Supreme Court Rules Korea Zinc's Restriction of Young Poong's Voting Rights via Cross-Shareholding Is Unlawful

Supreme Court Rejects Korea Zinc’s Key Premise: “SMC Is Not a Subsidiary”

"Past Cross-Shareholding Voting Rights Restriction at Shareholders’ Meeting Ruled Invalid"

Korea Zinc has received a Supreme Court ruling that the company's move to restrict the voting rights of its largest shareholder, Young Poong, at a shareholders' meeting by leveraging its Australian affiliate Sun Metals Corporation (SMC), was unlawful.

According to legal sources on August 31, the Supreme Court on August 28 upheld the lower court's decision that SMC cannot be considered a subsidiary of Korea Zinc under the Commercial Act in a case involving voting rights restriction between Korea Zinc and Young Poong. This means that as SMC is not a subsidiary of Korea Zinc, Young Poong's voting rights cannot be restricted under the so-called "cross-shareholding restriction" stipulated in the Commercial Act.

Article 369(3) of the Commercial Act states that if a company, its parent company, or its subsidiary holds more than one-tenth of the total number of shares issued by another company, that company shall not have voting rights for any shares it holds in the company or its parent company.

While Chairman Choi Yoonbum of Korea Zinc, who is engaged in a management rights dispute with Young Poong and MBK Partners, sought to use this clause, he acquired a 10.33% stake in Young Poong through Korea Zinc's overseas affiliate SMC just before an extraordinary general meeting in January last year. Subsequently, the company argued that since its 'subsidiary' SMC held more than 10% of Young Poong, Young Poong's voting rights for its 25.42% stake in Korea Zinc should be restricted under the Commercial Act. The Supreme Court's latest decision rejected Korea Zinc's key premise that SMC is a subsidiary and thus deemed the restriction invalid.

This decision is particularly significant as it is also connected to an ongoing case under review by the Fair Trade Commission, which is examining Korea Zinc's use of overseas affiliates to create a circular shareholding structure. The commission has reportedly completed its report on whether Korea Zinc's actions, including its use of SMC and Sun Metals Holdings (SMH), constitute an illegal practice under the Fair Trade Act, and the issue is now pending a full committee review.

The Young Poong and MBK Partners side stated, "The Supreme Court ruling will also be crucial in the Fair Trade Commission's deliberation on whether Korea Zinc used overseas affiliates as indirect channels to undermine domestic legal order and shareholder rights," adding, "The need to appoint an independent audit committee member from management at Korea Zinc's extraordinary shareholders' meeting on September 9 has become even clearer."

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