Court nullifies postponement of Daewoo bond repurchase

A court ruling has nullified the Financial Supervisory Commission`s (FSC) decision to allow investment trust companies to postpone the repurchase of beneficiary bonds, which include bonds that Daewoo Group floated since September 1998.

The court ruling paves the way for investors who suffered losses due to the FSC¡¯s postponement to claim damages.

In a compensation suit filed against Daewoo Securities, a trading company identified as ¡°Y¡±claimed that it suffered losses after the FSC allowed financial institutions to postpone the repurchase of beneficiary bonds in 1999, when Daewoo Group was facing a financial crisis. The Seoul District Court ruled in favor of the plaintiff Wednesday, ordering the securities company to pay the company 48 million won.

In the wake of the ruling, a series of similar suits are expected to be filed by investors who sustained losses because of the FSC¡¯s decision on Aug. 12, 1999 to limit the repurchase of beneficiary bonds

Noting that the FSC had lost its legal right to postpone the financiers¡¯ repayment of repurchase demands by holders of beneficiary bonds in accordance with the September 1998 revision of the Securities Investment Trust Business Law, the court said, ¡°Although the securities company received approval to postpone repayment from the FSC, this was relevant to the two institutions alone and cannot have an impact on transactions between the brokerage house and an investor.¡±

The court ruled, ¡°As Daewoo Securities belatedly repaid its customer on the grounds of the FSC¡¯s decision, thus disregarding its obligation to pay the repurchasing money, Daewoo must offer compensation for damages resulting from the payment postponement.¡±

Responding to the ruling, an FSC official said, ¡°Before the Securities Investment Trust Business Law was revised in September 1998, there was an article that allowed financial institutions to postpone payment for repurchases if they got due approval from the FSC in such cases such as natural disasters or market closure. The provisions concerning beneficiary bonds that have been sold so far are based on the old law, in other words before the revision. The court was obviously not aware of this fact and made a mistake by applying the revised law to this case.¡±