Will There Be Penalties for NewJeans Once They Leave HYBE?

The answer is yes.

In an article published by BusinessPost KR, it covered the possible outcomes for ADOR’s girl group NewJeans in the current HYBE vs Min Heejin battle. According to HYBE, ADOR CEO Min Heejin is not responding to the audit and is requesting attendance and return of assets. On the 22nd, HYBE exercised its audit rights because ADOR, including Min Heejin herself, decided that they wanted to seize management rights.

To recap, HYBE hired Min Heejin as Chief Brand Officer in 2019, and Min worked together on a girl group project scheduled to be launched by Big Hit and its label Source Music. Min Heejin exceeded 500 million won in annual salary just one year after joining the company in 2020, and she is also the first female executive among the four major entertainment companies in Korea to exceed 500 million won in annual salary.

HYBE owns 80% of ADOR’s shares, so it will likely proceed with legal procedures such as an extraordinary general meeting of shareholders to dismiss Min Heejin based on this.

However, due to the ongoing ‘battle’, the entertainment industry believes that CEO Min is laying the groundwork to take responsibility for terminating the contract as there is a high possibility that she will have to pay a large penalty to establish a separate corporation once they plan to terminate the contract of NewJeans from HYBE.

Given that HYBE is the largest shareholder, there is a presumption that Min Heejin can solve the penalty problem by receiving investment from overseas investors in the process of establishing a new corporation, but the penalty is not trivial.

Technically, NewJeans is still under HYBE and they still have 5 years under the contract. Yet, once CEO Min decides to separate the girl group from the bigger company, there will be a huge penalty. According to the Fair Trade Commission's standard exclusive contract, the penalty is calculated as the average monthly sales for the previous two years as of the time of contract termination multiplied by the number of months remaining in the contract.

Even though NewJeans recovered all of its investment and received settlement within two months after its debut and the remaining contract period is still yet to end, the amount of the penalty is likely to exceed hundreds of billions of won.

An official in the entertainment industry said, “The cost usually invested in girl groups varies depending on the agency, but I know it is at least 7 to 10 billion won.”

Even if the average monthly profit at the start of debut was at least 3.5 billion won, a simple calculation using the standard exclusive contract yields 210 billion won.

Netizens react to this news:

• NewJeans’ expected revenue in the next 5 years is at least 210 billion won.
• Honestly, no one in their right mind would leave HYBE.
• I want to see New Jeans for a long time. I support and like the members so much.
• NewJeans can’t seem to leave HYBE.
• The penalty is hundreds of billions of won and they can’t use the name NewJeans or the songs, but I don’t think any crazy investors will invest in them.
• Why do news stories keep coming out when NewJeans is coming back?
• I think it's a good thing that the members and their parents didn't officially express their position.
• At this point, there are a lot of people who want NewJeans to fail.

Meanwhile, NewJeans’ comeback is still scheduled for May.

Source (1) (2)