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E-Land Retail Files 3 Billion Won Lawsuit Against Jeongyookgak for Refund... Recovery Prospects Look Bleak

[비즈한국] E-Land Retail has garnered attention for filing a lawsuit against the food-tech startup Jeongyookgak to recover a down payment. It appears that E-Land Retail previously entered into a real estate sales contract to acquire Jeongyookgak's Gimpo factory, but the deal fell through. When they were unable to recover their down payment, they took legal action. However, with Jeongyookgak filing for corporate rehabilitation last month, the likelihood of E-Land Retail recovering the funds has significantly diminished.

Dispute During Jeongyookgak Gimpo Factory Sale, E-Land Retail Claims "Money Owed"

It has been confirmed that E-Land Retail filed a lawsuit for the return of purchase funds against Jeongyookgak, which is currently undergoing corporate rehabilitation, last October. A lawsuit for the return of purchase funds is a civil suit filed by a buyer to recover a down payment or interim payments already made when a contract is voided due to the seller's fault. This indicates that a real estate sales contract was signed between E-Land Retail and Jeongyookgak, and a dispute arose during the process.

According to BizHankook's coverage, E-Land Retail signed a purchase agreement with Jeongyookgak last year to acquire the latter's Gimpo factory. On July 12, 2024, E-Land Retail registered a "provisional registration of a claim for ownership transfer" on Jeongyookgak's Gimpo factory in Gochon-eup, Gimpo-si, Gyeonggi-do, citing a "purchase reservation."

Typically, such a provisional registration is set up after a real estate contract is signed and before the final payment, in order to prevent the seller from selling the property to a third party and to protect the buyer's down payment. It can be inferred that E-Land Retail had indeed agreed to purchase the factory and had already paid the down payment.

However, the deal appears to have been canceled. Roughly three months after setting the provisional registration, E-Land Retail filed a lawsuit against Jeongyookgak for the return of the purchase funds on October 29, 2024. The amount claimed by E-Land Retail (the value of the rights/interests claimed through the lawsuit) is 3 billion won. On November 11 of last year, E-Land Retail filed for a provisional seizure of Jeongyookgak's Gimpo factory, which the court granted on the 22nd. The amount subject to the provisional seizure is 3 billion won.

When asked about the basis for calculating the claim amount, E-Land Retail simply replied that it is "money that needs to be received," without providing further explanation.

The Gimpo factory that E-Land Retail intended to purchase is a four-story smart factory with a total floor area of approximately 15,700 square meters (about 4,750 pyeong). Jeongyookgak acquired the factory in December 2020 to expand its delivery services and began operations in 2021. Most of Jeongyookgak's meat and processed products were produced at this facility.

E-Land Retail's move to purchase the factory was likely driven by a desire to secure a stable supply chain for meat products. If E-Land Retail possesses its own meat processing line, it could supply livestock and processed foods to its discount chain, Kim’s Club, at lower prices. As offline retailers are increasingly focusing on expanding their fresh food offerings, E-Land Retail may have determined that aggressive investment in the livestock sector was key to competitiveness. However, the E-Land Group has not disclosed the specific reason for wanting to purchase the Jeongyookgak Gimpo factory.

Risk of Losing Billions in Down Payments, Financial Burden Increases Amid Emergency Management

E-Land Retail has recently been facing growing management concerns. Its 2024 consolidated revenue was 1.5649 trillion won with an operating profit of 30.1 billion won, down 0.4% and 41.9% respectively compared to the previous year. Due to continued poor performance, the company declared "emergency management" this May and embarked on intensive structural improvements, including personnel reorganization and the liquidation of underperforming stores.

While the company is fighting for cost-cutting, it now faces the potential loss of a multi-billion won down payment because the counterparty, Jeongyookgak, has entered corporate rehabilitation.

Jeongyookgak filed for the commencement of rehabilitation procedures with the Seoul Rehabilitation Court on July 4. Jeongyookgak, which gained industry attention in 2022 by acquiring ChorocMaeul from Daesang Holdings for 90 billion won, subsequently suffered from expanding operating losses and failed investment attraction, leading to a liquidity crisis. It is believed that their attempt to sell the Gimpo factory, considered their core asset, to E-Land Retail last year was due to the urgency of their funding needs.

As Jeongyookgak enters the rehabilitation process, E-Land Retail will not be able to immediately collect the judgment funds even if they win the lawsuit. The 3 billion won would be classified as a rehabilitation claim, subject to the repayment rate set out in the rehabilitation plan. Given that the repayment rate for rehabilitation claims in the case of TMON, recently acquired by Qoo10 (Oasis), was only 0.76%, analysts suggest that the amount E-Land Retail would actually recover could be negligible.

Kim Kwang-joong, director of Law Firm Hangeoreum and a corporate rehabilitation expert, explained, "Even if the lawsuit is won and the debt is confirmed at 3 billion won, it is categorized as a rehabilitation claim. A rehabilitation claim refers to debt originating from before the commencement of the (rehabilitation) proceedings. Since this lawsuit itself is based on causes prior to the commencement decision, it becomes a rehabilitation claim." He added, "Rehabilitation claims are settled according to the repayment rate. Practically speaking, there is almost no possibility of recovering the full 3 billion won."