Exclusive
Dong-A Construction 2nd-gen leader Kim Se-joon resigns as CEO just 2 weeks after taking office, as firm faces court receivership

[비즈한국] It has been confirmed that Kim Se-joon, the second-generation owner of Dong-A Construction, has recently stepped down as CEO as the company faces court receivership (corporate rehabilitation). The "Kim Se-joon era" at Dong-A Construction, which set sail at the end of last year with the heavy mandate of improving the company's finances, has run aground after hitting the reef of court receivership just two weeks later. Initially, following the company's application for court receivership immediately after his inauguration, Kim was considered a candidate for the role of "existing management receiver." However, this role has ultimately fallen to his father, Chairman Kim Yong-sun, who is a co-CEO.

According to the construction industry, 40-year-old Kim Se-joon, the second-generation owner, resigned from his position as CEO of Dong-A Construction on the 9th, three days after the company filed for corporate rehabilitation with the court. Previously, on December 26 last year, Dong-A Construction had appointed internal director Kim Se-joon as CEO. Kim is the son of the company's largest shareholder, Chairman Kim Yong-sun. He joined the company's executive ranks in 2018 as a director-equivalent and was promoted rapidly: to director in 2019, managing director in 2020, senior managing director in 2021, vice president in 2022, and president this year.

Dong-A Construction is a mid-sized builder ranked 58th in construction capacity. Established in 1977, the company has expanded its business over 47 years, focusing on public works and private housing projects under the "Familie" brand. It is well-known to the public as the construction company that built the 63 Building, a landmark in Seoul, and the LG Gwanghwamun Building. While it once ranked 28th in domestic contracting capacity, it fell to 58th in last year's Ministry of Land, Infrastructure and Transport evaluation, with its construction capacity estimated at 644.5 billion KRW.

The largest shareholder of Dong-A Construction is Chairman Kim Yong-sun, who held a 66.75% stake as of 2023. Although Dong-A Construction was once a subsidiary of the Dong-A Group, it was sold to Kim Yong-sun, then-CEO of Ilhae Construction, in 2001 during the group's dissolution following the arrest of Chairman Choi Soon-young in 1999. The remaining shares are currently held by his son, CEO Kim Se-joon (12.76%), and Ilhae Construction (18.94%). Ilhae Construction, where Chairman Kim once held shares and served as CEO, is currently confirmed to be undergoing liquidation.

Dong-A Construction currently stands at a crossroads of corporate rehabilitation. On the 6th, it filed an application for receivership with the Seoul Rehabilitation Court and is awaiting a decision on the commencement of the rehabilitation procedure. Court receivership occurs when a company's debt is so heavy that it cannot manage itself, prompting the court to appoint a third party to oversee all business operations. Dong-A Construction, which had been suffering from a liquidity shortage since 2022, filed for receivership after failing to repay 6 billion KRW in promissory notes at the end of last year.

In reality, the company's financial health, as shown in its books, has deteriorated significantly. According to audit reports, the debt-to-equity ratio surged from 229% in 2021 to 349% in 2022 and 429% in 2023. Due to rising raw material costs and a sluggish construction market, the cost-to-sales ratio spiked from 87% to 93% over the same period, and operating profit shrank from 33.6 billion KRW to 18.2 billion KRW. During this time, net debt (excluding cash equivalents) ballooned from 93.4 billion KRW to 427.3 billion KRW.

A Dong-A Construction official stated, "Due to a cash crunch caused by the worsening construction climate, our liquidity deteriorated to the point where we could not honor maturing promissory notes, leading to an initial default. We judged that self-rescue was impossible and filed for court receivership. We are currently awaiting the court's decision to commence." They added, "Until the decision, we are following the court’s asset freeze and comprehensive injunction orders. Afterward, we expect court-led procedures for business restructuring and debt preservation. We will make every effort to ensure no damage is caused to our subcontractors and hope to normalize operations through the rehabilitation approval process at an early date."

Kim Se-joon was originally mentioned as the "existing management receiver" for Dong-A Construction, as the company filed for receivership just 12 days after his inauguration. The Debtor-in-Possession (DIP) system allows the existing management of a company that has filed for receivership to remain in charge, provided they are appointed as receivers. It was introduced in 2006 to encourage business owners to file for receivership before the company reaches a point of no return. Currently, business owners can be subject to the DIP system unless there are issues such as embezzlement, breach of trust, or significant responsibility for mismanagement.

With Kim Se-joon’s resignation, the role of existing management receiver has fallen to his father, Chairman Kim Yong-sun. Chairman Kim took charge of the company's overall management as CEO after acquiring Dong-A Construction in September 2001. He stepped down from the CEO position at the end of his term in early 2022 but returned to the board and reclaimed the CEO seat the following year as the management crisis deepened. Later, when former Development Division head Woo Soo-young was appointed CEO, the company operated under a co-CEO system. At the end of last year, when his son, Kim Se-joon, took office as CEO and Woo resigned, the father-son co-CEO system was established.

Regarding Kim Se-joon's resignation, Dong-A Construction explained, "We understand the rehabilitation court notified us that there should only be one representative during the receivership period. Because (Kim Se-joon) was a co-CEO with Chairman Kim Yong-sun, his resignation was unavoidable."