion won, of which he owns 100 percent.

But the family discord once again became public during their father's funeral in March. The second son was notably absent from the list of surviving family members and only made a brief five-minute visit to the mortuary.

By Kim Hae-yeon (hykim@heraldcorp.com)