[Edaily Marketin Hur Jieun Reporter] As Homeplus stands on the brink of having its restructuring proceedings terminated, the power struggle between its largest creditor, Meritz Financial, and its largest shareholder, MBK Partners, is reaching a fever pitch. As Meritz has drawn a line in the sand by demanding a personal guarantee from Chairman Kim Byung-ju—rather than from MBK as a corporate entity—as a condition for disbursing 100 billion won in DIP (debt-in-possession) financing, market attention is turning to the unique governance structure of private equity fund (PEF) managers and the limits of their legal liability.

According to the financial investment industry on the 29th, Meritz stated in a “Letter to Shareholders” posted on its website on the 26th that it would require a personal guarantee from Chairman Kim Byung-ju as a precondition for disbursing the DIP funding to Homeplus, adding, “We will not make any compromises or concessions.” This reiterates Meritz’s position that it cannot disburse the loan based solely on the corporate-level guarantee previously offered by MBK.

The reason Meritz is maintaining such a hardline stance lies in the financial structure of private equity funds. Typically, a private equity general partner (GP) is the entity that raises and manages a fund using capital from limited partners (LPs). Most of the profits generated from successful investments are distributed to the LPs, while the management fees and performance fees received by the GP are immediately spent on personnel and operating expenses. In other words, the structure does not allow the GP entity itself to accumulate large amounts of cash.

This structure of private equity funds increases uncertainty regarding Meritz’s future ability to recover its funds. If Homeplus were to undergo liquidation or bankruptcy proceedings in the future, even if MBK Partners provided a corporate guarantee, the company could resist repayment by claiming it has no remaining corporate funds or by invoking the principle of limited liability. In such a scenario, even Meritz—as a senior creditor—would likely face significant difficulties recovering funds from the corporate guarantee.

The situation changes if Chairman Kim Byung-ju personally provides a joint and several guarantee. In the event of ENPLUS’s bankruptcy, Meritz could bypass the barrier of limited liability and proceed with enforcement actions—such as debt collection and seizure—against Chairman Kim’s personal assets, his residence, and his overseas assets. In essence, what Meritz is demanding is not a mere promise but tangible collateral that can be reliably recovered.

However, there is no precedent worldwide for a founder or CEO to provide a personal guarantee for the debt of a portfolio company in which a private equity fund has invested. While there have been many instances in the history of global private equity—involving firms such as Kohlberg Kravis Roberts (KKR), Blackstone, and Carlyle—where portfolio companies have gone bankrupt, there are virtually no cases in which a third party provided a personal guarantee to assume responsibility for the debt of a portfolio company during such a process.

If the fact of the personal guarantee becomes public, the perception that “Korea is a market where GPs must provide personal guarantees” could spread among global LPs, potentially damaging the credibility of the entire Korean private equity ecosystem. This could even lead to the adverse effect of top domestic and international talent shunning Korean private equity firms in the future.

In fact, Meritz is well aware that the demand for a personal guarantee is unprecedented. Rather than viewing it as a condition that can actually be enforced, it is highly likely that they saw it as a strategic card to gain the upper hand in the public relations battle—to frame the situation as “MBK evaded responsibility to the very end” should Chairman Kim refuse. If the guarantee is ultimately impossible to secure, Meritz could use the rejection of the DIP loan as a pretext to reduce the risk of being sued by shareholders and junior creditors for breach of fiduciary duty.

An investment banking (IB) industry insider explained, “Demanding a personal guarantee from Chairman Kim is effectively tantamount to asking him to defy the structural principles of the private equity industry,” adding, “Although this demand is difficult to justify under legal and industry practices, public opinion is divided due to the moral context surrounding the Homeplus crisis.”