[비즈한국] The management dispute between KOSDAQ-listed company CG Invites083790 and its founder, former Chairman Cho Joong-myung, is intensifying. CG Invites is a company founded in 2000 by former Chairman Cho, a former head of the Biotech Research Institute at LG Chem051910. New Lake Invites Investment, which participated in a paid-in capital increase in 2023, is currently the largest shareholder. At the core of the conflict are the control of its U.S. subsidiary, CG Pharmaceuticals (CGP), and the fulfillment of equity investment agreements. Both sides have entered into a legal battle over the CGP contract, valued at $100 million (approximately 140 billion KRW).
Recently, a U.S. court dismissed an injunction filed by CG Invites, and confusion is mounting as both sides have offered different interpretations of the result. While CG Invites claimed its legitimacy in the subsidiary's governance structure was recognized, former Chairman Cho’s side countered that the court reserved judgment for the main lawsuit. Attention is now focused on how this ruling will impact the outcome of the main proceedings.
“CGP Control Formally Recognized” vs. “Merely a Preliminary Judgment”
The conflict between the pharmaceutical developer CG Invites and its founder stems from the CGP spin-off agreement signed in February 2024. The spin-off of CGP was decided to facilitate efficient U.S. clinical trials for the pancreatic cancer drug "Ivaltinostat" currently under development. The core of the agreement was for former Chairman Cho to invest 6 billion KRW and for CG Invites to invest 4 billion KRW to secure 60% and 40% stakes, respectively.
However, the dispute began as both sides held conflicting views on whether the contract was being fulfilled. While former Chairman Cho claimed he had deposited the funds, CG Invites did not recognize the payment. As the conflict deepened, CG Invites also delayed its own funding. Lacking control over CGP, former Chairman Cho filed a $100 million damages suit against the CG Invites management in a U.S. federal court in October 2024. In response, CG Invites countered with an injunction and its own damages claims.
The result of the injunction filed by CG Invites against former Chairman Cho was recently released. On July 11 (local time), the Superior Court of California, County of Contra Costa, dismissed the application. However, CG Invites and former Chairman Cho presented opposing stances on the same result.
According to the court decision obtained by BizHankook, there were five main items in the injunction request. CG Invites demanded that former Chairman Cho's side: return CGP books, records, bank accounts, and assets; refrain from submitting CGP-related documents to the California Secretary of State; stop acting as CGP officers or directors; be barred from entering CGP business premises; and invalidate corporate information filings submitted between October 2024 and March 2025.
The injunction was dismissed because CG Invites failed to prove "irreparable harm," one of the requirements for the request. CG Invites argued, "Because former Chairman Cho's side did not provide CGP financial data, there were setbacks in submitting CG Invites' business reports, creating a risk of delisting from the KOSDAQ market." However, because this was submitted belatedly via a reply brief, it was not accepted under the principle of "not considering new evidence or arguments presented in a reply."
Management Dispute Prolongs Stock Price Decline; Impact of Ruling Remains to be Seen
In a notice to shareholders on July 18, CG Invites stated, "With this ruling, the controversy over the legal governance structure between us and CGP has been resolved. The U.S. court has officially confirmed that CGP is a subsidiary of CG Invites," adding, "This ruling will act very favorably in the main lawsuit (damages suit)." Conversely, former Chairman Cho criticized the company, stating, "CG Invites is misleading shareholders by announcing only selective phrases from the ruling. They have distorted it into a winning judgment that recognized the legitimacy of their governance," and added, "The dispute over CGP management control has not been resolved."
CG Invites claims it "proved the legitimacy of the CGP governance structure" because the court acknowledged that CG Invites is the sole shareholder of CGP. In its decision, the court noted that because CGP had never issued new shares and had not amended its articles of incorporation, control lies with CG Invites, which holds the initially issued 1 million shares. However, the court ruled that lawful control of CGP "depends on whether former Chairman Cho and CG Invites fulfilled the stock purchase agreement."
Former Chairman Cho Joong-myung's stance is different. His side countered, "This was merely a hypothetical and preliminary judgment for the purpose of the injunction hearing. The court did not prove or formally confirm the legitimacy of the governance structure," adding, "It explicitly reserved judgment on the merits regarding who holds management control of CGP."
Both sides also offered different interpretations of the validity of the spin-off agreement. CG Invites stated, "The court determined that the spin-off agreement signed in February 2024 is valid," adding, "We will take measures to ensure the agreement proceeds without setbacks." Conversely, former Chairman Cho's side countered, "The court did not judge the validity of the contract. It only viewed the fulfillment of the contract as a key issue," adding, "Whether the contract is valid or whether it has expired due to non-performance by one party must be addressed in the main lawsuit."
Meanwhile, the outcome of the main lawsuit is expected to affect business direction and investor confidence. As the management dispute drags on, CG Invites' stock price has taken a hit. The stock, which recorded an intraday high of 3,145 KRW on the KOSDAQ market on July 12, 2024, fell to 1,764 KRW as of August 7. A CG Invites official responded, "We have purchased 8.5 billion KRW worth of stock since October 2024 to defend the stock price and protect shareholders."