Hyundai Motor Group chief Chung Mong-koo had his three-year jail sentence for fraud suspended by a South Korean appeals court on Thursday, leaving him free to run the world's sixth largest auto maker.

The decision not to jail South Korea's second-richest man eliminated concerns over a management vacuum at the company, which is facing a slowdown in overseas sales and increasing competition.

But the ruling could also revive a long-held debate on South Korea's powerful and controversial chaebol -- the family-run conglomerates which opponents say have been given special treatment owing to their importance to Asia's fourth-largest economy.

Hyundai Motor is the top enterprise because of its ripple effect on the whole economy. The accused, Chung Mong-koo, is a symbol of Hyundai Motor and our country's automobile industry, Lee Jae-hong, the presiding judge at the Seoul High Court, said while handing down the sentence.

I did ask many people, including restaurant waiters, taxi drivers and reporters. The ordinary people leaned toward a suspended sentence, he said. That means the accused should work hard.

Hyundai Motor shares rose as much as 2.2 percent on the ruling and closed 0.6 percent higher. The broader KOSPI ended up 1.2 percent.

Instead of a jail term, Chung was asked to pay an 840 billion won ($894.9 million) donation, previously pledged by the family, to deliver speeches about transparent management and to write essays about governance to be published in domestic media.

Although it suspended the term given in February by the Seoul Central District Court, the high court upheld the lower court's conviction of the chairman for breach of trust, embezzlement of company money and setting up slush funds.

GROWTH DRIVER

Investors had been concerned that uncertainties over Chung's legal battle could hamper Hyundai's expansion plans at home and abroad, even though brisk domestic sales and a smooth conclusion to this year's wage talks are brightening the outlook somewhat.

Hyundai Motor Group alone accounts for about 7 percent of South Korea's total exports and Chung is heavily involved in most decisions at the group.

Hyundai ranks among the biggest chaebols in South Korea - the family groups that helped rebuild the economy after the 1950-53 Korean War but were partly blamed for the financial crisis of the late 1990s.

Despite reforms brought in after the 1997-98 Asian financial crisis, some conglomerates are still run like family businesses, shifting money among group companies and using complex share ownership networks to control their businesses.

Proponents of reform of the chaebol system decried Thursday's high court decision as a step backwards.

This ruling is a violation of the judiciary's previously stated intent to vigorously fight white-collar crime, said Park Kun-yong, chief economy coordinator at People's Solidarity for Participatory Democracy, a major proponent of chaebol reform.

The decision completely invalidates the lower court's previous ruling, which was a warning aimed at the chaebol.

In a similar move, in 2004 a high court suspended a three-year jail term for fraud for the chief executive of SK Corp, the country's top oil refiner, so he could carry on running the company.

Chung, dressed in a severe dark grey suit, showed no emotion as the ruling was announced and quickly left the courthouse, flanked by his son Chung Eui-sun, himself president of Hyundai affiliate Kia Motors Corp.

Hyundai's charismatic chairman was arrested in April 2006 on allegations that Hyundai and its affiliates set up slush funds to pay for political favors. The chairman admitted last year to having a role in setting up the slush funds.

The lower court granted Chung $1 million bail to continue running Hyundai after he spent two months in jail.

(Additional reporting by Kim Yeon-hee, Rafael Nam and Jessica Kim)

South Korea