Court Rules Korea Zinc's Restriction of Young Poong's Voting Rights at Extraordinary Shareholders’ Meeting Was Illegal

"Use of Overseas Subsidiary to Defend Existing Management Control"


Court Orders Park Gideok, CEO of Korea Zinc, to Pay 100 Million Won in Damages

The court has ruled that Korea Zinc's act of restricting the voting rights of its largest shareholder, Young Poong, at an extraordinary shareholders’ meeting in January 2025 constituted an illegal act. Park Gideok, the CEO of Korea Zinc who chaired the meeting at the time, has been found liable for damages of 100 million won.

According to investment banking (IB) industry sources and legal circles on July 13, the Seoul Central District Court's Civil Division 17 (Presiding Judge Jang Ji-hye) ruled in favor of Young Poong in a damages suit filed against CEO Park. The court ordered Park to pay 100 million won plus delayed interest.

Prior to the extraordinary shareholders’ meeting, Korea Zinc established a cross-shareholding relationship through its Australian affiliate SMC, and then restricted Young Poong's voting rights based on Article 369, Paragraph 3 of the Commercial Act. Cross-shareholding refers to a relationship where two companies hold shares in each other, and under the Commercial Act, voting rights may be restricted in certain cases.

However, the court determined that SMC had a closed structure, with restrictions on share transfers, number of shareholders, and listing, making it difficult to regard SMC as a joint-stock company or even a similar entity under Korean law. Therefore, SMC does not qualify as a "subsidiary" as defined by the relevant provision, and the act of restricting Young Poong's voting rights on such grounds was deemed illegal.

Young Poong and MBK Partners interpreted the ruling as highly significant, noting, “This is the first substantive civil ruling to not only recognize the illegality of restricting voting rights, as in previous injunction decisions, but also to acknowledge the existence of an illegal act and liability for damages.”

According to the judgment, Korea Zinc considered acquiring cross-shareholdings through SMC as a means to defend the management rights of the existing executives. CEO Park also testified that the voting rights restriction was part of the management defense strategy.

The court found that Park, as both CEO of Korea Zinc and director of SMC, was directly involved in the process of forming the cross-shareholding relationship and restricting voting rights. He had the time and opportunity to review the legal issues and consequences, and could have recognized the potential infringement of shareholders’ rights, yet proceeded to restrict voting rights. On this basis, the court acknowledged Park's intentional illegal act and liability for damages.

The court further determined that the restriction of voting rights was not a mere procedural defect, but an act that had a significant impact on the outcome of the shareholders’ meeting. The court judged that, had Young Poong been able to exercise its voting rights, it was highly likely that the proposals to set a cap on the number of directors and to appoint outside directors recommended by Korea Zinc would not have been approved.

Another factor in the court's decision was that, although Young Poong requested a postponement of the meeting and a legal review, Korea Zinc refused these requests and proceeded with the meeting without providing a substantive opportunity to review or respond to the legality of the restriction on voting rights.

Young Poong and MBK Partners stated, “This ruling is not merely about 100 million won in damages, but is a clear confirmation by the court that it is not permissible to artificially restrict the voting rights of the largest shareholder under the pretext of defending management rights, and that management who lead such illegal acts will be held legally responsible.”

They added, “This decision not only reconfirms the principle of shareholder equality and that voting rights are the most fundamental rights under corporate law, but also sets an important standard that any act of infringing on the largest shareholder's voting rights under the pretext of defending management rights cannot be justified. It therefore has significant implications for future corporate governance and shareholder rights protection.”

This content was produced with the assistance of AI translation services.